What is Short-Term Capital Gain Tax on Shares, and How to Avoid it

Short-Term Capital Gain Tax on Shares: Learn to calculate gains, deduct fees, and lower your tax bill. AquaFunded helps active traders keep more of their profits.

Profits from selling shares can be significantly reduced by short-term capital gains tax when stocks are sold within a year. Tax rules related to securities transactions, dividend treatment, and the distinction between delivery-based and intraday trading all influence net returns. What is a funded account?

Leveraging external capital can reduce financial risk and enable traders to refine their strategies with a larger funding base. This approach shifts tax considerations in a way that often proves more favorable than personal trading accounts. AquaFunded's funded trading program offers robust tools to help traders balance strategy with effective tax management.

Summary

  • Trading shares within 12 months triggers short-term capital gains tax at ordinary income rates ranging from 10% to 37%, but the tax only applies to your profit, not the total sale proceeds. If you bought shares for $8,000 and sold them for $10,500, you owe tax on the $2,500 gain, not the full amount received. At a 22% federal rate, that's $550 in tax, leaving you with $1,950 net profit. The progressive bracket structure means most traders pay effective rates lower than their marginal rates because only the portion of income that crosses into higher brackets is subject to those higher percentages.
  • Loss harvesting delivers measurable tax savings that most traders underutilize throughout the year. A $2,000 realized loss offsets $2,000 in gains, saving you $480 in taxes at a 24% rate. Losses exceeding gains allow deductions up to $3,000 against other income, such as salary, with the remaining losses carrying forward indefinitely. Traders who wait until December to harvest losses often scramble to find candidates rather than manage positions strategically when their thesis breaks down earlier in the year.
  • Holding periods beyond 12 months shift gains from ordinary income treatment to long-term capital gains rates capped at 20%, with single filers earning under $47,025 and married couples under $94,050 paying 0% on long-term gains. But extending hold times conflicts with strategies built on short-term momentum or earnings reactions. The tax savings only matter if the modified approach still generates positive returns after accounting for opportunity costs and strategy degradation.
  • Transaction costs reduce taxable gains by increasing your cost basis, yet many traders overlook these deductions when calculating their liability. Brokerage commissions, exchange fees, and regulatory charges all increase your purchase price. A $50 total in entry and exit fees saves you $11 in taxes at a 22% rate on a $1,500 gain. Tracking these costs across dozens of trades prevents overpayment year after year, though the administrative burden grows with trading frequency.
  • Tax-advantaged accounts like IRAs eliminate annual capital gains taxes, allowing gains to compound without year-end bills, but contribution limits and early withdrawal penalties limit their practicality for active traders who need liquidity or are deploying larger capital. A Roth IRA offers tax-free qualified withdrawals, while a Traditional IRAs defer tax until withdrawal, when gains are subject to ordinary income rates. These vehicles work best for long-term wealth building rather than for active trading, which requires frequent access to capital.
  • Funded trading program shifts the entire tax structure by providing simulated capital where you earn performance-based compensation rather than realizing capital gains on personally owned securities, eliminating the need to track cost basis, holding periods, and loss offsets across individual positions.

How Much Short-Term Capital Gain Tax is on Shares

Collage representing the taxation process - Short Term Capital Gain Tax on Shares

The tax rate on short-term stock gains depends completely on your total taxable income for the year. When you sell shares within 12 months for a profit, that gain is added to your regular income, like salary, freelance money, or any other earnings. According to Kiplinger, short-term capital gains are taxed at ordinary income tax rates, which range from 10% to 37% based on your taxable income. Your marginal tax bracket decides what percentage of that gain you’ll owe. For example, if you’re in the 24% bracket, you keep 76% of every dollar made from trading. That’s how it works. If you’re looking for more control over your trading experience, consider exploring our funded trading program.

