How do I start a day trading company!

W

weezer

Hello everyone; I have been researching day trading for years, paper traded for two years, started active trading full time six month ago with 15k and now I have over 42k in my trading account .
I experienced huge losses and gains. Made many mistakes and learn from them (I hope).
I want to start day trading for a living, I love the art of trading; I do not need to generate a monthly income for another 2years since I sold a company I started a year ago.
I studied and traded equities 15 hrs a day for about a year now, no local prop firm to join, will not touch futures even though the rewards are greater, I am debt free and never used margin.

Day traded for 10 days, bought and held for 40 and watched the market without trading for 60 days. I have seen daily patterns in a few stocks I watched influenced by the trend, vix, psychology and other factors; I am confident now of possibly generating 1% - 4% profit weekly. I have been avoiding the day trading stamp until I have all necessary ingredients to start a stable successful company.

How do I start, what are the necessary filing (S corp. accounting software, office, salary etc...),need 100k to start a second company like the one I sold.

I appreciate all of your responses.
 
If you run your trading as a business you will pay self-employment tax on top of your regular taxes, though you can deduct your business expenses. Be sure to factor that in to your planning.
 
Quote from weezer:

Hello everyone; I have been researching day trading for years, paper traded for two years, started active trading full time six month ago with 15k and now I have over 42k in my trading account .
I experienced huge losses and gains. Made many mistakes and learn from them (I hope).
I want to start day trading for a living, I love the art of trading; I do not need to generate a monthly income for another 2years since I sold a company I started a year ago.
I studied and traded equities 15 hrs a day for about a year now, no local prop firm to join, will not touch futures even though the rewards are greater, I am debt free and never used margin.

Day traded for 10 days, bought and held for 40 and watched the market without trading for 60 days. I have seen daily patterns in a few stocks I watched influenced by the trend, vix, psychology and other factors; I am confident now of possibly generating 1% - 4% profit weekly. I have been avoiding the day trading stamp until I have all necessary ingredients to start a stable successful company.

How do I start, what are the necessary filing (S corp. accounting software, office, salary etc...),need 100k to start a second company like the one I sold.

I appreciate all of your responses.
More...

Welcome to trading and I hope it provides you with many rewards. I to changed from business ownership to trading.

I would recommend the things that are needed for you at this time is a few books like "the tax guide for traders" by Robert Green and some others like it.

I don't think you need to do anything else at this time. Also Like NoDoji stated I believe you will find out that you till not be able to avoid self employment taxes if you create a limited entity for your trading.(generally all full time active day traders can deduct all their expenses on schedule C as business expenses anyway as per my understanding)

As someone who has been in business I will assume that you understand the cycles of profit and much can be the same with trading.

I would suggest that before you spend a lot of time and especially before you spend a lot of money that you keep things as status que and give it more time and see what your thoughts are after you get your face bashed into the sidewalk a couple of times (That sounds mean and directed at you but its not. ALL traders go through periods where "nothing" is working and you wake up in the morning wondering why in the world you ever thought you could make money at this)

So take it slow and read those tax books which will answer pretty much all your questions on making sure you setup properly(perhaps boring but VERY worthwhile) and remember that gains are not linear and this is a marathon not a sprint.

The very best to you

Robert
 
Quote from NoDoji:

If you run your trading as a business you will pay self-employment tax on top of your regular taxes, though you can deduct your business expenses. Be sure to factor that in to your planning.
More...

Hi NoD:

From the information I gathered, and this is the way I did my tax return as a trader:

File trading expenses in Schedule C. File trading gain/loss in Schedule D. You will not need to pay self-employment tax. But I think it does have a higher chance of triggering an IRS audit because there is no trading income in Schedule C.

Here is some more information on the web. I have found a few sites giving similar info. Consult your accountant (if he/she really knows how to help traders).

Tax Benefits
If you're a trader, you're likely to be able to claim more deductions than an investor. Some deductions that would be claimed as itemized deductions subject to various limits will be allowed as business deductions, without such limits. And there are some deductions traders can claim even though investors can't claim them at all.
In addition, traders are eligible to make the mark-to-market election. If you make this election, your trading losses won't be subject to the $3,000 capital loss limitation. This limitation can be very painful for a trader who has a bad year.

Filing as a Trader
If you're a trader who has not made the mark-to-market election, your trading expenses go on Schedule C, the form used to report business income and expenses. But your trading income is capital gain, and has to be reported on Schedule D. This looks very strange indeed to tax professionals who are not familiar with trader filing, but this is how it is done.
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http://www.fairmark.com/traders/intro.htm

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Schedule C: Profit or Loss from Business

Traders who file as sole proprietors and do not elect the mark-to-market accounting method report their expenses on Schedule C, Profit or Loss from Business, but their trades on Schedule D, Capital Gains and Losses. This unfortunately can lead to an audit since you are only showing expenses on Schedule C with no income (it goes on Schedule D. Most businesses that file a schedule C also show their income on the same form, but for a trader this is not possible. If this seems somewhat odd, it is; the discrepancy appears suspect to the IRS, too.

One way to avoid this awkward tax position is to trade under a more formal business entity (limited partnership, LLC or C corporation). Tax treatment of business entities is both more favorable and more routine.
More...

http://www.traderslog.com/taxforms.htm
 
Quote from Robert Weinstein:

ALL traders go through periods where "nothing" is working and you wake up in the morning wondering why in the world you ever thought you could make money at this
More...

Whew! Thanks, Robert, I thought it was just me :eek:
 
Quote from weezer:


How do I start, what are the necessary filing (S corp. accounting software, office, salary etc...),need 100k to start a second company like the one I sold.
More...

By "need 100k to start a second company", did you mean needing $100,000 to start your company?

I think the trading business is one of the most flexible businesses. Because the main factor in conducting this business is you. Your brain. That's it. You may or may not need staff. You may or may not need office space. You may or may not need furniture, etc.. Because some, or perhaps many, start off trading using computers, office space, furniture they already have, and usually from home. It is not likely someone would one day come up with a lightbulb idea that "ah... I want to trading for a living" and go out to the Central Manhattan to rent an office to run a trading firm. Most likely this is a progressive evolution.

So the main factor is you, the head trader. How much starting capital are you comfortable with. It can be as low as a few thousand dollars (some people did, or think they can anyway) to a few million dollars. That said, many people try to trade but are under-capitalized and have a really hard time. There is no set rules (except the SEC's rules about Pattern Day Trader so you pretty much should start with more than $25,000. Maybe double that to $50,000.). Do what you are comfortable with. And draw a line on the sand "if I lose this X amount, I must re-evaluate if trading is for me.". Good luck!
 
That is true; I was told not paying out a regular salary is a big red flag for the IRS. In addition; would an S corp. resolve that issue! , I think patients and determination are what separate winners from losers.
Need 100k to start a totally different type of company within in the next two years. One of the reasons for small cheap office because the family would like to see me leave the house some time !
 
Quote from weezer:

That is true; I was told not paying out a regular salary is a big red flag for the IRS. In addition; would an S corp. resolve that issue!
More...

Although an S Corp's bottom line is distributed among the shareholders, if you pay no salary, that's a big red flag.

"FICA tax is imposed only with respect to employee wages and not on distributive shares of shareholders. Although FICA tax is not owed on distributive shares, the IRS and equivalent state revenue agencies may recategorize distributions paid to shareholder-employees as wages if shareholder-employees are not paid a reasonable wage for the services they perform in their positions within the company."
 
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