--- title: How a Robinhood newb got an $800k tax bill on $45k profit - The Hustle description: The wash sale rule prevents you from claiming losses on certain sales. And it can mean trouble if you don’t know about it. image: https://hs-sbup.thehustle.co/hubfs/The%20Hustle%20News/Assets/Images/1162874825-News-Brief_2021-09-08T011850.328Z.webp --- # How a Robinhood newb got an $800k tax bill on $45k profit ![Juliet Bennett Rylah](https://53.fs1.hubspotusercontent-na1.net/hubfs/53/assets/hubspot.com/web-team/WBZ/HubSpot%20Media/Blog%202021/Images/Nav/Optimized/TheHustle_Icon_Dark.svg) [Juliet Bennett Rylah](https://hs-sbup.thehustle.co/author/juliet-bennett-rylah) [Juliet Bennett Rylah Twitter profile ](https://twitter.com/JBRylah) Published: September 08, 2021 Updated: October 11, 2023 *Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images* ![How a Robinhood newb got an $800k tax bill on $45k profit](https://hs-sbup.thehustle.co/hs-fs/hubfs/The%20Hustle%20News/Assets/Images/1162874825-News-Brief_2021-09-08T011850.328Z.webp?width=595&height=400&name=1162874825-News-Brief_2021-09-08T011850.328Z.webp) Trading memestonks on your phone is all fun and games — that is, until you get slapped with an $800k tax bill. How? If inexperienced traders run afoul of the “wash sale rule,” taxes could outweigh gains. #### **A what sale?** A wash sale is when you sell a security at a loss, then buy it or a “[substantially identical](https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp)” security 30 days before or after the sale. The [wash sale rule](https://www.investopedia.com/terms/w/washsalerule.asp) means you can’t take a tax deduction on that loss. It’s to stop people from using wash sales to increase tax benefits, but you can trigger it without even knowing it exists. #### **Here’s how it works:** 1. You buy 100 shares at $10/share for $1k 2. Later, you sell them at $7/share for $700 — a loss of $300 3. The next week, you repurchase them at $6/share for $600 Due to the wash sale rule, that loss is added to the cost basis, meaning your $600 repurchase becomes $900. When you sell your shares again, your original loss is applied to the adjusted cost basis. That’s what you’ll use on your taxes. #### **So, how do you get an $800k tax bill?** That example’s an outlier, but the unidentified retail trader told financial advisor Brian Wruk he did it by going berserk on Robinhood, [per](https://www.forbes.com/sites/shaharziv/2021/03/26/robinhood-trader-may-face-800000-tax-bill/?sh=38968cc967c7) *Forbes*. The man opened a Robinhood account in 2020. He put up $30k, but Robinhood [gave](https://mullooly.net/800k-taxes-45k-profits/) him $90k on margin. He then did 10 to 50 trades daily. **He ultimately:** - [Generated ](https://twitter.com/courtranstrom/status/1375234012361396230?s=20)**$45m** (yep, *million*) in gross proceeds - Profited by **$45k** - Had **$1.4m** in capital gains tax - And a potential tax bill of **$800k+** “He booked a profit but was disallowed all the losses because he never once waited the 30 days on those stocks to book the loss,” Wruk said. And short-term gains are taxed like ordinary income. Yikes. The moral of the story: Let your stocks marinate at least 30 days, lest you become a cautionary tale! Topics: [Finance](https://hs-sbup.thehustle.co/tag/finance) [Stocks](https://hs-sbup.thehustle.co/tag/stocks) ## Follow us on social media prev next - ![Millions of Americans retired early. Now they want to work again](https://hs-sbup.thehustle.co/hubfs/The%20Hustle%20News/Assets/Images/1583684738-News-Brief_2022-03-31T233737.536Z.webp) ### Millions of Americans retired early. Now they want to work again - ![The Dow index got a makeover. What does it mean?](https://hs-sbup.thehustle.co/hubfs/The%20Hustle%20News/Assets/Images/994075186-image2.1.webp) ### The Dow index got a makeover. 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