I am trying to find a way to defer trading gains so I dont have to pay taxes every year (which eats profits). Rather, I'd like to let my gains compound, and then pay taxes at the end (10+ years later) when I withdraw money. I am thinking about trading in a Roth IRA (no yearly taxes or paperwork), and then simply withdrawing money early and paying the penalty. My time frame is 10 to 15 years. Is there a simpler way? Is there an annuity for this? I want to trade mainly options (spreads, butterflies, etc) and/or futures/options in the short term (1-6 months out).
short term trading in IRA + early withdrawal as tax advantage
- Thread starter CaroKann
- Start date
Trading in a Roth IRA is a great way to delay or avoid taxes on capital gains. BUT...keep in mind you can only buy stock. No shorting allowed and no options. Covered calls are the only option strategy allowed. I've heard of some brokers allowing the purchase of LEAPS in an IRA but never complex option strategies.
If you're good at going long, then go for it. If not I would recommend opening an account under a corporation, make as much money as possible, and write off everything you can think of to avoid taxes. I'm not aware of annuities that allow trading. Annuities are set up by insurance companies and they always want control of the assets.
You also need to do the math. I'd rather make $50,000 in my regular account and pay 20-40% in taxes than to only make $25,000 in a tax sheltered account. It all comes out in the wash.
If you're good at going long, then go for it. If not I would recommend opening an account under a corporation, make as much money as possible, and write off everything you can think of to avoid taxes. I'm not aware of annuities that allow trading. Annuities are set up by insurance companies and they always want control of the assets.
You also need to do the math. I'd rather make $50,000 in my regular account and pay 20-40% in taxes than to only make $25,000 in a tax sheltered account. It all comes out in the wash.
In fact, several firms allow complex options strategies in your IRA. optionsxpress.com is one of them. There is another called Benjamin and Jerrold. look here: http://elitetrader.com/vb/showthread.php?threadid=505
The problem I am trying to address is that every year you have to pay taxes on your gains, thus reducing the capital available for trading the next year. so if you make 40% per year, you will actually only make 30% because you pay the taxes. I would like to compound that 40% per year for several years, and then pay taxes on the end result. but I probably didnt have to explain that to you
You mentioned forming a corporation.. I wonder if I can use that to defer gains. The problem is, the company wont have enough real losses (expenses) to offset the gains, and I dont want to just make up losses.. Is there a legal way for corporations to defer gains? I know most corporations have a CFO that can invest extra cash to add to income (and enhance earnings). Maybe there is something along those lines that can be done?
The problem I am trying to address is that every year you have to pay taxes on your gains, thus reducing the capital available for trading the next year. so if you make 40% per year, you will actually only make 30% because you pay the taxes. I would like to compound that 40% per year for several years, and then pay taxes on the end result. but I probably didnt have to explain that to you
You mentioned forming a corporation.. I wonder if I can use that to defer gains. The problem is, the company wont have enough real losses (expenses) to offset the gains, and I dont want to just make up losses.. Is there a legal way for corporations to defer gains? I know most corporations have a CFO that can invest extra cash to add to income (and enhance earnings). Maybe there is something along those lines that can be done?This is intended as a friendly inquiry. What makes you think you wouldn't have enough losses or and/or expenses to offset gains?
I admire your goal but I'd rethink the strategy if I were you. Nothing wrong with options but I'd suggest keeping it simple. Butterflies, condors etc. are rarely useful to the individual retail trader.
FWIW.
good luck
I admire your goal but I'd rethink the strategy if I were you. Nothing wrong with options but I'd suggest keeping it simple. Butterflies, condors etc. are rarely useful to the individual retail trader.
FWIW.
good luck
The Roth IRA is the perfect instrument for trading. Deposits in your IRA are not tax deductable but your principle can be withdrawn penalty free. You do not have to wait till 59 1/2. Your gains must remain in the account till retirement, and you are entitled to $10,000 of gains for purchase of your first house and can withdraw principle at any time I believe after 5 years without penlty. A penalty only occurs for withdrawal of any gains before retirement. Of course also remember no deductions for losses so you must balance the pos. and neg. of trading your IRA.
white17,
I assume you are talking about taking the corporation route.. I am open to suggestions for losses/expenses to take! Say I start a home-based business. What do I claim its purpose is? Say I make 5k the first year.. what do I claim as expenses/losses to offset that 5k gain? I'm asking for concrete examples here! Also, as far as using advanced options in the IRA, I can't say that will be the majority of the trades because I don't know yet. I may simply buy and sell stocks. But the point is that I don't want to take out a large chunk every year to pay taxes (especially short term gains). Anyway, this account would be a small part of my retirement monies, and so I intend to be aggressive with it. I don't think many would smirk at the idea of opening an IRA with 2k and playing aggressively with it.
I assume you are talking about taking the corporation route.. I am open to suggestions for losses/expenses to take! Say I start a home-based business. What do I claim its purpose is? Say I make 5k the first year.. what do I claim as expenses/losses to offset that 5k gain? I'm asking for concrete examples here! Also, as far as using advanced options in the IRA, I can't say that will be the majority of the trades because I don't know yet. I may simply buy and sell stocks. But the point is that I don't want to take out a large chunk every year to pay taxes (especially short term gains). Anyway, this account would be a small part of my retirement monies, and so I intend to be aggressive with it. I don't think many would smirk at the idea of opening an IRA with 2k and playing aggressively with it.
Yes I was talking about the corporate route. Obviously the pupose of the business would be to make a profit and that will certainly satisfy the IRS. If you generated 5K the first year or any year, expenses such as your ISP, data feed, charting software, telephone or satellite or cable costs, accounting fees, tax preparation, depreciation on computer, general office expenses, and expense for home office. All these and more are legit expenses. Check out a schedule C for more examples of expenses.
Ifyour hypothetical 5K is net profit then there isn't a way around the tax. Might be a good idea to talk to a CPA about the whole thing.
Finally, if I gave the impression of "smirking" let me assure you it was not intentional.
I completely understand not wanting to reduce working capital by using it to pay taxes. We've all been there.
Good luck.
Ifyour hypothetical 5K is net profit then there isn't a way around the tax. Might be a good idea to talk to a CPA about the whole thing.
Finally, if I gave the impression of "smirking" let me assure you it was not intentional.
I completely understand not wanting to reduce working capital by using it to pay taxes. We've all been there.
Good luck.