A common frustration for active traders is the perception that frequent trading results in higher taxes. After working hard to research setups, monitor positions, and handle the emotions of daily market changes, seeing 22% or 24% of gains vanish can feel like the system is against them. However, looking at actual profit retention rather than just the tax rate yields a different view.

For instance, if you bought shares for $8,000 and sold them three months later for $10,500, your taxable gain is $2,500, not the whole sale amount. If you’re in the 22% federal bracket, you’ll owe $550 in taxes, leaving you with a net gain of $1,950. This means you’ve captured 78% of the gain. Importantly, the original $8,000 you invested comes back to you unchanged.

What are the costs that affect taxable gains?

This distinction matters because many traders mix up transaction costs with tax liability. Brokerage fees, exchange charges, and regulatory assessments are deducted before calculating your gain. These costs are not taxes on your profit; instead, they are the expenses of making the trade. Once you take these out from your proceeds, what’s left is your capital gain, and only that gain is taxed. When you trade often with small position sizes, the percentage effect of fixed costs can seem high. For example, a $500 profit on a $15,000 trade might have $40 in various fees. That’s 8% lost before taxes even come into play.

But the tax is only on the $460 net profit. At a 24% rate, you owe $110, leaving you with $350. You’ve kept 70% of your original profit after all costs. While this situation isn’t perfect, it’s not too bad if you are getting steady returns. Consider another example: if you gain $4,000 on one stock and lose $1,500 on another, your taxable short-term gain is $2,500. The loss automatically reduces part of your gain. At a 24% tax rate, you owe $600 instead of $960, which lowers your tax bill.

How can loss harvesting reduce tax liability?

The set-off rule applies within the same tax year. If losses are greater than gains, you can deduct up to $3,000 from other income. Any remaining losses can be carried forward to future years. This adds a smart strategy to active trading that many people miss. Selling losing investments before the year ends to reduce gains isn't just a tax trick; it's a way to keep your money while lowering your tax liability. The important thing is knowing that every losing trade has potential value if used wisely. Traders who ignore this are leaving money on the table, paying taxes on total gains rather than just net gains.

How do funded accounts change tax dynamics?

Platforms like the funded trading account completely change this situation. When people trade with simulated money and earn profit splits, they are not making traditional capital gains on stocks. Instead, they get paid based on how well they perform, which might be taxed differently based on how the arrangement is set up. The company bears market risk while traders focus on executing their trades. This means the tax complexity of handling individual stock positions goes away. Traders don’t have to calculate cost basis, keep track of holding periods, or offset losses across different securities.

What are federal tax brackets, and how do they work?

Federal tax brackets are progressive. If you are single and your total income is $50,000, you do not pay 22% on every dollar. Instead, you pay 10% on the first $11,000. You pay 12% on income from $11,001 to $44,725, and only pay 22% on the amount above $44,725. A $3,000 short-term gain moves part of your income into the 22% bracket, but most of it is still taxed at 12%. This means your effective rate on that gain might be closer to 15% or 16%, not the full marginal rate.

How do income levels affect tax rates on gains?

Blanket statements that short-term trading is "too expensive" miss the nuances of itstax implications. Your actual tax burden depends on where your income falls compared to bracket thresholds. For instance, a trader earning $60,000 annually who makes an extra $8,000 in short-term gains will pay 22% on most of that gain. On the other hand, a trader earning $35,000 with the same $8,000 gain will pay 12% on a large part of it. The percentage you keep can vary significantly depending on your starting income.

What impact do state taxes have on trading profits?

State taxes add extra complexity. Some states have no income tax, while others have rates that go from 3% to more than 10%. For example, if a trader lives in California and is in a high state tax bracket, the total federal and state tax rate on short-term gains could exceed 40%. On the other hand, states like Texas and Florida only require you to consider the federal rate. Geography matters, as does how often you trade when calculating your true cost.

How do returns compare to alternative investments?

