Public is a newer investing app that has grown in popularity over the last few years. One of the main reasons behind this is that Public does not engage in payment for order flow, or "PFOF" for short.
This is the somewhat controversial practice of brokerages earning a kickback for sending orders to certain market makers.
Just like with any other investment account out there, Public reports your trading activity to the IRS.
If you earned any dividends within Public, or traded any stocks, you will have to document this on your tax return. Public will be sending you all of your tax documents electronically.
Keep in mind, Public will not be mailing any paper copies of the tax documents.
You will have to retrieve them within the app and either print copies or email them to your tax preparer.
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In a regular taxable brokerage account, any sell trades resulting in a gain or loss will incur a taxable event. Since Public only offers taxable brokerage accounts, this will be the case with your Public account.
If you profit on the sale of the security it will result in a capital gain.
If there is a loss then you will have a capital loss.
There will be tax implications either way. Capital gains are subject to taxation, and capital losses can be used to offset gains or even offset ordinary income as a write-off.
First, all capital losses are used to offset capital gains, assuming there are excess gains then you will have to pay taxes on that income.
If you had $5,000 of capital gains and $3,000 of capital losses, you would now have just $2,000 of capital gains to pay taxes on.
Capital gains and losses are categorized by short-term and long-term.
Short-term gains will be taxed at your ordinary-income tax rate.
Long-term gains are taxed at either 0%, 15%, or 20% depending on your ordinary income tax bracket.
In a nutshell, you pay less in taxes by holding investments longer. Short-term capital gains are from investments you own for 1 year or less. Long-term capital gains are for investments you own for over 1 year.
So, in the case of Public, any investments you sold that you held onto for longer than a year will be long term capital gains. Any investments that you sold on Public that you held for 1 year or less will be short term capital gains.
Then, any losses you incurred that year will offset those long and short term capital gains. If you are at a loss for the overall year for Public, you can offset up to $3,000 of your ordinary income. If your loss exceeds $3,000 you can roll it forward for future tax years.
With Public, you can earn both ordinary and qualified dividends.
Ordinary dividends are taxed at your ordinary-income tax rate.
Qualified dividends are certain dividends from US companies that qualify to be taxed at the long-term capital gains rate.
You also have to meet a minimum holding period. A few common investments that DO NOT qualify for this are REITs and MLP's. These have their own unique tax treatments.
So, in a nutshell, if you hold onto dividend stocks for a few months you can pay a lower tax rate on earned dividends. This is, however, not the case with REITs or MLPs as mentioned above.
Public releases tax documents in Mid-February. They will send you an email when tax forms are available.
Form 1099-B will include your short and long term capital gains as well as your capital losses for the given year.
Form 1099-DIV will report your qualified and ordinary or non-qualified dividends earned for the given year.
Keep in mind, Public will not be sending you these forms if you earned less than $10 from dividends or if you did not sell any stocks in the given tax year.
In order to access your tax documents, you will need to be signed in to the app on your phone.
Your tax documents will be visible here. At this point, you can email a copy over to yourself so you can store it on your computer. Or, you can email it to your tax preparer.
If you’re thinking about selling assets in your portfolio at a loss in order to claim a tax benefit you should be aware of wash sale provisions.
The IRS has a “wash-sale” rule in place that disallows harvesting losses for tax purposes.
A wash sale is when you sell a security at a loss and then buy that same security or one that is nearly identical within 30 days. The IRS will deny this loss as a way to stop people from purposefully incurring large tax losses.
You can't buy the same or a similar asset after 30 days.
If you are ready to start filing your taxes, you can file your federal return for free using E-File!