Editorial staff
The traders who stay ahead aren't necessarily the ones with the biggest portfolios; they're the ones with organized records. Here's how to get your financial documentation in order before April sneaks up on you.
Start With Your Employment Income
Even if trading is your passion, most active investors still have traditional employment income. That means your W2 form is the foundation of your tax return.
Your W2 summarizes everything your employer withheld: federal and state income tax, Social Security, Medicare, and contributions to retirement accounts. If the numbers don't match what you've tracked throughout the year, you could end up overpaying or facing an unexpected bill.
Pro tip: Don't wait until January to reconcile your income. Compare your final paystub of the year against your W2 when it arrives. They should align. If they don't, flag it with your employer's payroll department immediately.
Track Your Trading Activity Year-Round
Brokerages issue 1099-B forms for capital gains and losses, but relying solely on these forms is a mistake. The IRS expects you to report every trade, and discrepancies between your records and your broker's can trigger audits.
Keep a running log of:
- Cost basis for each position
- Holding periods (short-term vs. long-term gains carry different tax rates)
- Wash sales (selling at a loss and repurchasing within 30 days disallows the loss)
- Crypto transactions (the IRS treats crypto as property, not currency)
Software tools like Koinly or CoinTracker can help automate this for crypto traders, but even a well-maintained spreadsheet works if you're disciplined.
Why Your Paystubs Matter Beyond Payday
Many traders overlook their paystubs once the money hits the bank, but these documents serve purposes beyond confirming your paycheck cleared.
Lenders, landlords, and financial institutions regularly request paystubs as proof of income. If you're applying for a mortgage to buy rental property or seeking a margin account upgrade from your brokerage, you'll need recent pay documentation.
Self-employed traders or those with inconsistent income face an additional challenge: proving stable earnings without a traditional employer. In these cases, being able to make paystubs that accurately reflect your income becomes essential for major financial decisions like securing a mortgage or upgrading your brokerage account.
Organize Documents by Category
Come tax time, scrambling through emails and filing cabinets wastes hours you could spend analyzing markets. Create a simple system now:
Employment Income:
- W2 forms (one per employer)
- Final paystub of the year
- Records of any bonuses, stock options, or RSU vesting
Investment Income:
- 1099-B (brokerage capital gains/losses)
- 1099-DIV (dividends)
- 1099-INT (interest income)
- Crypto transaction history
Deductions:
- Home office expenses (if you trade professionally)
- Trading software subscriptions
- Financial advisory fees
- Investment-related education
Cloud storage with dedicated folders for each tax year keeps everything accessible and backed up.
The Bottom Line
Active traders operate in a more complex financial landscape than the average W2 employee, but that complexity doesn't have to mean chaos. Maintaining organized records throughout the year, from your paystubs to your brokerage statements, saves time, reduces stress, and can even uncover deductions you might otherwise miss.
The market rewards preparation. Your tax return should, too.
Editorial staff