A trader with a $40,000 account who averages 2% monthly gains makes $800 each month, or $9,600 each year. With a 24% federal tax rate, that's $2,304 in taxes, leaving $7,296 after taxes. This results in an 18.2% annual after-tax return on the original amount. When comparing this to a savings account that earns 4% or a bond fund that returns 5%, the active trading method still does much better, even with the higher tax rate. The mistake that taxes ruin profits comes from focusing on the tax rate rather than the actual dollars kept. A 24% tax on $9,600 sounds high until you see that they keep $7,296. On the other hand, if another investment made $2,000 in long-term gains taxed at 15%, the investor would keep only $1,700. This shows that the short-term strategy gave more than four times the after-tax profit.

How does trading frequency affect profitability?

Consistency matters more than individual trade size. Traders who make small, repeatable gains across many positions often do better than those who go after large, rare wins. Even though the tax rate stays the same, the compounding effect of making profitable trades often helps grow wealth faster. For example, a 1% gain per week on a $50,000 account, repeated over 50 weeks per year, gives $25,000 in gross profit. After a 24% tax, your account will increase by $19,000. That shows a 38% net return, achieved through dozens of modest trades rather than just one big win. However, there is a question most traders don't ask until they have been trading for a while: who actually has to pay this tax, and when does the obligation start?

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Who Pays STCG on Shares

Mobile app showing stock market data - Short Term Capital Gain Tax on Shares

Any person or group that sells equity shares or equity-oriented mutual funds within 12 months and makes a profit must pay short-term capital gains tax. This rule applies to everyone, including individuals, Hindu Undivided Families (HUFs), companies, partnerships, trusts, and any other legal entity recognized under Indian tax law. The tax responsibility lies with the person who sells and profits, not with an intermediary or nominee. The confusion often begins when people think their overall income level decides whether they owe this tax. It doesn’t. Even if your total taxable income for the year is below the basic exemption limit, you still have to pay STCG tax on share profits. According to HM Revenue & Customs' Capital Gains Tax commentary, 48% of gains for CGT-liable individuals came from the 14% of individuals with taxable incomes above £150,000, but that doesn’t mean lower earners avoid the obligation. The tax applies to the gain itself, regardless of your other income. Standard rebates like Section 87A, which help low-income taxpayers with salary or business income, do not include short-term capital gains from equity. This surprises many first-time traders.

The 12‐month threshold is the single factor that determines if your gain is short‐term or long‐term. If you buy shares on January 15 and sell them on January 10 the next year, you've held them for 360 days. That's short‐term. If you sell them on January 16, then the gain becomes long‐term, taxed in a completely different way. The calendar doesn’t care about your intentions or how much profit you made. It only counts the number of days between purchase and sale. If you're looking for alternatives that might lighten the load, consider exploring funded trading programs that could enhance your trading experience.

What is the holding period definition?

This rule applies specifically to listed equity shares and equity mutual fund units. Other asset classes have different holding period definitions. For example, real estate, debt funds, and unlisted shares follow separate timelines. However, for shares traded on recognized stock exchanges, the 12-month line is fixed. Many traders who don't track purchase dates carefully often miscalculate their tax liability. They might think that a position held "most of the year" qualifies as long-term, when it really does not.

Who is responsible for reporting STCG?

The person who sells the shares and makes a profit has to report that income and pay the tax when they file their annual return. If someone bought shares in their own name and sold them using a brokerage account linked to their PAN, they are the taxpayer. When shares are owned jointly, each owner must report their share of the profit based on their ownership percentage. Beneficial ownership arrangements do not change the tax responsibility. In the end, the name on the demat account and the transaction record decide who is liable.

How do corporations and partnerships report STCG?

Companies are subject to the same rules regarding short-term capital gains (STCG). If a corporation buys and sells shares within 12 months, the gain is added to its taxable income and taxed at the applicable corporate rate. Partnerships report the gain at the firm level. Then, partners pay tax on their distributive shares under the partnership agreement. Hindu Undivided Families (HUFs) treat the gain as family income and tax it in the HUF's hands as a separate entity. Even though the way taxpayers are structured affects the rate and filing process, the core obligation stays the same: profits from short-term equity sales must be reported and taxed.

