Avoiding Wash Sales

[davetrading]

Was considering incorporating and opening an account under an llc. I've read that if you do this, you can avoid wash sales. Also heard you can pay all of your investing costs before you pay taxes (pay your country club membership, lease a "company car," professional subscriptions, publications - Barron's, WSJ etc.) as company expenses before paying taxes on your trading profits.

Anyone here do this?

Thanks for any information!
dave

 

[smallfil]

Consult a qualified tax accountant is your best bet. This is too important to muck up. Not sure which setup is best.

 

[Sig]

Was considering incorporating and opening an account under an llc. I've read that if you do this, you can avoid wash sales. Also heard you can pay all of your investing costs before you pay taxes (pay your country club membership, lease a "company car," professional subscriptions, publications - Barron's, WSJ etc.) as company expenses before paying taxes on your trading profits.

Anyone here do this?

Thanks for any information!
dave

Probably worth a call to Green Trader Tax rather than listen to anonymous jackasses on the internet. But if you insist on listening to anonymous jackasses on the internet:
-You can avoid wash sales by simply not trading the same asset more than once in Dec. Not sure why an LLC would void the wash sale rule?
-Country club memberships are pretty hard to deduct if you're a sales guy who does all your sales at the country club. Absolutely not gonna fly for an individual trader.
-Similar with a company car. Can you prove it was genuinely necessary for your work as a trader and are you going to restrict your use of it to only your trading activities? No likely on either count.
-Deducting subscriptions is one of the only actual legit benefits of forming a trading LLC. Is that worth it for all the extra tax filings and state annual reports/minimum franchise taxes an LLC entails? I don't think so, but ymmv.

Keep in mind that it's also a bit of a pain in the ass to open a brokerage account as an LLC because you have to personally guarantee it, and you may have to open a bank account for the LLC to comply with know your customer rules which is also a pita for an LLC compared to a personal account. All in all not worth it in my opinion if you're not saving $5-10K a year or more on taxes, which is highly unlikely. You may value your time and pita factor differently though.

 

[Bugsy]

Was considering incorporating and opening an account under an llc. I've read that if you do this, you can avoid wash sales. Also heard you can pay all of your investing costs before you pay taxes (pay your country club membership, lease a "company car," professional subscriptions, publications - Barron's, WSJ etc.) as company expenses before paying taxes on your trading profits.

Anyone here do this?

Thanks for any information!
dave

You can avoid wash sales if you comply with the "Tax Trader Status" and claim "Mark to Market" on the preceding tax year. This means you would have had to claim 'Mark to Market' by July 15th this year (due to the extension from April 15th) in order for your trades to be eligible to avoid wash sales. In order to be compliant with Tax Trader Status you have to fall under some strict guidelines. Mainly you must trade to an average of 3 trades per day (remember average, plus a buy counts as one trade and sell another). It must also fall under the precepts of "frequently" meaning you cant do 1,000 trades in a month and claim Tax Trader Status. It needs to be viewed as a frequent rate of trading such as day trading in and of itself is seen. There is no strict guidelines, but these precepts have been taken from prior court rulings and loosely given tax consultants a process to help classify their clients.

An LLC is also a good idea as it protects you from personal liability suits as your company income is separate from your personal income. Anybody sues you the money from your trading ventures are protected.

 

[Sig]

An LLC is also a good idea as it protects you from personal liability suits as your company income is separate from your personal income. Anybody sues you the money from your trading ventures are protected.

It might work the other way around, if someone sues you LLC it protects your personal assets. But if someone sues you the LLC is one of your personal assets same as the money in your bank account or your house, so it provides you no protection. And it's so vanishingly unlikely that a single person trading vehicle LLC would be subject to a successful suit for anything that I wouldn't consider the protection it grants you to be worth much either.

 

[SteveH]

Don't trade stocks in January which gave you a net loss in December.

If there's no trading vehicle to carry the losses into the next year then there's no wash sale.

Alternatively, you could stop trading stocks for the entire month of December and then trade whatever you want in January.

 

[davetrading]

When buying/selling a stock or option, you have to look back 30 days and, I guess plan ahead another 30 days forward when you are considering the possibility of a wash sales. This isn't just for December. Its year round.

I usually trade 1256 options, namely SPX. So, I never have to worry about this. I'm in and out of multiple options trades daily. Taxes are a blend of 60% long term capital gains and 40% short term. So, its a lot easier to do my taxes and my rate is much lower due to the blended tax on the earnings of my SPX option trades.

I do like to trade options in stocks as well. I just don't like to worry about wash sales, which, if i made more profitable trades than losing during the day, I would only be taxed on my profits. This would limit more than 1 straddle in a 60 day period on an individual stock. Since fewer and fewer stocks are running the SPX and NDX, it keeps limiting my choices on companies.

I might have gotten off topic with my original post about added expenses. I'm also not leaning towards incorporating due to concerns about lawsuits. (I have an umbrella policy and my kiddos are all under 6, so it's hard for them to do some damage in the cars yet. Again, getting sidetracked.)

I'm not eligible for Tax Trader Status as the bulk of my income comes from my day job.

Has anyone using ET incorporated for tax purposes? I've done a little reading on Green Trader and other various stock/incorporating websites. Just didn't want to go down a wormhole before talking to actual traders who have incorporated.

Thanks for any input!

 

[Sig]

When buying/selling a stock or option, you have to look back 30 days and, I guess plan ahead another 30 days forward when you are considering the possibility of a wash sales. This isn't just for December. Its year round.

I usually trade 1256 options, namely SPX. So, I never have to worry about this. I'm in and out of multiple options trades daily. Taxes are a blend of 60% long term capital gains and 40% short term. So, its a lot easier to do my taxes and my rate is much lower due to the blended tax on the earnings of my SPX option trades.

I do like to trade options in stocks as well. I just don't like to worry about wash sales, which, if i made more profitable trades than losing during the day, I would only be taxed on my profits. This would limit more than 1 straddle in a 60 day period on an individual stock. Since fewer and fewer stocks are running the SPX and NDX, it keeps limiting my choices on companies.

I might have gotten off topic with my original post about added expenses. I'm also not leaning towards incorporating due to concerns about lawsuits. (I have an umbrella policy and my kiddos are all under 6, so it's hard for them to do some damage in the cars yet. Again, getting sidetracked.)

I'm not eligible for Tax Trader Status as the bulk of my income comes from my day job.

Has anyone using ET incorporated for tax purposes? I've done a little reading on Green Trader and other various stock/incorporating websites. Just didn't want to go down a wormhole before talking to actual traders who have incorporated.

Thanks for any input!

Is is only for December. There's no tax consequences of wash sales if you don't trade in Dec.

 

[davetrading]

What?!? Wow. Not true. I'm sure if you google wash sale, there's plenty of info out there for you. Not interested in debating what a wash sale actually is. Was just curious to see if anyone here as incorporated to avoid wash sales in lieu of Tax Trader status.

Thanks

 

[Sig]

What?!? Wow. Not true. I'm sure if you google wash sale, there's plenty of info out there for you. Not interested in debating what a wash sale actually is. Was just curious to see if anyone here as incorporated to avoid wash sales in lieu of Tax Trader status.

Thanks

A "wash sale" can technically happen at any time, but it only has tax implications if the 30 day period crosses a tax year since that's the only point at which the disallowance matters. Here's an article that explains it, there are dozens more out there if you do a search. If you disagree then happy to walk you through the mechanics of an example if you like?