There is a common misconception when it comes to investing. Some beginners think you only get taxed when you withdraw the money from your Investment account (for example, your Robinhood account) to your bank. This is a terrible mistake that can come back to bite you.
Every time you sell a stock, ETF, or cryptocurrency, you incur what the IRS considers a taxable event. You might owe taxes on that transaction whenever you make a stock sale. Even if you reinvest your profit by buying more stocks, you will still owe taxes on that. The same goes for any reinvested stock dividend income.
Therefore be very careful about all those trades (remember sales) you are making because every time you make a SALE, you have incurred a taxable event. And they add up quickly. You should consider making quarterly estimated tax payments to cover this extra taxable income before the end of the taxable year.
If this is confusing, please speak with a tax pro before it is too late. We at MICHAEL A. COOK LLC are prepared to help you make tax-wise investing decisions and help you understand your investments and tax liabilities better.
Excerpt, compliments of our good friends at keepertax.com