Trading as a small business

[Tradn4dlls]

I signed up for some trader education, and before I knew it, I was a business owner. The consultant and I talked quite a bit about my plan, start up capital, trading frequency, hold time, etc, and it seemed clear that I should take the plunge. A year later, I'm a little nervous.

...this is truly a small business, starting capital was a very small 5 figure sum, and I'm trading part-time, drawing no salary until I retire...

I've read about some "golden rules" such as 700+ trades per year, aiming to profit from short term swings, etc. Are these issues hard stops, or only have to be dealt with during an audit?

I don't, nor do I intend to, make 700+ trades per year for at least 3 years down the road. I made ~ 350 trades last year from April - December.
What defines "short term"? My average hold time for options is a few weeks, ~ 30-35 days; my stock trades are mostly buy-writes which last a few weeks to a few months.

I definitely intend discuss all this with my CPA when we go over the taxes, I'm just wondering if other small business owners might have some direction for me while I wait.

 

[Tradn4dlls]

I registered as a single-member llc and classified as a disregarded entity for tax purposes and should have QBI losses for at least three years which I would then use to increase my capital for trading.I too trade part time until I retire and do not need my trading income.

 

[tiddlywinks]

I registered as a single-member llc and classified as a disregarded entity for tax purposes and should have QBI losses for at least three years which I would then use to increase my capital for trading.I too trade part time until I retire and do not need my trading income.

Don't forget...
Sched C "income" counts towards EITC.
The EITC tax credit, which is refundable, is up to $6400+ filing jointly with 3 children.
And since the Child Tax Credit which is also refundable and is not mutually exclusive, that adds another $2000 per child! With some tax engineering of the EITC income limit, in addition to your plan, you could potentially increase your trading capital in cash by 5 digits from refundable 2018 tax credits!!

 

[market-boss]

it`s not a business, it`s a sport. or investment activity.

it`s not a business where you have customers.
the market doesn`t need you
traders need the market more than the market needs traders.
have you heard of abandon market. no volume, no trades nobody invest.
people don`t have to invest or trade these stocks,bonds or forex etc.
all speculators.

 

[Tradn4dlls]

it`s not a business, it`s a sport. or investment activity.

it`s not a business where you have customers.
the market doesn`t need you
traders need the market more than the market needs traders.
have you heard of abandon market. no volume, no trades nobody invest.
people don`t have to invest or trade these stocks,bonds or forex etc.
all speculators.

 

[Tradn4dlls]

It is a business and you do have customers! Someone has to buy the stocks you sell which they are the customer and you can buy the stocks they are selling which you are the customer.
Everyone depends on that something and that something depends on everyone or it will not exist. If not for traders the stock market does not exist or that stock is worthless.

 

[AlphaDog6161]

Thanks for your responses.
The tax firm I hired specializes in dual entity businesses, and is experienced with trading businesses. I meet a lot, but not all of the golden rules; notably, volume. I wonder how this will affect me overall, given the flow through structure.
Headed to Green Trader's site now.

...I have the intention that this business provide at least supplemental income 3 years from now, til then I had planned to forego a salary for reinvesting all proceeds back into the business so that it will be large enough to provide at least a supplemental income...intention, right?

Great questions but you will not pass the trade volume WHICH IS KEY!. 720 trades per year with a holding period of 31 days or less. Failing that, 'if' you get audited, you will fail and your business as a TTS will not be allowed. Did they setup the MTM election or even talk about it? If not, get a second opinion.

 

[Sig]

I registered as a single-member llc and classified as a disregarded entity for tax purposes and should have QBI losses for at least three years which I would then use to increase my capital for trading.I too trade part time until I retire and do not need my trading income.

Investment income is specifically excluded from QBI.

 

[dalebreton]

I have 450 deals a year and this does not prevent my business from flourishing, because everything depends not on the number of deals but on the quality. If you have 1000 deals for a couple of dollars, it's one thing, but if you have 200 deals for 1000 dollars, it's a completely different matter. So I'll tell you, don't focus on what they say on the Internet. This is all bullshit. When I started my business, I did everything slowly, although everyone around me was always pushing me. But now my business is in the best San Diego business listings. My services are considered one of the best in San Diego. So don't listen to anyone.

 

[murray t turtle]

You are better off position trading and trying to hold onto your stocks for 1 year atleast. The first $38,600 of your profits are tax free. I intend to adopt that practice to a small account I have which is a regular account.
IRAs you can trade options and swing trade. No tax consequences and you can grow your nest egg assuming you know how to trade the stockmarket.

%%
True for a Roth + back door Roth.
TWinks has a good/Green post. But if one is not supposed to pay taxes on a Roth/Back Door Roth/dont need TTS .Certain restrictions apply
{ Unless they changed the law + they may have,760 trades per year has nothing to do with it.}
FOR taxable businesses remember to pay estimated quarterly taxes...…...The more you make , the more likely an audit.