What happens with funded trading accounts?

Traders working with prop firms face a different setup. Platforms like the funded trading account offer simulated capital, which means traders aren't buying and selling shares in their own names. Instead, they make trades with the firm's risk capital. When traders earn a profit split, that payment is a reward for their performance, not a gain from their own investments. The firm takes on market risk, while traders receive a share of the profits. Because of this, the tax treatment changes from the short-term capital gains rule. Traders don't have to keep track of cost basis, holding periods, or losses for individual stocks. The tax confusion around handling personal equity positions disappears because they don't actually own the underlying assets.

What if my income is low?

Many traders think that if their total income is under ₹2.5 lakh (the basic exemption limit under the old rule) or ₹3 lakh (under the new rule), they won't have to pay tax on share profits. This belief is wrong. Short-term capital gains on stocks are taxed at a flat rate, no matter your income level. Even if you have no other income for the year, the profit from selling shares within 12 months is still subject to STCG tax.

This tax can surprise students, retirees, or part-time traders who thought that low overall income would keep them safe. The tax is based on the profit itself, figured out as the sale price minus the purchase price, regardless of any other income you might have. For example, if you made ₹50,000 from trading shares without any salary or business income, you still have to pay tax on that ₹50,000 profit. The rate depends on the specific rules for equity STCG, but the tax responsibility exists regardless of your total income level.

Why is the tax feeling punitive for some?

The frustration here is real. After spending time learning technical analysis, watching positions, and managing the emotional burden of daily price swings, getting a tax bill, even when total income is modest, feels unfair. This feeling is made worse by the fact that capital gains are taxed separately and not included with regular earnings. The system does not look at your financial situation as a whole when it comes to equity profits; it focuses only on the gain and taxes it based on its own rules.

How to calculate what you owe?

Once you know who owes the tax, the next question becomes unavoidable: how do you actually calculate what you owe?

How to Calculate STCG Tax on Shares

Notebook with capital gains tax text - Short Term Capital Gain Tax on Shares

To calculate your STCG tax, subtract your purchase price from the selling price. Then, multiply the difference by your marginal tax rate. This gives you the federal tax you owe. The calculation involves the selling price minus the purchase price and any transaction fees, which results in the taxable gain. Only this profit is taxable, not the total proceeds from the sale. Confusion often arises when traders check their account balance after a sale. They mistakenly believe the entire amount is subject to taxation. This is not true.

For example, if you bought shares for $8,000, paid $20 in fees, and sold them for $9,500, your cost basis is $8,020. Thus, your gain is $1,480. This amount matters because the IRS focuses on the gain above your investment, not the full proceeds of $9,500. Your cost basis includes the purchase price plus any fees you paid when making the buy order. Brokerage commissions, exchange fees, and regulatory charges are included in this calculation. If you bought 100 shares at $80 each and paid $15 in fees, your cost basis would be $8,015, not $8,000. This difference is important because it reduces your taxable gain by the exact amount you paid to enter the position.

What common mistakes do traders make?

Many traders ignore this step by calculating gains only using the purchase price. This method increases the taxable amount and may result in an overpayment. The IRS allows you to include every dollar spent on acquiring the asset in your cost basis. If you ignore transaction costs, it means you are choosing to pay taxes on money you never really made. To find your taxable gain, subtract your cost basis from the sale proceeds. For instance, if you sold those 100 shares at $95 each, you would have gotten $9,500. By subtracting your $8,015 cost basis, your short-term capital gain is $1,485. This amount is then added to your taxable income for the year. It does not stand alone as a separate tax event; instead, it combines with your salary, freelance income, or other earnings to determine your total taxable income.

How are short-term capital gains taxed?

