Paying Tax on Stocks Trading
The answer to your question doesn't depend on who you trade with but what country you live in. If you live outside of the US, you will have to pay tax on dividends... sometimes. This depends on the tax treaty that your country has with the US. Canada, Australia, UK and a few other countries have favorable tax treaties with the US that allow you to not be double taxed. You must look into the tax treaty that your home country has with the US to answer the question. Each country is different.
"A loan is not a taxable income. Neither is a gift. Loans are repaid with interest. The interest is taxable income to the lender, and may or may not be deductible to the borrower, depending on how the loan proceeds were used. Gifts are taxable to the donor (the person giving the gift) under the gift tax, they're not a taxable income to the recipient. Some gifts are exempt or excluded from gift tax (there's the annual exemption limit, lifetime exclusion which is correlated to the estate tax, various specific purpose gifts or transfers between spouses are exempt in general).  If you trade for something of equal value, is that considered income? Yes. Sale proceeds are taxable income, however your basis in the item sold is deductible from it. If you borrow a small amount of money for a short time, is that considered income? See above. Loan proceeds are not income. does the friend have to pay taxes when they get back their $10? No, repayment of the loan is not taxable income. Interest on it is. Do you have to pay taxes if you are paid back in a different format than originally paid? Form of payment doesn't matter. Barter trade doesn't affect the tax liability. The friend sold you lunches and you paid for them. The friend can deduct the cost of the lunches from the proceeds. What's left - is taxable income. Everything is translated to the functional currency at the fair market value at the time of the trade. you are required to pay taxes on the gross amount Very rarely taxes apply to gross income. Definitely not the US Federal Income taxes for individuals. An example of an exception would be the California LLC taxes. The State of California taxes LLCs under its jurisdiction on gross proceeds, regardless of the actual net income. This is very uncommon. However, the IRC (the US Federal Tax Code) is basically ""everything is taxable except what's not"", and the cost of generating income is one of the ""what's not"". That is why you can deduct the basis of the asset from your gross proceeds when you sell stuff and only pay taxes on the net difference." I like your enthusiasm and initiative. However, there are a few things you need to consider that you haven't yet thought about. First, it is important to remember that trading with fake money is not the same as trading with real money.  In the fake world, you have $100k.  With this fake money, you can do reckless things with it, such as put it all on one stock.  If you lose, it costs you nothing, so you don't have an emotional attachment to it.  With real money, it will feel different, and that is something you haven't experienced yet. Second, you mentioned that you are good at making picks.  With all due respect, I suggest that you aren't old enough to make that determination.  You haven't been trading for long enough to determine if you are doing well at it.  :)  That having been said, I don't want to completely discourage you from trying something new. Third, you mentioned long-term investing, but you also said that you need to make your money back quick and mentioned trading daily.  Those things aren't really compatible.  I wouldn't consider what you are doing as long-term investing.  With the type of investing you are doing, picking individual stocks and hoping for the value to go up in a relatively short time-frame, it is similar to gambling.  The risk of losing is very much there, and you shouldn't be investing money this way that you aren't prepared to lose.  If you need the money for something soon, don't put it in the stock market. Never forget this.  What can happen is that you start with small amounts of money, do well, and then, thinking that you are good at this, put in larger amounts of money.  You will eventually lose.  If you put in money that you need for something else, you have a problem. If you are trying this out for education and entertainment purposes, that is great.  But when it starts to get serious, make sure that you are aware of the risks.  Educate yourself and be smart. Here is what I would suggest: If you want to try this short-term day-trading type investing, and you understand that the money can easily be lost, I would balance that with investing in a more traditional way: Set aside an amount each month to put in a low-expense index mutual fund.  Doing this will have several benefits for you:  As for your specific questions about stock trading with small amounts: Yes, you can trade with small amounts; however, every time you trade, you will be paying a commission.  Even with a discount broker, if you are trading frequently, the commissions you will be paying will be very significant at the dollar amounts you are talking about.  The only way I can see around this would be to try the Robinhood app, which allows you to trade without paying sales commission.  I have no experience with that app. "Whoa. These things are on two dimensions.  It's like burger and fries, you can also have chicken sandwich and fries, or burger and onion rings.   You can invest in an taxable brokerage account and/or an IRA.  And then, within each of those...  You can buy index funds and/or anything else. All 4 combinations are possible.  If someone says otherwise, take your money and run.  They are a shady financial ""advisor"" who is ripping you off by steering you only into products where they get a commission. Those products are more expensive because the commission comes out of your end.  Not to mention any names.  E.J.    If you want financial advice that is honest, find a financial advisor who you pay for his advice, and who doesn't sell products at all.  Or, just ask here.  But I would start by listening to Suze Orman, Dave Ramsey, whomever you prefer.  And read John Bogle's book.   They can tell you all about the difference between money market, bonds, stocks, managed mutual funds (ripoff!) and index funds. IRA accounts, Roth IRA accounts and taxable accounts are all brokerage accounts.  