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Trade as Business vs. Trade Personal Account
- Thread starter jimclark
- Start date
Thank you everyone:
-GIven info by you guys.
Should I consider setting up an LLC? I'll trade my "short-term" account for the LLC with one broker and will have another one with another broker for "long term"
Provided, I set an LLC and get Employer Identifiication Tax ID, can then deduct my subscription cost, computer, ISP, space rent costs from my monthly income from trading?
What if my LLC is a conglamarate, meaning I do other things (i.e. Web hosting, property management) through my LLC company?
Thanks all!
-GIven info by you guys.
Should I consider setting up an LLC? I'll trade my "short-term" account for the LLC with one broker and will have another one with another broker for "long term"
Provided, I set an LLC and get Employer Identifiication Tax ID, can then deduct my subscription cost, computer, ISP, space rent costs from my monthly income from trading?
What if my LLC is a conglamarate, meaning I do other things (i.e. Web hosting, property management) through my LLC company?
Thanks all!
POSTING DDITION INFO ON 2/07/2005Quote from jimclark:
Wisers,
I was wondering what would be the be the advantages and disadvantages of trading as a Business vs. Private?
Currently, I have Individual Ameritrade Account, my account size is about $12,000. I trade in blocks of 2,000 shares (so about 2 stocks, average price $7). Volum is rougfly 15,000 shares a week.
I have a full time job, decent pay (about $70K/year).
If anyone can give any suggestion is much appreciated.
I am following to see:
-what are the tax benefits of trading as Biz
-what expenses I can deduct (ie Internet connection, fees, et)
Many thanks.
Thank you everyone:
-GIven info by you guys.
Should I consider setting up an LLC? I'll trade my "short-term" account for the LLC with one broker and will have another one with another broker for "long term"
Provided, I set an LLC and get Employer Identifiication Tax ID, can then deduct my subscription cost, computer, ISP, space rent costs from my monthly income from trading?
What if my LLC is a conglamarate, meaning I do other things (i.e. Web hosting, property management) through my LLC company?
Thanks all!
Quote from jimclark:
Wisers,
I was wondering what would be the be the advantages and disadvantages of trading as a Business vs. Private?
Currently, I have Individual Ameritrade Account, my account size is about $12,000. I trade in blocks of 2,000 shares (so about 2 stocks, average price $7). Volum is rougfly 15,000 shares a week.
I have a full time job, decent pay (about $70K/year).
If anyone can give any suggestion is much appreciated.
I am following to see:
-what are the tax benefits of trading as Biz
-what expenses I can deduct (ie Internet connection, fees, et)
Many thanks.
Quote from jimclark:
POSTING DDITION INFO ON 2/07/2005
Thank you everyone:
-GIven info by you guys.
Should I consider setting up an LLC? I'll trade my "short-term" account for the LLC with one broker and will have another one with another broker for "long term"
Provided, I set an LLC and get Employer Identifiication Tax ID, can then deduct my subscription cost, computer, ISP, space rent costs from my monthly income from trading?
What if my LLC is a conglamarate, meaning I do other things (i.e. Web hosting, property management) through my LLC company?
Thanks all!
All you need to do in order to deduct your ordinary and necessary costs of doing business from your income as a trader, is to make the "mark to market election" by April 15, 2005. Then you deduct subscription costs, computer equipment, etc., on Schedule C of your tax return, and report your gains and losses from short term trading on Form 4797, instead of Sched D (where you continue to report your long term gains and losses).
Forming an LLC, or any other legal entity is a waste of money, because the State of incorporation will almost certainly charge you annual franchise tax fees, or there will be other maintence and reporting fees (i.e., fee for registered agent for service of process, etc.).
There are only three reasons to form a separate legal entity: (1) because you intend to engage in some business venture the nature of which may subject you to liability (i.e., negligence, malpractice, etc.), (2) you intend to sell stock or other interests in your business to investors/partners, or (3) you are intending to create a account in an off shore jurisdiction, in order to entirely avoid U.S. taxes (possibly illegal, but absolutely doable).
More often than not, however, the setup/maintanence cost of #3 makes it only realistic for people who expect to have at least $100K taxable net per year.
Quote from kjkent1:
All you need to do in order to deduct your ordinary and necessary costs of doing business from your income as a trader, is to make the "mark to market election" by April 15, 2005. Then you deduct subscription costs, computer equipment, etc., on Schedule C of your tax return, and report your gains and losses from short term trading on Form 4797, instead of Sched D (where you continue to report your long term gains and losses).
Follow this at your own peril......... If you fail to meet trader status, which isn't clearly defined, you run the risk of an audit. Particularly if you have a job, a minimal number of trades, and the gains from those trades aren't the lions share of your income.
Everyone appears to have a different opinion.
Trader status and MTM election are two different issues.......... you needn't be MTM to be considered trader status.
>Quote from kjkent1:
All you need to do in order to deduct your ordinary and necessary costs of doing business from your income as a trader, is to make the "mark to market election" by April 15, 2005. Then you deduct subscription costs, computer equipment, etc., on Schedule C of your tax return, and report your gains and losses from short term trading on Form 4797, instead of Sched D (where you continue to report your long term gains and losses).
Forming an LLC, or any other legal entity is a waste of money, because the State of incorporation will almost certainly charge you annual franchise tax fees, or there will be other maintence and reporting fees (i.e., fee for registered agent for service of process, etc.).
There are only three reasons to form a separate legal entity: (1) because you intend to engage in some business venture the nature of which may subject you to liability (i.e., negligence, malpractice, etc.), (2) you intend to sell stock or other interests in your business to investors/partners, or (3) you are intending to create a account in an off shore jurisdiction, in order to entirely avoid U.S. taxes (possibly illegal, but absolutely doable).
More often than not, however, the setup/maintanence cost of #3 makes it only realistic for people who expect to have at least $100K taxable net per year.
This is VERY helpful
Quote from crackedback:
Follow this at your own peril......... If you fail to meet trader status, which isn't clearly defined, you run the risk of an audit. Particularly if you have a job, a minimal number of trades, and the gains from those trades aren't the lions share of your income.
Everyone appears to have a different opinion.
Trader status and MTM election are two different issues.......... you needn't be MTM to be considered trader status.
You are correct that trader status and the mark to market election are different issues. However, in order to deduct ordinary expenses on Sched C instead of on Sched A, miscellaneous deductions, which is subject to the 2% AGI floor, you must make the election.
In order to be treated as a trader by the IRS, the big issue is whether or not you make money from short swings or on long held positions. The more intraday round trips, the more likely one is a trader. The secondary issue is whether or not trading is the major source of your income, i.e., investors passively earn extra money, while they do something else for a living, while traders "trade" and that is their primary income.
To say that someone makes the election at their peril is a little hyperbolic in my opinion. The worst that can happen is that your ordinary expenses are subjected to the 2% floor and your losses are capped at $3,000, in any year.
But, if you're losing money, then your not gonna be a trader very long anyway, and if all your earnings are from trading, then there's nothing to write losses off against anyway, so this is really an unreasonable fear.
The IRS loves to maintain myths about audit fear. In any given year less than 2% of the population is audited, so, on average that's one audit every 50 years.
If you're gonna trade, then you should make the election and jump into the pool.
Most traders don't last a year anyway, which is why there is almost no tax court case law on the subject of trading, and why the IRS is so ambiguous on the matter.