New Traders Be Aware: The Taxman is Coming

Morgan Stanley reported growth of approximately 900,000 new self-directed accounts in the second half of 2020. Charles Schwab (which is now combined with TD Ameritrade) has been routinely breaking records for daily client trades, processing some 8 million daily. The online trading platform, Robinhood, which targets millennials and younger investors, saw 500,000 downloads in December alone. 

In all, a record 10 million new brokerage accounts were opened in 2020.

This is great news -- more people are investing and hopefully saving. But it also means more people will be factoring-in capital gains and losses for the first time when filing taxes. Many people will be blindsided by how complicated this can be. 

For active traders, the 1099s being sent by brokerage firms are sometimes 100+ pages long. Seeing this form for the first time can make any person's stomach drop, and might be particularly surprising for first-time traders on Robinhood -- since the company does not allow customers to trade in non-taxable accounts like IRAs. Robinhood has told customers that 1099s can be downloaded on February 16, and traders should start preparing now for some of the complexities -- and perhaps costs -- of filing.