Robinhood investing = $217k IRS tax bill?

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Tax, SDIRAs & Cost Segregation
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Robinhood investing = $217k IRS tax bill?

Joanne Potros
Member since 2022 · 4 posts · 4 votes

I invested some money into stocks and some crypto over the past few years. I noticed that robinhood reports much higher numbers than actual purchases to the IRS. I've never actually sold anything at much of a profit either. A few months ago I received a letter from the IRS stating there was a $14.00 difference between what I actually reported on my taxes. I replied agreeing to the difference thinking it wasn't a big deal. Today I received another letter from the IRS stating I owed almost $217k in taxes and interest by July 19 for my 2020 taxes. I think I've only invested 130k total most in crypto but never really sold anything at a profit. When bitcoin was at 60k+ a coin i reached about $270k but i never sold anything. Now my total "investment" is 100k, 30k less than what i put in. I don't see how I can owe 217k. Pls help. I don't make much monthly.Less

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y

@Joanne Potros

Do you use a CPA? If not, then find a tax attorney to try and help you out ASAP.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Joanne Potros

    Do you use a CPA? If not, then find a tax attorney to try and help you out ASAP.

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  • Joanne Potros
    OP
    Member since 2022 · 4 posts · 4 votes
    4y

    I did use a CPA to file my taxes forhill? Which is the year the bill is for. I have him my tax documents from robinhood and he said I didn't make enough profit to file the robinhood stuff. I think it was like 16 cents he said. Does he have an obligation to help me sort this out? Pay for an attorney? If he doesn't can I hire attorney and sue him for the bill?

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    Somebody screwed something up. You’d have to sell for a $800k profit to owe $200k?


    find your tax forms from Robin hood in the tax year in question. It should state your dividends and gains. Either the form is wrong or someone entered the wrong numbers or many socials got reported as one? 
      
    make sure it’s real, talk to an irs agent if there’s no chance you owe anything. Ask them for a copy of the tax form from Robin hood that shows you owe that much. Find the differences and work it from there. 

    2Reply
  • Joanne Potros
    OP
    Member since 2022 · 4 posts · 4 votes
    4y

    This 2020 tax bill would be for the 2020 tax documents in robinhood app? Ive got the 2020 documents off robinhood. For some reason they show like 500k+ in transactions reported. They've told me in the past that this is normal. Their figures aren't the exact amounts that I actually invest/buy/sell. On the 1099 securities form it shows about $4k gains. On the 1099 crypto form it shows $18k gains for 2020. I don't understand robinhood's reporting. They show very high numbers on the transaction history totaling over 500k but they told me that's normal, that's the way they are reported and the IRS knows the actual figures. Any help is appreciated. Im currently living pay check to pay check.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    The IRS will not issue you a tax bill without explaining how they came up to their conclusion.

    The only thing I can think of is that a brokerage reported a tax form to the IRS that you did not provide to the tax accountant when the return was filed.

    The first thing to do is have someone explain to you what the IRS letter is saying.

    Best of luck

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    yes, and no-cost basis. This is easy to be resolved but you may need an tax attorney.

    1Reply
  • Christina Yoon
    Accountant · Hunt Valley, MD · Member since 2016 · 49 posts · 17 votes
    4y

    I believe your first move should be showing the notice with your tax preparer from 2020.  I don't believe a tax attorney is necessary at this point. 

    0Reply
  • Dylan Boyd
    Nashville, TN · Member since 2016 · 10 posts · 2 votes
    4y
    Quote from @Joanne Potros:

    This 2020 tax bill would be for the 2020 tax documents in robinhood app? Ive got the 2020 documents off robinhood. For some reason they show like 500k+ in transactions reported. They've told me in the past that this is normal. Their figures aren't the exact amounts that I actually invest/buy/sell. On the 1099 securities form it shows about $4k gains. On the 1099 crypto form it shows $18k gains for 2020. I don't understand robinhood's reporting. They show very high numbers on the transaction history totaling over 500k but they told me that's normal, that's the way they are reported and the IRS knows the actual figures. Any help is appreciated. Im currently living pay check to pay check.


