Initial Fears...

Have you ever felt afraid of doing something because you weren't familiar with it? Yet you hear people who tried that "something" expresses great satisfaction. Like you first time riding a roller-coaster or first time on a two wheel bicycle.

Anyways the initial fears I have in playing stocks comes around the year after. Taxes. Both the Federal and State taxes returns do not favor day traders. I remember reading in an article stating the most complex portion of the federal tax returns is related to Schedule D. Before I continue I must admit I did not learn many of the parameters all US tax payers must obey upon until two months into day trading stocks. I still am learning about taxes today!

In the case of the federal taxes any short/long term capital gain/loss is required to be filed on schedule D. Trades that are "wash" sales must also be included in schedule D. "Wash" sales is defined as a stock you sold at a lost and is excluded as a capital loss if you re-purchase the stock within a month, 30 day time period. (The Wash sale rule was created to prevent one to offset gains from the same stock.)

Capital gain/loss-
Any gains I make in a stock that I own less than one year is taxed at the same rate as my ordinary income. So if hypothetically make over 357,700 in short term capital gain, by tax rate will reach all the way to 35%.

2008 Tax Brackets

Tax Rate		Single	Married Filing Jointly
10%		Not over $8,025	Not over $16,050
15%		$8,025 - $32,550	$16,050 - $65,100
25%		$32,550 - $78,850	$65,100 - $131,450
28%		$78,850 - $164,550	$131,450 - $200,300
33%		$164,550 - $357,700	$200,300 - $357,700
35%		Over $357,700	Over $357,700

Its important to note that the tax rates are calculated in stacking method. For instance if I, single, let say made 30k taxable income for 2008. I would pay the first $8025 at the 10% and what is left over of the 30k, $21975, corresponds to a tax rate of 15%. My total tax payment comes out to be $4098.75, which is 13.66% of my income. Before I get all jumpy and happy I need to add the state tax. I think this is all for now, I will continue tomorrow.