Hello,
I’m new to Alpaca and I want to use real money in my algorithm investments. However, I am unsure of how to understand how taxes work and what are taxed surrounding investments made through Alpaca. Would anyone be kind enough to give me a brief walkthrough of how taxes work on Alpaca?
Sincerely,
Nuo Wen Lei
@Nuo_Wen_Lei Any taxes due are entirely based upon the account holders ‘tax residence’. This is typically simply where you live. If you live in the US then you are subject to US taxes. If you live in Nigeria then you are subject to Nigerian taxes.
Every jurisdiction has different tax laws but typically one must pay taxes on 1) short term gains (if a stock is bought and sold within 1 year) 2) long term gains (if a stock is bought and sold after 1 year) and 3) dividend income. Alpaca sends forms out at the end of the year to US account holders detailing these. However, it is ultimately the account holders responsibility to determine how much tax is due and report that to their local tax authority.
Alpaca doesn’t collect or withhold taxes on any gains from sales. However, Alpaca may withhold taxes on dividends and other cash distributions. This is based upon agreements the US has with other countries. Often 20% will be withheld from dividends for example. Alpaca sends those withholdings to the country’s tax authority. It is then the account holders responsibility to file the appropriate tax forms with their country to potentially get that back.
So, the short answer is one must report and pay taxes to their local ‘tax jurisdiction(s)’. Alpaca doesn’t pay the taxes for you.