💰 An $800k tax on $45k profits


September 8, 2021

The Hustle

A Los Angeles man was sentenced to 4 years in prison for selling printer toner to businesses at wildly inflated prices. In one 6-year stretch, he sold unsuspecting victims $126m worth of toner. His attorneys place the blame on the cutthroat nature of the toner business.

Today’s rundown:

  • Robinhood woes: A trader racked up a tax bill of $800k on $45k profit
  • High times: Weed’s role in Amazon’s driver shortage
  • Instacart’s pivot: The delivery company is making a big bet on ads

Let’s do it.

The big idea
Robinhood phone app

How a Robinhood newb got an $800k tax bill on $45k profit

Trading memestonks on your phone is all fun and games — that is, until you get slapped with an $800k tax bill.

How? If inexperienced traders run afoul of the “wash sale rule,” taxes could outweigh gains.

A what sale?

A wash sale is when you sell a security at a loss, then buy it or a “substantially identical” security 30 days before or after the sale.

The wash sale rule means you can’t take a tax deduction on that loss. It’s to stop people from using wash sales to increase tax benefits, but you can trigger it without even knowing it exists.

Here’s how it works:

  1. You buy 100 shares at $10/share for $1k
  2. Later, you sell them at $7/share for $700 — a loss of $300
  3. The next week, you repurchase them at $6/share for $600

Due to the wash sale rule, that loss is added to the cost basis, meaning your $600 repurchase becomes $900.

When you sell your shares again, your original loss is applied to the adjusted cost basis. That’s what you’ll use on your taxes.

So, how do you get an $800k tax bill?

That example’s an outlier, but the unidentified retail trader told financial advisor Brian Wruk he did it by going berserk on Robinhood, per Forbes.

The man opened a Robinhood account in 2020. He put up $30k, but Robinhood gave him $90k on margin. He then did 10 to 50 trades daily.

He ultimately:

  • Generated $45m (yep, million) in gross proceeds
  • Profited by $45k
  • Had $1.4m in capital gains tax
  • And a potential tax bill of $800k+

“He booked a profit but was disallowed all the losses because he never once waited the 30 days on those stocks to book the loss,” Wruk said.

And short-term gains are taxed like ordinary income. Yikes.

The moral of the story: Let your stocks marinate at least 30 days, lest you become a cautionary tale!

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SNIPPETS

Beauty Pie, a members-only shop for discounted luxury beauty products, scored $100m in funding to build new warehouses and pop-ups. #ecommerce-retail

Sunny news: A new report suggests solar energy could power 40% of the US’s electric supply by 2035 — if the nation invests in it. #clean-energy

Fantasy story: Chinese EV company Xpeng has plans for a robot unicorn kids can ride. #emerging-tech

Hacker Mart: The Genesis Market is where hackers go to buy and sell sensitive data, like login credentials and website vulnerabilities. #privacy

The MS Satoshi was a cruise ship bought to be a floating libertarian society where people only traded in crypto. It did not go as planned. #fintech-cryptocurrency

Moderator blues: Australia’s High Court ruled that news publishers are responsible for other peoples’ defamatory comments on their posts. #big-tech

Google Spaces are now live for all Workspace users with a bunch of integrated features. #big-tech

Now on MFM: Why D2C companies are awesome, a psychedelic story, and more. #mfm

Story in a Chart
screening for marijuana infographic

Zachary Crockett / The Hustle

Why Amazon says weed could solve its driver shortage.

Amazon says its number of driver applicants who fail drug tests for marijuana use is too high.

When screening for marijuana, the company’s driver applicant pool reportedly drops by 30% — the opposite of what you want during a labor crunch.

Now, Bezos’s baby is instructing delivery partners to explicitly advertise that they don’t screen for marijuana, which Amazon says could light up the applicant pool by 400%.

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Food Tech
Instacart shopper

Instacart is going all in on ads. Here’s why.

Like your aunt and uncle, Instacart is a big fan of Facebook.

Specifically, its high-ranking execs.

In 2021, the $39B grocery delivery startup poached its new CEO (Fidji Simo), COO (Asha Sharma), and president (Carolyn Everson) from the House of Zuck.

No, Instacart isn’t building a social network…

… but its ads business is on the rise, pulling in ~$300m in 2020 with projections to hit $1B in 2022, per The Wall Street Journal.

What exactly are Instacart ads?

  • Search-based: This is the core ad business, in which brands pay for placement on customer product searches (these ads are also bundled with coupons and deals).
  • Display ads: Old-school banners on the website.

Ads are critical as delivery slows

Instacart’s delivery business boomed during the pandemic. Growth has understandably slowed by the startup is facing other headwinds, too:

  • Competition — think Uber Eats and DoorDash (which almost acquired Instacart) — has eaten into market share, which was once more than 60% but is now hovering at ~50%.
  • Labor and transportation costs have gone up.

Grocery chains typically sell shelf placement…

…to consumer brands (e.g., eye-level chewing gum at checkout) but may lose that revenue stream if those ad dollars are routed to Instacart.

WSJ notes that brands typically have separate budgets for in-store and digital ads. This could change in a post-COVID world — and if it does, grocers may like Instacart a lot less than Instacart likes Facebook.

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Podcast

Highlights from ep. 205 of My First Million

Business ideas galore →
AROUND THE WEB

🙈 Haha: The finalists for the 2021 Comedy Wildlife Photography Awards feature a variety of animals making almost-human expressions.

🤯 On this day: In 1504, Michelangelo unveiled his 17-foot, 12k-pound “David” to the Italian public. The statue was carved from 1 big block of marble into 1 of the most recognizable artworks in the world.

🪐 How to: Taking stunning photos of the night sky is easier than you think, at least according to Space.com’s beginner’s guide.

🌍 Cure boredom: This site asks you to draw a line, then matches your line to a place on an aerial map of the world.

☕️ That’s cool: A man made a coffee mug out of a bag of coffee beans. There are simpler ways to enjoy your morning java, but it looks pretty awesome.

🎥 Chill out: Watch this rare 19th-century footage of people around the world.

Failed prototype of the day
Theranos slide

A slide from a 2006 Theranos pitch deck (Source: Axios)

In 2006, Elizabeth Holmes raised $30m in Series C financing for her startup Theranos based on the blood-testing prototype in the image above.

It used a punch card to insert a blood sample into a clunky analyzer machine. Holmes would ultimately raise $700m+, “valuing” Theranos at $10B.

Theranos famously imploded because: 1) the blood-testing machines were faulty; 2) the startup’s lab practices were poor; and 3) Holmes lied to regulators, employees, health partners, and investors about it all.

Now, Holmes is on trial for defrauding investors and patients, with opening statements for her case beginning today. If convicted, she could face up to 20 years in prison.

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And no, this ain’t an ad. We just think you’re the kinda person who would thrive in our top-tier community (it’s usually $299) full of founders, investors, and builders (AKA ambitious, no B.S. business folks like you — and enjoy our premium research and content.

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