For stock and crypto traders, filing your taxes can be an annual nightmare. There isn’t really isn’t an easy way since you have to report each and every trade and the capital gains or losses incurred. Thankfully, many brokerages including Robinhood will provide you with the appropriate tax forms to help you in the process. So have you ever wondered what happens if you don’t file Robinhood taxes?

Filing taxes as a stock trader is just a part of the deal, unfortunately. If you neglect to file your taxes with the IRS then there can be some potentially stiff penalties heading your way. These can be anywhere from tax penalties to potential jail time if you have evaded taxes for a prolonged period of time. 

Skipping out on your taxes is nothing to laugh about. Trading stocks and crypto on Robinhood might be a fun way to make extra income, but if you aren’t honest about it with the IRS they have ways of finding out. If you are considering not reporting your Robinhood taxes to the IRS, read on to see what the consequences could potentially be!

What Happens If You Don’t File Robinhood Taxes?

Just because you are trading stocks or cryptocurrencies on your mobile phone, it does not make it any less legitimate. Remember that Robinhood is a legit brokerage like any other in America. Any trades or capital gains you make are reported to the IRS by Robinhood itself. So even if you don’t report them, Robinhood already has!

Robinhood came out of the GameStop short squeeze saga with a bit of a bad reputation. But remember that Robinhood is a publicly traded company. They have to go through all of the same reporting processes as JPMorgan or Morgan Stanley. Robinhood is fully regulated by the laws of the SEC and is a card-carrying member of FINRA. 

The translation: Robinhood abides by all tax laws in the United States. Let’s put aside their payment-for-order-flow system for a second. How they operate their brokerage is one thing, but how they report taxes is another. You might not agree with how they use your data but when it comes to taxes, Robinhood does not mess around! It is also unlikely that Robinhood will be going out of business anytime soon so you cannot just skip out on reporting your taxes!

Do I Need to Report Robinhood on Taxes if I Didn’t Make Any Money?

So here is where the differentiation between an investor and trader comes into play. You can buy stocks and cryptos, but if you didn’t sell them, then there weren’t any capital gains or losses made. That is when being a long-term investor certainly has its benefits. The second you start selling your trades within a year of buying them, then you will be subject to short-term capital gains taxes. 

As we know, the short-term capital gains tax is a much higher rate than the long-term capital gains tax. Now, you can make hundreds of trades and end the year with a loss. Just because you didn’t make any profits, it does not mean you do not have to report them on your taxes. The IRS will receive your trading activity from Robinhood and expect you to report these come tax season.

There are some stipulations to this rule. You could be making your trades in a non-taxable account like an IRA or ROTH IRA. If this is the case then your capital gains will not be taxed. If you are going to be making a lot of trades, consider using one of these retirement funds. You will probably be saving yourself a big headache when it comes time to file your taxes. 

What is a 1099 Form on Robinhood?

If you use Robinhood, and more than 20 million Americans do, you have likely received a 1099 form. This is a commonly used tax form by brokerages that provides you with your taxable investment income for the year. If you sold stocks, bonds, or other investment assets, you will likely receive a 1099-B form at the beginning of the year. 

This is a form that Robinhood provides to all of its users that have met a certain threshold. That threshold is earnings of $10.00 or more in dividends or less than $600.00 on free stocks. These amounts are so small that it is not worth Robinhood’s time to prepare a 1099 form. 

But that does not mean you do not have to report these gains or losses. Just because Robinhood does not provide a 1099 form, you are not off the hook! All investment income in a non-retirement fund needs to be reported to the IRS come tax season. The amounts might be minimal, but the IRS will still be expecting to see them when you file your taxes for the year. 

Related Financial Geek Post: 6 Ways You Can Immediately Contact Robinhood

What Happens If I Forget to Report Stocks on Taxes?

Firstly, you better have a good excuse for not reporting your stocks on your taxes! If you do forget to report your 1099 and the IRS finds out, they will send you a CP2000. What is a CP2000 form? It is an Underreported Income Notice. 

On this form, you can expect to see some additional tax penalties and even interest owed. Basically, if you get one of these, you are on the radar of the IRS. At this point, it is a good idea to get to file your taxes as soon as possible! 

The Bottom Line: What Happens If You Don’t File Robinhood Taxes?

As you can see, the potential penalties for not filing Robinhood taxes can be harsh. We are talking penalties, fines, interest, and even jail! Robinhood files all of your trades with the IRS so unless you are using an IRA or ROTH IRA, it is best to include your Robinhood stock trades on your taxes each year!

Hopefully, you found this helpful. Thanks for reading!

Geek, out!