     Each time you sell crypto, it is a taxable event, just the same as selling stock in an investment account (with exception to tax advantaged investment accounts). With 130k invested, and a worth of over 250k at it's peak, it's really easy to get to 500k+ of total transactions. Example - You buy 50k of ethereum and sell it for 52k. That's only a 2k gain, but a 52k transaction. None of the numbers you posted in the post above surprise me. Ask the IRS how they came up with 200k+ of taxes owed. It certainly wasn't from your Robinhood investments. 

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  • Joanne Potros
    OP
    Member since 2022 · 4 posts · 4 votes
    4y
    @Dylan Boyd

     Each time you sell crypto, it is a taxable event, just the same as selling stock in an investment account (with exception to tax advantaged investment accounts). With 130k invested, and a worth of over 250k at it's peak, it's really easy to get to 500k+ of total transactions. Example - You buy 50k of ethereum and sell it for 52k. That's only a 2k gain, but a 52k transaction. None of the numbers you posted in the post above surprise me. Ask the IRS how they came up with 200k+ of taxes owed. It certainly wasn't from your Robinhood investments. 

     Thank you the explanation that helped. I just came back meeting with the accountant who did my taxes. I have the documents I gave him in 2020 which included the robinhood documents. His excuse was that he probably missed the part where it says I made about $3k gain from securities and $18k gain from crypto. I think he didnt input those gains because i had a lot of documents. I sold my home in Nov 2020 but he did input that info  which included like 80k gain. I did my own taxes in 2021 and i input robinhood when I filed my taxes. This was not intentional because i know robinhood forwards the info to the IRS plus i didnt realize i even made any gains to pay taxes on. He just filled out the dispute form and I mailed in the robinhood documents from 2020. All the taxes are from robinhood. Here are some of the documents from the IRS letter. I think they calculated the transactions as gains by mistake?

    1Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    4y
    like Carlos had mentioned above, they probably do not have your cost basis, so did take those transactions as straight gains. that's why it's so important to file *everything*. fire your accountant and get someone who will actually do what they're paid for. btw, those pics are very hard to see without being able to zoom in on them.
    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    0Reply
  • Greg O'BrienBusiness Member
    Accountant · Boston, MA · Member since 2019 · 386 posts · 336 votes
    4y

    @Joanne Potros these letters are decently common but take extremely seriously and respond BEFORE the notice deadline!

    0Reply
  • Dylan Boyd
    Nashville, TN · Member since 2016 · 10 posts · 2 votes
    4y
    Quote from @Victor S.:
    like Carlos had mentioned above, they probably do not have your cost basis, so did take those transactions as straight gains. that's why it's so important to file *everything*. fire your accountant and get someone who will actually do what they're paid for. btw, those pics are very hard to see without being able to zoom in on them.

     This is what happened. The IRS is calculating you had no basis and that you owe taxes on the full amount sold (as gains). 

    0Reply
  • Shane Colter
    Member since 2023 · 1 post · 0 votes
    3y

    What was the outcome after filing the dispute and sending the forms. I just had the same thing happen to me, and I lost a minor amount not worth reporting. Robinhood/IRS excluded by cost basis resulting ~$126K in gains.I'm wondering if I'm going to have to burn a couple $1K for a tax attorney, or if I can file the initial dispute myself. 


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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    3y

    @Shane Colter

    "Not worth reporting" is not how the IRS works. They know what you SOLD it for but they can't know what you BOUGHT it for. When you don't report, they assume you bought it for $0.

    You probably received a letter CP2000 which is basically a proposed tax. If you have your data on the purchases, organize it into Form 8949 or an equivalent spreadsheet. Write a short cover letter explaining that you did not report the cost basis of sold investments, and that it is attached now.  Fax it to the number on your CP2000 letter. 

    Do NOT create an "amended tax return."

    If this is something other than CP2000, you might need a different route.

    0Reply
  • Joseph Genco
    Member since 2024 · 1 post · 0 votes
    2y

    I just received a cp2000 stating I owe as well from Robinhood trading. It clearly states on the docs from Robinhood that I had a loss that year. Can I just send that form from Robinhood to them? its form 1099. Thanks for any help?

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y
    Quote from @Joseph Genco:

    I just received a cp2000 stating I owe as well from Robinhood trading. It clearly states on the docs from Robinhood that I had a loss that year. Can I just send that form from Robinhood to them? its form 1099. Thanks for any help?

    Yes, this is exactly what you're supposed to do. CP2000 should list a fax number, which is the best way to respond.

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