Over the past year, stock and share trading apps – such as eToro, Trading 212 and Plus 500 have come to the forefront of the public psyche, like never before.
When a large group of Reddit users banded together to invest in video game retailer GameStop, we got a clear demonstration of just how easy it has become to invest in stocks and shares.
Stock investments are no longer limited to Wall Street traders. Today, anyone can invest their money in stocks from their phone, while on the go.
However, the tax implications of investing was one aspect of the GameStop story that did not receive much attention.
You may be one of the countless Irish people who invested in GameStop shares during January of 2021, and you may also be unaware of what this means your tax implications!
In short, if you got involved in trading, it is imperative that you understand your tax obligations.
So fear not! We've put together this handy guide on everything you need to know about tax if you're making a profit through trading apps.
I made a profit by selling shares. What do I need to know about tax?
If you are making a profit on your investment, you are required to declare it to Revenue for Capital Gains Tax (CGT).
CGT is a tax charged on the profit made on the disposal of any asset (including stocks and shares). The chargeable gain is normally the difference between the price that you paid for the asset and the price you sold it for.
It is important to remember that the app you used to trade stock and shares will not collect tax for the Irish government. Instead, it is the individual's responsibility to determine the taxes they owe.
The good news is that the first €1,270 you earn on your investment is exempt from tax. This is called the personal exemption amount. Any profit you make above this is taxed at 33% and it is important you file a tax return for each year you make a profit from investments.
When should I pay my CGT tax bill?
The CGT tax year is divided into two different periods:
- The "initial period " which runs from the 1 January to 30 November
- The "later period" which runs from the 1 December to 31 December
For disposals in the initial period CGT, payments must be paid by 15 December in the same tax year. CGT for disposals in the later period are due before 31 January in the following tax year.
31 October 2021 marks the deadline for filing following the year you made the gain.
The tax return is due on or before 31 October in the year following the year you made the gain.
On top of capital gains tax you may also be required to pay income tax, USC and PRSI if you earn a dividend on your investment.
It is important to note that this income is taxable under normal income tax rules and at the current rate of 20% and 40%.
The income you earn from your online investment is also subject to USC and PRSI charges. The standard rates for USC in Ireland for 2021 are 0.5% of the first €12,012; 2% of the next €8,675; 4.5% of the next 49,357; and 8% of any remaining balance.
Meanwhile, you pay 4% PRSI on what is known as "Reckonable income" which is made up of trading, professional and investment income.
My investment made a loss. Do I need to file a tax return?
Investments are risky in nature. As a result, making a loss is always a possibility when you invest money in stocks and shares.
Your loss is considered to be an 'allowable loss' if a gain on the same transaction would have been considered taxable. If you do incur an allowable loss through a trading app like eToro, Trading 212 or Plus 500, you can deduct it from any chargeable gains you make in the same tax year.
Carrying forward your capital losses is also a possibility. You can use them against capital gains that you may make in later years. You just need to make sure to include the carried forward loss in your CGT return for the later year.
It's important to note that if you don't have any chargeable gains during the same tax year in which you have made a loss, you will not have to include that loss in your tax return.
To find out more about how to file a tax returm check our Expenses you can claim if you're self-employed in Ireland Blog.
Can I claim any expenses against my investment tax bill?
Yes! You can claim a number of expenses to reduce your overall tax bill.
For example, if you pay accountancy, brokerage or legal fees that relate to your trading income, you can deduct these on your tax return.
There are also a range of other expenses – such as medical bills, tuition fees and e-worker tax relief – which can be claimed to minimise your tax bill. In fact, you may even be due to claim irish tax back!
Who can help me manage my investment tax requirements?
Making profits from stock investments can be pretty exciting.
You know what's not exciting?
Filing your tax return!
So if managing tricky tax forms sounds like the last thing you'd want to do, why not file with Taxback.com today?
We take the hassle out of filing your tax return.
Our Irish tax team will take care of the paperwork for you, help you claim your irish tax back and ensure you don't overpay on your tax bill.
File your Irish taxes the easy way
Why file with Taxback.com?
- Simple online process – no complicated forms
- We'll claim every tax entitlement you're due to minimise your tax bill
- Compliance with Revenue guaranteed
- 24/7 tax support through an account manager and Live Chat team