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With Tax Day 2022 on April 18 fast approaching, young or inexperienced traders and investors may have questions about reporting gains on so-called “meme stocks” — stocks that become popular with retail investors through social media or other online platforms. According to private wealth advisor Rocco Carriero, tax reporting for meme stocks should be treated the same as any other equity investment.
“Well, most financial institutions would be sending you out some type of a 1099 document that you would have received sometime late January up through the middle of March,” Carriero told Yahoo Finance Live. “But even if you didn't receive that information from the financial institution, it's still your responsibility to reach out to the financial institution where you do have your assets and make sure you get that documentation, because you are still going to be responsible for the taxes, should you have made some gains.”
Of course, if an investor is still holding a stock that has risen in value but has not yet sold, then no capital gains reporting would be necessary. Although prominent meme stocks like GameStop (GME) and AMC (AMC) do not pay dividends, it is also important to note that investors could be responsible for reporting the income generated by dividends if they happen to own a security that pays them.
As for those who may have gotten burned by a meme stock — bought high and sold low — the same tax forms should be disbursed to these investors by financial institutions. However, losses incurred from trying to speculate on certain securities could be used to retail investors’ benefit.
“If you have a loss, you want to be able to either use that loss against your gains, or if you have no gains to offset your losses with, you want to be able to carry those forward on your tax return for the future, whether you get a income tax deduction as a result of it or if you could offset your future gains against your losses,” he said.
Carriero noted that basic tax software programs would allow for individuals to carry their losses forward, but recommended that people consult with a qualified tax adviser to ensure that everything is being done correctly.
“[Consulting with a tax advisor is] usually a good rule of thumb,” he said. “Because again, if you make a mistake through using some type of a software program, and you said, well, I really didn't understand it, you are still responsible for the penalties and the interest that's associated with the gain or the loss.”
The deadline for filing 2021 federal tax returns has been postponed to April 18, but individuals can file a Form 4868 with the IRS by the same date (or by April 19 for those living in Maine or Massachusetts) to request an extension.