Calculate the pre-tax gross returns needed to achieve your take-home financial goals across all 50 US states.
For almost all individual retail traders, equity and ETF options (e.g., AAPL, TSLA, SPY, QQQ) held for one year or less are classified as Short-Term Capital Gains (STCG). STCG is taxed at ordinary federal income tax rates (from 10% up to 37%), plus applicable state and local taxes, and potentially the 3.8% Net Investment Income Tax (NIIT).
Under Section 1256 of the Internal Revenue Code, broad-based index options (such as SPX, NDX, RUT, and XSP) receive special tax treatment regardless of how long contracts are held. 60% of capital gains are taxed at favorable long-term capital gains rates (maximum 20%), while only 40% are taxed at short-term ordinary rates (maximum 37%). This blended rate lowers the maximum federal tax rate from 37% down to roughly 26.8% (excluding NIIT).
Trading profits are stacked on top of your existing taxable income (such as W-2 wages, 1099 self-employment income, or business profits). If you earn $80,000 at your day job, your trading profits do not start in the 10% or 12% brackets—they immediately enter your top marginal bracket (22% or higher). Entering your baseline income ensures accurate marginal and effective tax calculations.
The NIIT is an additional 3.8% surtax levied by the federal government on net investment income (which includes capital gains from trading options, stocks, and bonds) for high earners. It applies when your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.
Nine US states have no personal income tax on equity trading gains: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Note: Washington State imposes a 7% tax specifically on net long-term capital gains above $250,000, but standard short-term equity options gains remain exempt.
Yes. Broad-based index options classified under Section 1256 (like SPX and NDX) are marked-to-market at year-end and are explicitly exempt from the IRS wash sale rule. In contrast, equity and single-stock ETF options (like SPY and QQQ) are strictly subject to wash sale rules if you repurchase substantially identical contracts within a 30-day window.
When premium sellers target a specific after-tax income (e.g., $50,000 net take-home), they must know their required gross profit (e.g., $72,000). Dividing this gross requirement by 252 trading days reveals the exact daily dollar target ($285/day) they need to engineer through theta decay in our Daily Theta Calculator.