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If you joined the GameStop frenzy or dabbled with Bitcoin, get ready for the

Many first-time investors who jumped into the 2020 bull run find themselves drowning in tax-time paperwork — as could be any other newbies who joined this year’s GameStop frenzy or Bitcoin bonanza for next year’s tax return.

Every time a trader sells a stock or a cryptocurrency, it counts as a taxable moment. Because traders may move in and out of different stocks and coins several times a week or day, they can be surprised when hundreds of pieces of paper arrive at their door. The IRS wants a peek at and may want a cut of all of it.

“My Robinhood tax form for 2020 is 374 pages. Day trading is fun,” Mike Ziemer, 35, a marketing and music entrepreneur from Dallas, said in an online message. When the coronavirus pandemic shut down his live event business he pivoted to day trading. The gains let him pay his bills and build a recording studio, but now he has to dump hundreds of extra pages on his accountant.

“I did let him know in advance that I survived through 2020 day trading and that my tax forms would be more complicated,” Ziemer said. “I just received them last week, so he’ll be getting all of them this week.”

The stock market run, with the S&P 500 ending the year up by over 16 percent, paid handsomely for those with the right timing and stomach, drawing in players from all walks of life, from farmers to engineers to the bored and the laid-off and the desperate. Now comes the hangover.

Marketing and music entrepreneur Mike Ziemer of Dallas records an instructional stock trading video in his production studio.Anna Marie Taylor Cavitt

“There were massive capital gains made last year from every stripe and age. Almost everyone comes in having booked a solid $200,000, half-million, $1 million and didn’t pay estimated taxes. They have massive tax bills coming due April 15,” Robert Green, a CPA with Green, Neuschwander & Manning, a firm specializing in tax issues for frequent traders, said in a phone call. “They’ve never paid tax bills like this before.”

“They’ve never paid tax bills like this before.”

New traders may struggle with reporting their transactions, especially when dealing with foreign-operated and more obscure exchanges. Some exchanges allow transactions to be downloaded, while others let customers use third-party software that can download their trades to make filing easier. Robinhood sends its users 1099 forms for them to file, although forms were delayed for some after the company missed a deadline.

Tax experts and the IRS say taxpayers need to be aware of several unique issues with day trading stocks and cryptocurrency.

Day traders of stocks and crypto may execute frequent transactions as part of their trading strategy, but that can expose them to higher taxes. The IRS considers stocks and cryptocurrency to be property, and that’s where capital gains tax comes in.

Property held for at least one year qualifies for the long-term capital gains tax, with a maximum rate of 20 percent. Property held for less than a year is taxed as ordinary income, subject up to a 37 percent tax rate.

To help clear up whether the IRS is interested in crypto holdings, the agency moved a question about cryptocurrency holdings to the top of Form 1040. Now there’s no avoiding it, even though some may want to.

“A lot of crypto-type people are noncompliance kind of people,” Green said.

The IRS has been trying to get more of a handle on the situation and greater visibility into the partly anonymous nature of some crypto transactions.

“The IRS has also had some success in obtaining from third-party cryptocurrency facilitators records of taxpayers who have engaged in cryptocurrency transactions,” Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said in an email. “The IRS may also use this information to look for tax returns that fail to…

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