According to NerdWallet, short-term capital gains are taxed at 0%, 15%, or 20%, based on the income level for long-term gains. But short-term gains are subject to the regular income tax brackets, which range from 10% to 37%. The tax rate is determined by where the total income falls within these brackets. For example, if a person's salary is $55,000 and they have a $1,485 gain, their total taxable income becomes $56,485. The extra $1,485 is taxed at their marginal rate, which for this income level is 22%.

The marginal rate is the percentage that applies to the last dollar earned, not the rate for the entire income. For those in the 22% bracket, only the income above the limit for the 12% bracket is taxed at 22%. To make tax calculations easier for a short-term gain, you can just multiply the gain by the marginal rate. So, a $1,485 gain taxed at 22% results in a federal tax bill of $326.70. This amount is the basic tax owed before adding state taxes or other fees.

Can losses offset gains?

If you made $1,485 on one trade but lost $600 on another, your net short-term gain is $885. You only pay tax on that net amount. Losses automatically offset gains in the same category. If your losses are more than your gains, you can deduct up to $3,000 from other income, like salary or business earnings. Any leftover loss can be carried over to the next year. 

This rule stops you from paying tax on gross gains when your real profit is lower because of losing trades. Many traders focus on their individual winners and often forget how their losers affect their tax bill. It's important to track every trade because each loss has value. A $400 loss on a stock you sold in frustration isn't just a bad trade; it equals $88 in tax savings if you are in the 22% tax bracket. That loss offsets $400 of gains elsewhere, which reduces your taxable income and lowers your tax bill.

What is the simple formula for calculating short-term capital gains tax?

The one-line formula that explains this whole process is to multiply your net gain (selling price minus buying price minus fees) by your marginal income tax rate. This result shows your federal short-term capital gains tax. State taxes might add more, depending on where you live. Also, people who earn a lot might have to pay an extra 3.8% Net Investment Income Tax if their income is over $200,000 for single filers or over $250,000 for married couples filing jointly. Still, the main calculation stays the same.

How do transaction fees impact taxable gains?

Every dollar spent when you enter or exit a position reduces your taxable gain. For example, if you paid $25 in fees to buy shares and another $25 to sell them, that adds up to $50 added to your cost basis. On a $1,500 gain, this $50 reduction can save you $11 in taxes at a 22% rate. While this may not change everything, it is real money that stays in your account instead of going to the IRS. Traders who ignore these costs or do not track them properly can end up overpaying year after year.

How does a funded trading account simplify this process?

Platforms like the funded trading account eliminate this complexity entirely. When you trade with simulated money and earn profit splits, you don’t have to calculate cost basis or track individual transaction fees for many positions. The firm provides capital, assumes market risk, and pays you based on your performance. As a result, your tax responsibility changes from managing capital gains on personal trades to just reporting your compensation from profit sharing. You no longer have to track every fee, holding period, and offset because you are not the legal owner of the underlying shares.

What else should you consider when calculating tax?

Understanding how to calculate tax is only half the equation. The real question is whether you can reduce that liability while staying compliant with the rules.

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How to Avoid Capital Gains Tax on Shares

Rising tax costs and financial growth - Short Term Capital Gain Tax on Shares

You can't completely get rid of the obligation if you're trading shares in a personal brokerage account, but you can reduce what you owe by using smart timing, loss harvesting, and account setup. The goal isn’t to avoid taxes; it’s about keeping more of what you earn by using the rules that the tax code already provides. Many traders feel frustrated when their gains shrink after taxes, especially since those gains result from extensive research, emotional discipline, and capital at risk. Luckily, the system offers real ways to reduce that load. Some methods take patience, while others need active management. Knowing how these strategies work ahead of time can greatly help their effectiveness.

What happens if you hold shares longer than 12 months?

If you can hold your investment for more than 12 months, your gain is treated as a long-term capital gain. According to Taxgoddess.com, single filers with taxable income up to $47,025 and married couples filing jointly with income up to $94,050 pay 0% capital gains tax on assets held for more than one year. This isn't just a reduction; it's elimination. Even if your income exceeds those limits, long-term rates cap out at 20%, which is much lower than the 37% maximum for short-term gains taxed as ordinary income.

