Best Tax set-up for Futures trader???

T

T.A.P

Hi all, I know this question has probably been asked a 100 times but for the life of me I cant find the right thread - and I get sidetracked with all the other good stuff here :D :D

I intra-day trade YM futures, but also have full-time job. I am not a US citizen but am here on a working visa, if that makes any difference.

My trading is profitable and I would obviously like to protect myself from paying more tax than is necessary.

So my question is:-

Can anyone please suggest the best tax setup options, or at least point me in the right direction / tread??

Many thanks...
 
Futures gains are taxed 60/40 long-term/short-term rates. Long-term rate is 15% currently. Even if you're in the highest short-term bracket, that caps out 23% combined tax rate on all futures profits.

There's really no point in going out of your way to setup a foreign tax structure since futures are already taxed at far more favorable rates than stocks & options.
 
Thanks KGB..!

So you're saying that reporting my futures trading profits via the usual personal tax-return channels (as opposed to via any legal entity I could set up) would leave me no worse off tax-wise?

Are there any benefits of setting up a legal entity? ie off the top of my head:-

- claiming costs such as travel, computer, etc as tax deduction?
- could you claim commission as a business cost deduction?

Are there any disadvantages to setting up as a legal entity?

Sorry for all the questions. Appreciate that you are probably busy.. :D
 
There's no additional tax benefits in trading futures as an "enity" vs. as an individual. In fact there could be conceivable risks in going corporate (in some cases you'd owe self employment tax). Profits are ex-commissions. Very few firms will quote your YTD with commissions included. It would be bad business on their part. Who want's to be reminded of their commish total?


Naturally items such as the service charge from your ISP, charting and research expenses, a portion of your utilities and a "home office" deduction are allowable.
Quote from T.A.P:

Thanks KGB..!

So you're saying that reporting my futures trading profits via the usual personal tax-return channels (as opposed to via any legal entity I could set up) would leave me no worse off tax-wise?

Are there any benefits of setting up a legal entity? ie off the top of my head:-

- claiming costs such as travel, computer, etc as tax deduction?
- could you claim commission as a business cost deduction?

Are there any disadvantages to setting up as a legal entity?

Sorry for all the questions. Appreciate that you are probably busy.. :D
More...
 
First, you could file for trader status with the IRS, search these forums for the pro's and con's.

In the situation you describe, to gain any tex benefit, a legal entity would have to be off-shore in a country with a favorable tax treaty with the US. The laws change quite frequently on this and it also requires quite a bit in legal fees. It really doesn't make sense unless you're talking +6 figures in taxes.

See this thread for a somewhat similar discussion:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=84858&perpage=6&pagenumber=1
 
I would read this carefully:
http://www.irs.gov/pub/irs-pdf/p550.pdf
Then notice there are several serious limitations set forth for individuals (vs. LLC):
1) expenses are limited to 2% adj gross income
2) absolutely no deductions for seminars, training costs
3) deductions for losses are limited as well

I would say each trader's individual situation must be taken into account before making a decision of individual vs. LLC is made.
 
You're trading futures, which already get the 60/40 favorable tax treatment. You don't really need to form any kind of entity, unless you're talking huge sums and want to mess with the whole offshore undertaking. And you better get it right if you go that way.

And as you said you have a full-time job, you can likely forget filing with trader status. The IRS has some pretty strict rules, and having a full-time job outside of trading would be a hard sell. You'll have to settle for deducting investment expenses (I forget the threshold).
 
futures traders do not need another structure in the US. At least, I have never seen the benefit.

Out of curiosity, do any of you guys know the rules for private US futures traders that live outside the states for a while?

For instance, anyone know what rules apply to US futures traders living in Europe? I am thinking about moving overseas for a while and wonder if I would have to do anything different.
 
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