So Im thinking about doing some short term trading, and I'm trying to figure out the tax ramifications of a specific scenario, because I'm looking at some pretty volatile stuff.
Let's say, I'm throwing out random numbers here, I get a 100% gain on an initial 1000$ investment. I then sell, creating a taxable event, so I would owe approximately 40% of the gains, 400$ out of the extra 1000 that I earned.
Let's say I then, trading the same stock, LOSE 75% and sell because i think its going to keep going down, now I have 500$
I then buy back at an even lower price within 30 days (so I can't keep the loss due to the wash sale rule, as I understand it) and get enough back to earn my original 1000$ I put in in the first place, and sell, so I profit on that trade, and create another taxable event. I gained 500$, I now owe 40%, 200$
In that scenario, because I don't get to keep that loss between the two gains, have I now actually LOST money due to taxes? . As I understand it, I think I have, but that seems kinda wack. Basically, I owe taxes from two positive trades, but taxes won't see what I lost between them, so I'm at a net loss.I'm back to my initial 1000$ starting amount, but I owe 600$ in taxes
Am I totally missing something, or is that really how it works? Should I just be setting aside 40% of every positive trade immediately so I don't put myself in a net negative situation?
Kinda wordy, so sorry about that, but pretty confused by the situation.