Does holding longer impact the trading strategy?

The challenge is that holding onto positions for a long time clashes with active trading strategies. If a trader's advantage comes from exploiting short-term momentum or responding to earnings reports, holding positions for 366 days undermines the strategy itself. This isn't just about delaying taxes; it changes the whole approach. For some traders, this trade-off is reasonable. However, for others, it weakens the method that brings in profits.

How can selling at a loss help with taxes?

When a position moves against you, selling it before year-end creates a realized loss that reduces your taxable gains. For example, if you made $6,000 on one stock but lost $2,000 on another, your net gain drops to $4,000. At a 24% tax rate, that $2,000 loss saves you $480 in taxes, as explained in this Intuit discussion. The loss is not wasted; it holds measurable value.

How to track positions effectively for taxes?

Tracking positions throughout the year works better than waiting until December. Traders who wait until the last weeks often rush to find candidates. This can make them sell positions they'd rather keep just to create a loss. A better approach is to regularly monitor your investments. If a stock drops 15% and your reason for holding it isn’t valid anymore, selling it in October gives you the chance to balance your gains and possibly invest in stronger setups.

What happens to losses exceeding gains?

Losses that are greater than gains can be carried forward indefinitely. If you lose $8,000 and gain $5,000 in the same year, you can subtract $3,000 from other income, such as your salary, and carry the remaining $0 forward to reduce future gains. This $3,000 deduction helps you save money now, while the carry-forward keeps the tax benefit for later years. Many traders miss this, seeing losses as only negative events when they can actually be useful tools for managing taxes.

How do tax-advantaged accounts impact gains?

Trading inside a Traditional IRA, Roth IRA, or 401(k) removes annual capital gains tax from the picture. Gains can grow without causing year-end tax bills. In a Roth IRA, qualified withdrawals are totally tax-free. With a Traditional IRA, taxes are postponed until you withdraw funds, with gains taxed as ordinary income instead of capital gains. However, you gain from many years of tax-free compounding during this time, which can greatly boost your overall investment growth. For more details, see how our funded trading program can optimize this strategy: AquaFunded.

What are the limitations of tax-advantaged accounts?

The main limitation of tax-advantaged accounts is contribution caps. You cannot transfer a $100,000 brokerage account into an IRA overnight. Annual limits restrict how much you can contribute, and early withdrawals before age 59½ come with penalties. For traders building wealth over decades, these accounts provide strong benefits. However, for those who need liquidity or trade larger amounts, these constraints make them less practical as a primary strategy.

How can donating shares help with taxes?

If you plan to give to charity, donating shares that have gone up in value helps you avoid capital gains tax on the gain. You transfer the stock directly to a qualified charity and receive a deduction for the fair market value without paying tax on the increase in value. For example, a stock bought for $4,000 and now worth $9,000 creates a gain of $5,000, which you'd normally owe tax on. Donating it eliminates that tax and gives you a $9,000 deduction if you itemize.

What to consider when donating appreciated shares?

This strategy only works if charitable giving matches your goals. You can't donate stock, take the deduction, and then buy it back to keep your position; the shares leave your portfolio for good. For traders who often support causes, this method gives greater impact per dollar than donating cash. The charity gets the full appreciated value, letting you avoid the tax that would have lowered your cash donation.

How can gifting shares benefit tax management?

Transferring appreciated shares to a spouse, child, or other family member can yield significant tax savings. The annual gift exclusion allows gifts of up to $18,000 per recipient without triggering a gift tax. For example, if your child has a low income and you give them $15,000 worth of stock, they might pay 0% or 10% capital gains tax when they sell it, compared to the 24% you would have to pay.

Are there risks in transferring shares?

