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Thanks to advances in mobile finance, there are more Americans investing than ever before. One particularly prominent broker for retail investors is Robinhood.
Since investing can be complicated, many new traders might wonder if Robinhood reports their taxes to the IRS.
Robinhood reports your tax information to the IRS, but you still have to file directly. The platform will send tax forms to you and the IRS if you have any taxable events the previous year.
However, users should review these forms and must file them with the rest of their tax forms for the IRS.
Below, I will dive into what exactly Robinhood reports and the forms you should expect to receive from them. This article also explains how to find these forms and why you must report them to the IRS too.
What Robinhood Reports To The IRS
When you sign up with Robinhood, you provide quite a bit of information, including both your name and social security number.
Robinhood isn’t doing anything nefarious with this info. Instead, they use it to report your relevant tax information to the IRS.
If you have any taxable events, your broker sends out tax forms to you and the IRS detailing them. Usually early in the start of the new year, so users still have time to file.
Specifically, you’ll receive an IRS form 1099.
Robinhood has a 1099 form for ordinary securities, and another 1099 for cryptocurrency.
These forms detail virtually everything you invest in or trade through Robinhood. They also show what you should expect to pay based on your taxable events.
I will dive into what exactly the IRS considers taxable events on Robinhood in a little bit.
Why You Still Need To File With The IRS
Despite the IRS having your 1099 from Robinhood, you still must file your taxes directly or through a tax service.
There’s a couple of reasons for this.
First and foremost, deliberately failing to report taxable income and assets is a crime. Specifically, it’s tax evasion, a federal felony offense.
You undoubtedly want to avoid jail time and a criminal record. So, be sure to file all your necessary forms. The IRS will know if you fail to report profits from Robinhood since they have your 1099 already.
Thankfully, the IRS won’t necessarily assume tax evasion if you’re a new, small-scale investor. They may simply request that you refile.
Furthermore, you likely have other taxes to report outside of Robinhood.
Robinhood only knows about what you do on their platform. So, the form 1099 they provide is only part of your whole tax picture.
You can’t entirely calculate your taxes until you compile your other forms. So, it’s your responsibility to acquire and file them together.
However, you might wonder what exactly incurs taxes through Robinhood.
Or, more specifically, what is a taxable event?
What Incurs Taxes On Robinhood
New investors should understand how and when precisely the IRS taxes their Robinhood earnings.
Otherwise, they may find themselves scrambling to gather funds for unexpected costs come tax season.
Pretty much anything that makes you a profit is a taxable event. This includes money made actively from selling stock or passively from dividends.
Dividend taxes, in particular, might confuse new investors.
Unlike selling a stock for a profit, dividends are earned by simply owning a stock. You may even receive them without realizing it. After all, their payouts are relatively small.
For the IRS, dividends fall into two different tax categories: ordinary and qualified. Most investors prefer qualified dividends because the IRS will generally collect less tax on them.
However, not everything you do on Robinhood is taxed. Buying stock won’t directly incur taxes. Nor will holding shares for long periods.
These facts are why many wealthy people pay little in income taxes. Since taxes aren’t paid until you sell a security, some investors save on taxes through holding investments.
Profits on investments you currently own are unrealized gains and not touched by the IRS (at least as of now). But once you sell these stocks and realize your profits, Robinhood informs the IRS.
How To Access Tax Forms On Robinhood
If you’re new to Robinhood, you might now wonder: how can I find these tax forms?
No need to worry; this information is directly accessible 24/7 from the mobile app.
Follow these simple steps to find your tax forms on the app:
- Login to your Robinhood account via your mobile device (or desktop).
- Navigate to your profile. You can do this on mobile by clicking the tiny silhouette of a person in the bottom right corner of the screen.
- Select the menu in the top right corner of your profile page.
- Choose “Statements and History” from the list of options. You can also use this tab to see your trading and investment history.
- Finally, click on “Tax Documents.”
Voila! You should see a list of your Robinhood tax documents, assuming you’ve bought or sold at least $10 in stock or crypto.
Don’t be confused if you see two different documents for one year. That’s likely because you traded both stock AND cryptocurrency.
Robinhood has a different form specifically for crypto, the Robinhood Crypto IRS Form 1099. Conversely, you would receive just the Robinhood Securities IRS Form 1099 if you only sold securities.
Despite the differences, Robinhood reports both forms to the IRS. So, you need to file both.
Does Robinhood Automatically Take Out Taxes?
You now know that Robinhood will report your taxable events to the IRS. So even if you try not to, the taxman is likely to come looking for what’s due anyway.
But does Robinhood take out or withhold taxes on your profits?
Robinhood will not automatically collect taxes on behalf of the IRS. Nor will it withhold taxes from profits earned on its platform.
Instead, it only reports your trading history and profits. It’s entirely up to users to file and pay their share of taxes.
For many investors, Robinhood is a crucial tool for building wealth. The broker recently experienced an influx of new investors, driven both by the app’s broad accessibility and the COVID-19 pandemic.
When investing via Robinhood, you must do your due diligence regarding taxes. Especially since Robinhood already reports your taxable income from trading to the IRS.