Do You Have to Pay Taxes on Cash App Stocks?

Investing in stocks through modern platforms like Cash App does not change your tax obligations. Any profits generated from selling stocks or receiving dividends through your Cash App Investing account are subject to federal and, in most cases, state income tax. The Internal Revenue Service (IRS) applies the same rules to these transactions as it does to those conducted through a traditional brokerage firm. This means that when you profit from your investment activities, that income must be reported on your annual tax return to remain compliant with tax regulations.

Identifying Taxable Investment Events

A taxable event is a specific action that triggers a tax liability. When using Cash App to invest in stocks, the two primary taxable events are selling shares for a profit and receiving dividends. When you sell a stock for more than you paid for it, the profit is considered a taxable capital gain. For instance, if you buy a share for $50 and sell it for $70, you have realized a $20 capital gain that must be reported to the IRS.

Another common taxable event is the receipt of dividends. Dividends are payments made by a corporation to its shareholders, representing a distribution of profits. If you own stock in a company that pays dividends, the amount you receive is considered investment income. Even if you automatically reinvest these dividends to buy more shares, the initial dividend payment is still taxable for that year.

It is also important to recognize which activities are not taxable events. Simply buying a stock is not a taxable event. Holding onto a stock as its value increases does not trigger taxes; the gain is considered “unrealized” until you sell the shares. Transferring your stocks from Cash App to another brokerage account in your name is also not a taxable event.

Calculating Your Taxable Amount

To determine the taxable amount from a stock sale, you must first calculate your capital gain or loss. The formula is: Proceeds from the sale minus your cost basis equals your capital gain or loss. The “proceeds” are the total amount of money you received for selling the stock. The “cost basis” is the original purchase price of the stock, including any fees you paid to acquire it.

The tax treatment of your capital gains depends on how long you held the asset before selling it. Gains from assets held for one year or less are classified as short-term capital gains. These are taxed at your ordinary income tax rates, which for the 2024 tax year range from 10% to 37%, depending on your total taxable income and filing status. This means short-term profits are added to your other income, like wages, and taxed accordingly.

Gains from assets held for more than one year are considered long-term capital gains and benefit from lower tax rates. For the 2024 tax year, these rates are 0%, 15%, or 20%. An individual filer with a total taxable income up to $47,025 would pay 0% on their long-term gains. The 15% rate applies to those with income between $47,026 and $518,900, and the 20% rate applies to income above that threshold.

Dividends also have specific tax rules. “Qualified” dividends, which meet certain requirements, are taxed at the same lower long-term capital gains rates. “Non-qualified” or “ordinary” dividends are taxed at your higher ordinary income tax rates. Most dividends from common stocks held for a sufficient period are considered qualified.

Reporting Stock Activity to the IRS

When tax season arrives, you are responsible for reporting your stock transactions to the IRS. Cash App Investing, through its clearing firm, will provide you with the necessary tax documents, typically by mid-February of the following year. The primary document for stock sales is Form 1099-B. This form details each sale, including the dates of acquisition and sale, the proceeds, and the cost basis.

For any dividends you received totaling $10 or more, you will receive a Form 1099-DIV. This form breaks down your dividends into categories, such as total ordinary dividends and qualified dividends. If you do not receive these forms, perhaps because your activity was minimal, you are still required to report any gains or income.

The information from your Form 1099-B is used to complete IRS Form 8949. On this form, you will list each individual stock sale, separating short-term and long-term transactions. The totals from Form 8949 are then transferred to Schedule D, which is filed with your Form 1040 tax return.

If your stock sales result in a capital loss, where your cost basis is greater than your sale proceeds, you can use that loss to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 of the excess loss against your ordinary income for the year. Any remaining loss beyond that can be carried forward to future tax years to offset future gains or income.