The catch is that the recipient inherits your cost basis. If you bought the stock for $5,000 and it's now worth $15,000, you have to pay tax on the $10,000 gain when you sell. You've shifted the tax burden, but you haven't erased it. This strategy works when the recipient's income keeps them in a lower tax bracket, but it requires careful planning and trust. Basically, you're giving up control of the asset to possibly save on taxes.

How do funded trading accounts simplify tax obligations?

Platforms like the funded trading account completely eliminate the complicated workarounds. When trading with practice money and getting a share of the profits, traders no longer have to manage the cost basis, track how long they hold investments, or offset losses across different securities. The firm provides capital, assumes market risk, and pays you based on your performance. As a result, your tax responsibility changes from managing capital gains on your personal trades to just reporting what you earn from profit sharing. The hassle of tracking each fee, each holding period, and all offsets goes away because you aren’t the legal owner of the shares underneath.

How does timing affect your capital gains tax rate?

Your capital gains rate depends on your total taxable income. Timing the sale of shares so that it happens in a year when your income is lower, maybe because of a job change or a short period of less money earned, can reduce the rate you pay. If you're usually in the 24% bracket but expect a year where your income drops to the 12% bracket, selling your stocks for gains that year cuts your tax rate in half.

What planning is needed to take advantage of lower rates?

Taking advantage of lower rates requires careful planning months or even years in advance. You cannot make low-income years happen on purpose. However, if you think you will take a sabbatical, enter early retirement, or restructure your business, waiting to report gains until that time can lead to significant savings. On the other hand, if you expect your income to go up next year, reporting gains this year, while you are still in a lower tax bracket, will give you a better locked-in rate.

How can choosing which lot to sell minimize taxes?

If you bought shares of the same stock at different times and prices, you can choose which lot to sell. Selling shares with the highest cost basis minimizes your gain. If you bought 100 shares at $50 and another 100 at $70, selling the $70 lot when the stock hits $80 yields a $ 10-per-share gain rather than $30 per share. That difference cuts your taxable gain by two-thirds.

What is the wash sale rule?

If you sell a stock for less than what you paid and then buy the same or very similar security within 30 days before or after the sale, the IRS will not allow you to claim that loss. The wash sale rule prevents you from claiming a tax benefit while holding the same investment. The loss that isn't allowed gets added to the cost basis of the shares you buy again. This means you will have to wait to get the tax benefit until you finally sell the shares without buying more.

How to avoid triggering the wash sale rule?

The wash sale rule often confuses traders who sell a losing position in late December for tax reasons and then buy it back in early January because they still believe in the setup. Unfortunately, the loss disappears for that tax year. To keep the loss, traders need to wait 31 days before buying it back, or they can buy a similar but not the same security. For example, an S&P 500 ETF isn't the same as an individual tech stock, so selling one and buying the other won't trigger the rule.

Why does tax management matter for traders?

Many traders overlook an important truth: reducing tax bills matters only if the strategy that makes profits stays profitable after accounting for all costs, limits, and the hours spent managing it.

Actively Trading Shares? Don’t Let Short-Term Capital Gains Tax Eat Every Winning Month

Frequent stock trades can quickly push your profits into higher short-term capital gains tax brackets, eating away at what you earn. AquaFunded lets you trade with firm capital rather than your own taxable funds. This change allows you to focus on executing trades rather than worrying about tax losses. You can access funded accounts up to $400K with no time limits, realistic profit targets, and up to 100% profit split. Join over 42,000 traders worldwide who have already earned more than $2.9 million in rewards, backed by a 48-hour payout guarantee.

Trade smarter, scale faster, and keep more of what you make without exposing your personal trading capital to short-term capital gains (STCG). By executing trades with simulated capital and earning performance-based compensation, the entire tax burden shifts away from managing individual cost basis calculations, holding period tracking, and loss offsetting across dozens of securities. You can focus on the setups that work, while the firm assumes market risk. This structure is designed for active traders who want to keep building without the hassle of managing personal capital gains.

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February 2, 2026
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