You won money on GameStop. Here’s what you need to know about taxes.

Suppose a high-income investor bought 100 shares of GameStop on January 4, when the shares traded at $ 17.25, paying $ 1,725. Then the trader sold the shares on January 27, when they reached $ 347.51, raising $ 34,751, for a gain of $ 33,026. The tax bill for someone in the top income bracket would be estimated at $ 13,475.

And these are just federal taxes. Many states and cities assess their own capital gains taxes or treat capital gains as ordinary income, which is taxed at higher rates.

Some GameStop traders have reported that they bought shares in 2019 and have held them for over a year. In this case, they would be entitled to favorable long-term capital gains tax rates if they realized a gain on the sale. The highest rate would be 20%; the highest earners would also pay an additional 3.8 percent, a rate of 23.8 percent.

Individual traders can also experience capital losses if they sell a stock for less than what they paid, which can be used to offset capital gains and reduce taxes, said Tony Molina, accountant. licensed audience and senior product specialist at Wealthfront, an online investment. a service.

Less experienced investors can sometimes break tax rules with so-called “wash sales”. In this scenario, an investor with a large capital gain on the sale of shares of a company seeks to generate a loss to offset the tax bill. So the investor sells shares of a different stock at a loss – but then quickly redeems the stock. It’s a no no.

“You can’t do that,” said P. Evan Stephens, a tax partner with Sensiba San Filippo in San Jose, California. If you buy back the same stock or a similar stock within 30 days, he said that you cannot use the loss generated to offset your gain.

On the radar is a proposal by President Biden to eliminate the favorable long-term capital gains rate for taxpayers earning more than $ 1 million and increase the top tax rate for ordinary income. There have even been rumors that the changes, if approved, could be retroactive to early 2021. “Is it likely? No, ”said Tim Speiss, a partner in EisnerAmper’s personal wealth management group. “Could this happen? We do not know.