What Happens if You Don't File Robinhood Taxes

If you're not filing your Robinhood taxes, you could be in for a world of trouble.

That's because the Internal Revenue Service (IRS) is cracking down on people who are using the online trading platform to avoid paying capital gains taxes on their profits.

And if you're caught, you could end up facing huge fines and even jail time. So it's important to understand the rules and make sure you're doing everything correctly.

1. What is Robinhood and why do people use it to avoid paying taxes

a phone displaying robinhood app

Robinhood is a free stock trading app that allows users to buy and sell stocks without paying commissions. It was founded in 2013 by two Stanford graduates.

Robinhood users can buy and sell stocks without paying commissions because the app is commission-free. This makes it a more affordable option for people who want to invest in the stock market. Additionally, Robinhood offers a variety of features that help users make informed decisions about their investments. For example, the app provides real-time market data and up-to-date news about the companies whose stocks users are trading.

One of the common misconceptions is that people can use Robinhood to avoid paying taxes on their investments. Unlike traditional brokers, Robinhood does not charge commission fees, which can add up to a significant savings over time.

When you make any type of investment, you are required to pay taxes on that investment. This is regardless of whether you use a traditional broker or an online broker. While Robinhood does offer some tax advantages, there are still taxes that must be paid.

One reason you have to pay taxes on your investments, even if you use Robinhood, is that the government needs revenue to operate. It costs money to maintain roads, fund social programs, and other important initiatives. By taxing investments, the government can offset some of these costs.

Another reason you have to pay taxes on your investments is that the government wants to incentivize people to save for retirement. By taxing investments, the government encourages people to invest their money in taxable accounts rather than in capital gains tax-free accounts like IRAs and 401(k)s. This helps to ensure that there is enough money available for retirees.

2. How the IRS is cracking down on people using Robinhood to avoid taxes

the sign to the internal revenue service building

While it may be frustrating to have to pay taxes on your investments, it is important to remember why these taxes exist. The government needs revenue to operate and it wants people to save for retirement. By understanding these reasons, you can better appreciate why taxes are levied on investments.

The IRS is cracking down on people using Robinhood to avoid taxes. People have been taking advantage of the platform by buying and selling stocks through Robinhood, not realizing that they still need to report any profits they make on their taxes. The IRS has been stepping up its efforts to catch these tax evaders, and is now asking Robinhood to provide information on all of its users.

Robinhood responded to the IRS's request by stating that it will cooperate with the agency, but will also protect the privacy of its users. The company said that it will only provide information about users who have specifically violated tax laws, and that it will not release any data that could be used to identify individual users.

Despite Robinhood's assurances, many people are concerned about the implications of the IRS's request. Some people worry that the agency will be able to use the data provided by Robinhood to track down individual taxpayers who have been trying to avoid paying their fair share. Others are concerned that the IRS will use this information to target specific groups of people, such as young people or low-income taxpayers, for audits.

Regardless of the concerns involved, it is clear that the IRS is serious about cracking down on capital gains tax evasion, and that Robinhood is going to have to play a role in helping them do so.

3. The consequences of getting caught avoiding taxes with Robinhood

a warning against tax evasion

What are the consequences if you get caught?

The consequences of getting caught avoiding taxes with Robinhood can be severe. Taxpayers who are caught evading taxes may be assessed with significant penalties, interest, and back taxes. Additionally, taxpayers may be subject to criminal prosecution for tax evasion.  Individuals convicted of tax evasion can face up to five years in prison and be required to pay substantial fines. The IRS also may impose civil penalties for each year taxes are not filed or paid.

Why you should take care with your tax return.

Given the serious consequences, those who use Robinhood should take extra care to make sure they comply with taxation requirements within their tax bracket and keep accurate records of their transactions.  By doing so, they can minimize the chances of facing penalties and potential incarceration. Taxpayers using Robinhood should also consider consulting with an experienced tax attorney who can provide them with personalized advice on their specific financial situation.  This is especially true if they are unsure how to properly report their income from Robinhood or are concerned about being accused of tax evasion.

4. Tips for filing your taxes correctly if you've used Robinhood to make money

a reminder on a calendar to file your tax return

Tax season is upon us and if you've used Robinhood to make money, you'll want to make sure you're doing things correctly within your tax bracket. Here are a few tips for filing your taxes correctly.

1. Report all of your taxable income.

This includes investment income from Robinhood,, long term capital gains, dividend income and miscellaneous income as well as any other income you may have earned during the year.

2. File your taxes on time.

The deadline for filing your tax documents is typically April 15th, but it may be different depending on your state.

3. Use the correct forms.

Make sure you're using the right forms to report your Robinhood income. Form 1040 is typically used to report income from stocks, dividends, and investments.

4. Keep good records.

Keep track of all of your stocks transactions and brokerage fees throughout the year so you can report them accurately on your tax documents. This will help you understand your taxes owed and make filing your taxes much easier, and you will not owe taxes.

5. Consult a tax professional if you have any questions or need tax advice.

If you're not sure how to report your Robinhood income or capital gains on your tax forms, or if you have any other questions about your tax return, consult a tax professional for tax advice.


a screenshot of the robinhood app

Robinhood taxes and capital gains are important to file alongside your ordinary income on your tax return because if you don't, the government could come after you for long term

capital gains or short term capital gains back taxes, interest, and penalties on your stocks. In this article, we've outlined what happens if you don't file taxes as well as the consequences that can follow. It's important to be proactive about your tax situation and make sure you're doing everything possible to stay in compliance with the law. If you need help to file taxes or have any other questions related to your tax information, please reach out to a tax professional such as an accountant or tax lawyer!

If you're worried about what will happen to your stocks if Robinhood goes under or bankrupt, check out our article on that.

Subscribe For Free

Become a better investor in just 5 minutes. Bitesize market-moving news, summaries and links from the world of investing, three times a week.