The Financial Transaction Taxes refers to a small tax that is levied on all types of financial related transactions in the market. In simple terms, Financial Transaction Taxes is related to any of the financial transactions that are traded on the futures exchange, stock exchange or from other facilities that have been established for the purpose of trading.
The Robinhood tax is technically part of this Financial Transaction Taxes (FTT). When it was introduced by the NGO campaigners, they suggested that the FTT tax could largely benefit many other nations as well if it were to be implemented on a global scale. The Robinhood tax is somewhat similar to the Tobin tax (this was proposed specifically for foreign currency exchanges). However, this would also have an impact on the purchase and sale of commodities, trusts, mutual funds, stocks and bonds including all derivatives such as futures.
What is Robinhood and Why is it Used?
Robinhood is an app available for Android and iOS that enables users to carry out commission free investing in a way that allows them more ways to grow financially. Robinhood’s main mission is to democratize the existing financial system. The app is known to be an immensely straightforward experience that makes investing on their platform quite approachable for beginners who are looking to invest.
What are the Requirements to Open a Robinhood Account?
When applying for the Robinhood account, the following details need to be met in order to proceed.
- The user must be 18 years and older.
- The user must have a valid US visa.
- The user must have a legal US residential address.
- The user must have a valid Social Security Number.
What are the Investments Allowed by Robinhood?
Robinhood has many assets that range from cryptocurrencies to stocks. When you use the services of Robinhood, you can choose to invest in over 5000 stocks which also include many of the US equities. The list of assets that Robinhood Financial supports are as follows.
- The Options Contracts for US exchange listed stocks and ETFs.
- The US exchange listed stocks and exchange traded funds (ETF).
- American Depositary Receipts (ADR) for over 250 listed companies.
- Cryptocurrencies such as Bitcoin Cash (BCH), Bitcoin (BTC), Bitcoin SV (BSV), Ethereum Classic (ETC), Ethereum (ETH), Dogecoin (DOGE) and Litecoin (LTC).
Keep in mind that there are certain kinds of assets that Robinhood Financial does not support. These assets are listed below.
- Select OTC Equities
- Preferred Stocks
- Mutual Funds
- Tracking Stocks
- Foreign Exchanges
- Bonds and fixed income trading
What is the Process of Opening a Robinhood Account?
When it comes to opening a Robinhood account, follow the steps listed below. It is a relatively simple process and can be completed in 10 minutes.
- Submit your application through the Robinhood app.
- After that, you will receive an email to confirm the status of your application.
- Now, Robinhood will require you to verify your identity. For this process, there will be detailed instructions given on how to upload your verification documents securely.
- Once you have finished submitting the necessary document along with your application, Robinhood will review the application within a period of 5 to 7 days and then open your new account.
How to Differentiate Between the Tax Forms?
For the 2020 tax season, make sure that you update to the latest version of the Robinhood app. The tax forms issued for this tax year will specifically relate to the 3 main entities (Robinhood Crypto, Robinhood Securities and Apex Clearing).
Once the app is updated, proceed to the section marked, ‘Tax Documents.’ You will see a list of the tax documents for 2020 displayed along with one of the following documents.
- 2020 – Robinhood Crypto 1099
- 2020 – Robinhood Securities 1099
- 2020 – Apex Clearing 1099
The tax form, 1099 will also appear and display the name of the issuing entity. On the form, check the top left corner on the first page for either ‘Apex Clearing’, ‘Robinhood Securities’ or ‘Robinhood Crypto.’ When it comes to Form 1099, remember that each of the 3 main entities will have a different account number issued.
What to do In Case There is No Cost Basis on Form 1099?
Sometimes your tax form such as Form 1099 would have excluded the cost basis specifically for uncovered stocks. When this occurs, it is up to you to determine and calculate the cost basis. This is mainly caused due to the stock funds being recently converted, limited partnerships or traded funds of certain exchanges.
It is recommended to hire the services of a certified tax advisor in order to make sure that you do not have any errors when you file your tax returns. Now, a certified tax professional can aid you in the process of accurately calculating your cost basis as well as provide you with other accounting methods such as Last In, First Out (LIFO), First In, First Out (FIFO) and more.
You will also have to submit a request for a CSV file (must contain all your transaction history) before you start calculating your cost basis. This refers to the original price that an asset was acquired for.