What happens if you don’t file Robinhood taxes? For starters, buying and selling stocks or other assets on Robinhood make you eligible for standard tax laws. In the United States, the IRS controls how much investors must pay in taxes for investments made.
Robinhood makes buying and selling stocks and other assets a piece of cake. But beginner investors follow the misconception that they should only pay taxes on the money they withdraw from Robinhood.
Sadly, that’s only true for retirement accounts. So if you’re not using a Robinhood retirement account, you must pay taxes on any investments sold on Robinhood and held in your account for less than a year.
So what happens if you don’t file Robinhood taxes? Well, you’re supposed to pay short-term capital gains on those investments. While this answer is quite satisfactory, failure to file taxes accurately and on time can lead to a range of consequences that can impact your financial well-being and legal standing.
That’s why we will dive deeper into the subject and answer what really happens if you don’t file your Robinhood taxes.
6 Consequences Of Not Filing Robinhood Taxes
Below are a few consequences that could happen if you don’t file your Robinhood taxes:
Late Filing Penalties
One of the primary consequences of not filing Robinhood-related taxes is the potential for incurring late filing penalties. Tax authorities typically impose these penalties and can vary depending on your jurisdiction. The longer you delay filing, the higher these penalties can become. Late filing penalties are often calculated as a percentage of the taxes owed, so the more you owe, the greater the penalty.
Accrual of Interest
In addition to late filing penalties, failing to file your Robinhood taxes can lead to interest accrual on unpaid taxes. Interest rates can vary based on your jurisdiction and the amount of taxes owed. This means that the longer you wait to file and pay your taxes, the more interest you’ll owe on top of the initial tax amount.
Loss of Refunds
If you’re entitled to a tax refund, failing to file your taxes means you won’t receive that refund until you do file. This can result in a delay in getting back any overpaid taxes. Additionally, if you wait too long to file, you might lose the ability to claim your refund altogether.
Potential legal consequences are always a possibility when not filing taxes from investments. However, these consequences are even more damning if you intentionally evade paying taxes. Moreover, even failing to file can lead to serious legal consequences.
Tax evasion is considered a criminal offense in many jurisdictions and can result in fines, penalties, and even imprisonment. It’s crucial to take your tax obligations seriously to avoid legal trouble.
Communication from Tax Authorities
Tax authorities, the Internal Revenue Service (IRS) in the United States, may send you notices or letters informing you of your overdue tax filing. These communications will likely outline the penalties, interest, and actions you need to take to rectify the situation.
If you continue to ignore your tax obligations, tax authorities may take collection actions against you. This could include placing liens on your assets, garnishing your wages, or seizing property to satisfy the tax debt.
What To Do To Resolve the Issue?
Even if you’ve failed to file your Robinhood taxes by accident, don’t worry; there are things you can do to avoid any of these consequences. Here is what you need to do:
Gather Documentation: Collect all relevant documents related to your Robinhood transactions. This includes records of your trades, investments, gains, losses, and any other financial information necessary for accurate tax filing.
Determine the Filing Requirements: Understand the specific tax requirements for your jurisdiction. Different regions have varying rules and deadlines for filing taxes related to trading and investments.
File the Necessary Tax Forms: Complete the appropriate tax forms for reporting your Robinhood activities. Common forms might include Schedule D for reporting capital gains and losses, as well as any relevant forms for reporting dividend income.
Calculate and Report Gains/Losses: Calculate the gains and losses from your Robinhood transactions and accurately report them on your tax forms. Make sure to follow the instructions provided by your tax authority for calculating these amounts.
Estimate and Pay Any Taxes Owed: Calculate the amount of taxes you owe based on your Robinhood activities. It’s important to pay with your tax return if you owe taxes. If you cannot pay the full amount, you can explore payment options such as setting up a payment plan with the tax authority.
File Electronically or Mail Your Return: Depending on your jurisdiction, you can either file your tax return electronically or mail a physical copy. Follow the instructions provided by your tax authority for proper submission.
Keep Copies of Documents: Make copies of all the documents you submit with your tax return, including the completed forms and any supporting documentation. This will be important for your records in case of future inquiries.
Respond to Any Notices Promptly: If you receive any notices or communications from the tax authority regarding your filing, respond promptly and provide any requested information. Ignoring these notices can lead to further complications.
Failing to file taxes related to your activities on the Robinhood platform can have significant consequences. From late filing penalties and interest accrual to potential legal actions, you must meet your tax obligations to avoid financial and legal trouble.
So to answer the question, “What happens if you don’t file Robinhood taxes?” the answer can be quite obvious. Be responsible and pay taxes on your Robinhood investments.