can someone answer this simple tax question

yes if you qualify as a trader you can write off all expenses pertaining to your business. You don't need an entity
The reason you make an entity (if you are a full time trader) is to create earned income to fund a retirement account etc.

For self employment taxes, according to IRS Publication 550 " Gains and losses from selling securities as part of a trading business are not subject to self employment tax".

That's regardless if u have an entity or even MTM.
 
It’s been great reading this forum. I’m an admitted “newbie”, but learning fast. I’ve researched lots of broker-dealers and chosen Terra Nova. I’m going to trade NYSE & NASDAQ stocks and hold nothing overnight.
I’m obviously interested in setting up my taxes correctly. I plan to transfer my existing 401(k) from xyz corp. into a traditional IRA at Terra Nova. That account stays separate from my business trading account.

My business trading account….. I’m leaning toward an LLC, but not yet decided.
See about halfway down this link:
http://www.daxdesai.com/2008/01/10/professional-day-trading-mark-to-market

I’ve also read these sites. I’m hiring an accountant, but learning and doing as much as I can myself.
www.Tradersaccounting.com I will call them, but noted concerns about them in this forum.
www.Daytradertax.com Looks like they charge for basic info. (free elsewhere on the web), but beyond that look very promising. I’m going to call them.
www.traderstatus.com They estimate $600, plus more if an LLC. Probably not going to call. Website looks kind of goofy.

I have a very successful friend in real estate businesses who has explained to me several things:
In PA, it is easy to register an LLC on http://www.paopen4business.state.pa.us/
Next you need an operating agreement, just write this and keep it in a file.
Then register to get an EIN #, a lawyer would charge $1,000. But you can do online or over the phone
http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

! Comments welcome !

Thanks to all willing to share info.

PS - I’ve read other posts here on www.elitetrader.com about Tuco, Swift, etc. A very BASIC check before dropping your $$$$$ is to check out the brokerage firm (or broker) at:
http://brokercheck.finra.org/Search/Search.aspx?PageID=2
 
Quote from SWhiting:
... It seems pretty straight-forward to set up a 'C' corp and trade through it.

One question I have when acting within a corporation: do the brokers and quote services regard you as a 'professional'?
More...
I believe that if you use an entity (LLC or corporation), the exchanges will regard you as a 'professional' and charge higher licensing fees for data. That was my experience with the NYSE anyway.

Setting up a 'C' corp is easy enough, but there are things you should know. If you lose money trading, the losses are 'trapped' and there is no way to recover them except by making offsetting gains. That can really bite. You also need to understand the personal holding company trap and double taxation of retained earnings, both of which can be avoided if you know what you are doing.

Operating a corporation is complicated and expensive. There are a few benefits, such as having an ERISA pension; fringe benefits, such as a company car and a medical/dental plan; and corporations are somewhat less likely to be audited.
 
Quote from SWhiting:

Thanks for the heads up. I assume that you have experience in dealing with them: can you cite any specific problems? It seems pretty straight-forward to set up a 'C' corp and trade through it.

One question I have when acting within a corporation: do the brokers and quote services regard you as a 'professional'?
More...

If you're trading through that corp via your account, then yes.
 
I asked Terra Nova the question, "From how I read your website, I could trade as an LLC and still be a non-professional. Is this correct?"

Their response was, "That's right. As long as you are the managing member of the LLC and are using the account for personal trading/investing..yes you are a non-professional."
 
Thanks AOK and Amish. I have a large loss-carry forward position that I get to use up before the issue becomes critical but it will be a 'crisis' that I welcome.

When I asked my original question I had eSignal and was thinking of pro vs. non-pro in terms of data feeds. What differences does a pro vs. non-pro face in the broker relationship? Hgher fees? Margin changes?
 
Quote from AmishTrader59:

I asked Terra Nova the question, "From how I read your website, I could trade as an LLC and still be a non-professional. Is this correct?"

Their response was, "That's right. As long as you are the managing member of the LLC and are using the account for personal trading/investing..yes you are a non-professional."
More...

each firm defines non-professional diferrently,

the ones that count are the exchanges (NYSE, NASD, ASE, CME, CBOT, etc.) especially when paying for data fees through your data providers or bundled with the brokerage you're going through....
 
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