Online trading has become a popular phenomenon, with seasoned traders and newbies alike downloading apps like Stash, WeBull, and Robinhood. Single share stocks allow the investor to own a portion of a publicly traded company, and sometimes these shares come with options. If you are wondering how to stop Robinhood from selling your stocks' options, we can help. We researched this investment platform in depth so you'll know what steps to take.
Robinhood will sell your options on your behalf per the default settings on their platform. If you do not wish to have Robinhood sell your options, you can opt out of this process by contacting the company.
Now that we know how to stop Robinhood from selling options, we'll take a look at when Robinhood will exercise those options on your behalf if you don't opt out. You might also be wondering if Robinhood can sell your options without your permission or how much tax will Robinhood withhold when you make a withdrawal. For the answers to these questions and more, read ahead in this post to see what our research has uncovered.
When Robinhood Sells Your Options And How To Keep It From Happening
Unlike shares of stock, options will have an expiration date. When this date arrives, the sale of the options has the potential to benefit you if they are in the money. There might be reasons why you don't exercise these options and want to keep Robinhood from engaging in this trade for you, however.
If you have opted in, Robinhood will exercise any option that you own as long as it is in the money for at least $.01. If it is not, then Robinhood will let the option expire. But there are other reasons why Robinhood will not exercise your options for you.
Robinhood will not commit to this transaction if your account doesn't have enough buying power. Be sure your account is funded enough to engage in any future options trading that you are interested in. Robinhood will not sell an option if that sale will result in you being in a short sell position, either.
This trading platform will not sell your options if you submit a "do not exercise" request. This can only be done by email, and the cutoff time for this request is 5 p.m. EST.
What Happens If I Don't File Robinhood Taxes?
The earnings that you receive from investments are not tax free. Whether you have made money from the sale of stocks or bonds or have dividend income, the money will be subject to state and federal income taxes. A failure to report earnings to the IRS can be a pretty serious problem.
Keeping track of your earnings and losses on any investment platform can be confusing. Overall losses can reduce your taxable income, while gains will increase it. When your losses and earnings are a mixed bag, reconciling your overall profit or loss could potentially take a bit of time and old-fashioned arithmetic.
Thankfully, Robinhood issues a consolidated 1099 to platform users annually. This will list all profits and losses, with a total of your net earnings (or losses!). This 1099 should be filed with your income taxes for that year to avoid potential late fees, penalties, and fines.
Robinhood Will Not Withhold Taxes For You
Some entities will withhold taxes for you, lessening the burden you'll have to pay during tax season. But investment platforms do not typically do any sort of withholding for investors. If you are a United States resident, they will simply issue you a 1099.
You must be able to prove your legal residency before you can begin trading on Robinhood. A photo of a valid government-issued ID will be required before your account will be approved.
Investors outside of the United States will be subject to backup withholding from Robinhood. This amount is a set percentage of your earnings.
Be Aware Of The Differences Between Short-Term And Long-Term Capital Gains
Aside from income tax, you will sometimes be required to pay capital gains tax on your money. Unlike income taxes, which are based on earnings from your job or business, capital gains taxes are for earnings on investments.
This includes the proceeds from real estate transactions, the sale of a business, and investment proceeds.
The capital gains tax is split into two segments. One is for short-term gains, the other for long-term ones. The rate difference between the two is starkly different.
Short-term capital gains tax will be between 10% and 37%, based on your income bracket. This percentage will match your ordinary income tax rate. Long-term capital gains tax ranges between 0% and 20%, also based on your income.
Generally, holding an investment longer will make it subject to the long-term capital gains tax, costing you less at tax time. For stocks, this means holding onto them for a minimum of 12 months before you sell them
Can Robinhood Sell Your Options Without Your Permission?
As we mentioned earlier in this post, Robinhood cannot sell your options without your permission. By engaging in the trading of options, you are opting in to have Robinhood sell them for you. If you want to revoke your permission, you need to contact Robinhood
What Is Level 3 Robinhood?
For those investors who are interested in selling options, Robinhood has different tiers available for this practice.
An entry-level investment account will allow for the buying and selling of stocks, bonds, cryptocurrencies, etc. You'll need to elevate your membership to a Level 2 or Level 3 account if you want options trading, however.
While Robinhood Level 2 will allow for the sale of options, Level 3 gives you many more opportunities and multiple strategies.
Level 2 might work better for someone who has minimal experience in the world of options trading and could be a great way to cut your teeth with this investment practice. Level 3 is geared toward more savvy investors that have more than just a basic understanding of the trading arena.
Level 3 investors will be able to exercise strategies that include Iron Condor, Box Spreads, and Calander Spreads. The platform warns that options trading on this level not only risks you losing your principle but can also put you on the hook for more than you have invested.
Be sure you know the risks and that the ones you take match your investment profile before you opt into anything.
How Much Does Robinhood Tax When You Withdraw?
As we discussed earlier in this post, Robinhood will not tax any withdrawal from your account if you are a United States-based investor.
Rather than withhold, Robinhood ensures the IRS that your earnings and losses are tracked and reported on a company-generated 1099 that is delivered to you each year. This form is to be filed with your income taxes for that year so that the appropriate amount of tax can be applied to your return.
The only time Robinhood will withhold taxes from a withdrawal is if you are based outside the United States. In that case, the investment platform will withhold up to 26% of your earnings from investments.
Final Thoughts
The bottom line is that no securities broker can engage in any trade without your permission. This applies to online platforms as well as firms with a brick-and-mortar presence in your community.
Carefully evaluate your investment strategy before investing any funds, and always know how to navigate trades when investing online.
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