Within them, you can buy any security you want, including index funds.  The difference is taxation.  Suppose you earn $1000 and choose to invest it however  Later you withdraw it and it has grown to $3000.  Investing in a taxable account, you pay normal income tax on the $1000. When you later withdraw the $3000, you pay a tax on $2000 of income.  If you invested more than a year, it is taxed at a much lower ""capital gains"" tax rate.  With a traditional IRA account, you pay zero taxes on the initial $1000.  Later, when you take the money out, you pay normal income tax on the full $3000.  If you withdrew it before age 59-1/2, you also pay a 10% penalty ($300).  With a Roth IRA account, you pay normal income tax on the $1000.  When you withdraw the $3000 later, you pay NOTHING in taxes.  Provided you followed the rules.   You can invest in almost anything inside these accounts: Money market funds. Terrible return.  You won't keep up with the market.  Bonds.  Low return but usually quite safe.  Individual stocks.  Good luck.   Managed mutual funds.  You're paying some genius stock picker to select high performing stocks. He has a huge staff of researchers and  good social connections.  He also charges you 1.5% per year overhead as an ""expense ratio"", which is a total loss to you.  The fact is, he can usually pick stocks better than a monkey throwing darts.  But he's not 1.5% better!  Index funds.  These just shrug and buy every stock on the market.  There's no huge staff or genius manager, just some intern making small adjustments every week.  As such, the expense ratio is extremely small, like 0.1%.    If any of these investments pay dividends, you must pay taxes on them when they're issued, if you're not in an IRA account.  This problem gets fixed in ETF's.  Index ETF's.  These are index funds packaged to behave like stocks.  Dividends increase your stock's value instead of being paid out to you, which simplifies your taxes.  If you buy index funds outside of an IRA, use these.  Too many other options to get into here." "4) Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? There seems to be confusion behind this question.  A company does not set the price for their stock, so they can't ""reduce"" it either.  In fact, nobody sets ""the price"" for a stock. The price you see reported is simply the last price that the stock was traded at.  That trade was just one particular trade in a whole sequence of trades.  The price used for the trade is simply the price which the particular buyer and particular seller agreed to for that particular trade.  (No agreement, well then, no trade.)  There's no authority for the price other than the collection of all buyers and sellers. So what happens when Nokia declares a 55 cent dividend?  When they declare there is to be a dividend, they state the record date, which is the date which determines who will get the dividend: the owners of the shares on that date are the people who get the dividend payment.  The stock exchanges need to account for the payment so that investors know who gets it and who doesn't, so they set the ex dividend date, which is the date on which trades of the stock will first trade without the right to receive the dividend payment.  (Ex-dividend is usually about 2 days before record date.)  These dates are established well before they occur so all market participants can know exactly when this change in value will occur. When trading on ex dividend day begins, there is no authority to set a ""different"" price than the previous day's closing price.  What happens is that all (knowledgeable) market participants know that today Nokia is trading without the payment 55 cents that buyers the previous day get.  So what do they do?  They take that into consideration when they make an offer to buy stock, and probably end up offering a price that is about 55 cents less than they would have otherwise.  Similarly, sellers know they will be getting that 55 cents, so when they choose a price to offer their stock at, it will likely be about that much less than they would have asked for otherwise." If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them.  Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it.  When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime).  However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules.  This practice is known as tax loss harvesting. Restricted Stock Units are different from stock options because instead of buying them at a particular strike price, you receive the actual shares of stock. They are taxed as ordinary income at the time that the restriction is lifted (you don't have to sell them to be taxed). Usually, you can choose to have a percentage of the stock withheld to cover tax withholding or pay for the withholding out of pocket (so you can retain all of your shares). Assuming a USA taxable account: Withdrawing funds from a brokerage account has nothing to do with taxes. Taxes are owed on the profit when you sell a stock, no matter what you do with the funds. Taxes are owed on any dividends the stock produces, no matter what you do with the dividend. The brokerage sends you a form 1099 each year that shows the amounts of dividends and profits. You have to figure out the taxes from that. Is the remaining amount tax free? As in, if the amount shown (which I can sell) on etrade is $5000 then if I sell the entire shares will my bank account be increased by $5000? The stocks they sell are withholding.  So let's say you had $7000 of stock and they sold $2000 for taxes.  That leaves you with $5000.  But the actual taxes paid might be more or less than $2000.  They go in the same bucket as the rest of your withholding.  If too much is withheld, you get a refund.  Too little and you owe them.  Way too little and you have to pay penalties.   At the end of the year, you will show $7000 as income and $2000 as withheld for taxes from that transaction.  You may also have a capital gain if the stock increases in price.  They do not generally withhold on stock sales, as they don't necessarily know what was your gain and what was your loss.  You usually have to handle that yourself.   The main point that I wanted to make is that the sale is not tax free.  It's just that you already had tax withheld.  It may or may not be enough.