How do you structure yourself financially for trading full time?

[dethkultur]

Quote from TraderZones:

Declare yourself as unemployed, and your gains as capital gains. You avoid the social security and other self-employment levies an LLC pays.

First of all, that's not true. An LLC is a legal entity, but profits and losses get passed right through, and you pay taxes on them as if there was no LLC. So, capital gains are still your capital gains.

Your suggestion to just say you are unemployed and soldier on ignores the advantages of writing off expenses. Or of writing off a large capital loss. If you are going to trade full time, those are things you do NOT want to just ignore. You won't be able to have those benefits unless you are strctured correctly.

Funding retirement accounts is good advice though.

 

[vita]

I found this cbot-hosted presentation on Trading Taxes highly informative:

http://mediasrv1.cbot.com/02062007_green

Good luck.

 

[TraderZones]

Quote from dethkultur:

First of all, that's not true.

An LLC is a legal entity, but profits and losses get passed right through, and you pay taxes on them as if there was no LLC. So, capital gains are still your capital gains.

What's not true? You obviously didn't read what I said very carefully. You are telling me what I already know.

Your suggestion to just say you are unemployed and soldier on ignores the advantages of writing off expenses.

What expenses? Your computer and $100 a month data feed? Of which you get back perhaps 25-33% of your expenses? How is this better than avoiding paying 14-15% social security on your wages? Or the extra headache required of running an LLC? The home office deduction is certainly not worth much, and increases your chances of audit.

Or of writing off a large capital loss. If you are going to trade full time, those are things you do NOT want to just ignore. You won't be able to have those benefits unless you are structured correctly.

Losses come out of your cap gains. You make $90,000 trading futures and you lose $20,000, you then have $70,000 in gains to report. What's the big deal? How is the big loss missed?

Anything else you hear is a myth about "structuring". Try owning one before deciding there is a lot of benefits. I had an S corp for a business - it made life more complicated and never really gave a benefit to match its complexity. And few traders need to worry about the kind of VERY limited liability protection offered by an LLC. They are mostly what a CPA tells you, to get your business.

 

[dethkultur]

Quote from TraderZones:

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Ok I'll answer directly, your quote is above this.

On reading what you said - you said someone has to pay social security on gains through an LLC. You don't pay social security, or medicare, on capital gains. So yes, what you wrote in your post was not true.

On Expenses - they also include things like insurance, which can be a chunk of change. It all adds up. A good businessperson won't let anything slip by.

On losses - If you lose $60,000 more than your gains in a year, you'll be screwed without MTM and trader status for an entity.

Last - don't be a dick. There are very, very good reasons for understanding how to properly start a business and benefit from it and how they can protect you, and help you keep more money in your own bank account.

 

[TraderZones]

Quote from dethkultur:

Ok I'll answer directly, your quote is above this.

On reading what you said - you said someone has to pay social security on gains through an LLC. You don't pay social security, or medicare, on capital gains. So yes, what you wrote in your post was not true.

On Expenses - they also include things like insurance, which can be a chunk of change. It all adds up. A good businessperson won't let anything slip by.

On a Federal return, an LLC is a disregarded entity. You file Schedule C as if you were a sole proprietor. The capital gains and losses go on Schedule D. This is what I said above. You put yourself as unemployed, and your cap gains/losses go into your tax return. So there won't be anything against which to deduct.

 

[SideShowBob]

Quote from TraderZones:

On a Federal return, an LLC is a disregarded entity. You file Schedule C as if you were a sole proprietor. The capital gains and losses go on Schedule D. This is what I said above. You put yourself as unemployed, and your cap gains/losses go into your tax return. So there won't be anything against which to deduct.

Only if it's a single member LLC. A multi-member LLC files a partnership 1065 return and then distributes gains/losses via schedule K-1 to all members.

Do yourself a favor and buy green's book at the least, or better consult with green or a similar accountant. Don't take any advice you read on an internet forum.

 

[Trader KGB]

Quote from cabletrader:

Hang on, I seem to have all the downsides without any of the benefits, she's careerless and jobless......damn, how did that happen :eek:

Mine's a $100k liability until she finishes her phd, then hopefully it's a sweet dividend yield, or would that be a convertible bond?

 

[GermanTrader]

Quote from SideShowBob:

Only if it's a single member LLC. A multi-member LLC files a partnership 1065 return and then distributes gains/losses via schedule K-1 to all members.

Do yourself a favor and buy green's book at the least, or better consult with green or a similar accountant. Don't take any advice you read on an internet forum.

THANK YOU. That is what I was trying to tell him earlier.