Stock Traders Beware of Tax Traps: The Taxman Cometh

“When there is an income tax, the just man will pay more and the unjust less on the same amount of income”.

– Plato

In the past two weeks, we saw frenzied buying and selling of shares with minimal intrinsic value but high speculative interest in the “shorts market”, where traders sell shares first hoping to buy them back later at a cheaper price. As with all financial transactions, there are consequences. The taxman awaits around the corner.

Speculators drove up the prices of GameStop, AMC Entertainment and Blackberry through platforms, such as, Robinhood Markets Inc., which brought a flood of first-time traders to the stock market. The hype created and destroyed billions of dollars of on-paper wealth. GameStop shares hit $483 U.S. on January 28, up from $18 a share three weeks earlier, and then fell to $47.81 U.S. by February 9. Some were trading in their cars whilst stopped at a red light.

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