When to create a company

D

daytrader85

Hello -

I have a regular full time job, but I trade on the side. This year I have been pretty successful and have yielded a decent profit.

When is it appropriate to create your own company for any type of financial benefit? Is it advantageous to trade under a company name, instead of your own?

I have plans of possibly offering subscription to customers, but that would be in the future some time.

Thanks for your input!

-Kartik
 
You did not say if you are in the USA or not. I will assume USA.
Firstly, understand a subscription offering is distinctly different than a trading business. Trading generates "unearned income" while a subscription service would generate "earned income." At this point in time, in your case, trading and subscription are separate things.

Unfortunately, trading profit or loss (aka unearned income) is not a deciding factor in the eyes of the IRS as to whether your trading qualifies as a business or not. The question you should be asking is do you qualify as a trading business.

http://greentradertax.com/ is a leader in this area and has a set of golden rules for qualification as a trading business.

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Currently, there’s no statutory law with objective tests for how to qualify for trader tax status. Subjective case law applies. Leading tax publishers have interpreted case law to show a two-part test to qualify for trader tax status:

• Taxpayers’ trading activity must be substantial, regular, frequent, and continuous.
• The taxpayer must seek to catch the swings in the DAILY market movements and profit from these short-term changes rather than profiting from long-term holding of investments.

GOLDEN RULES
Our golden rules for trader tax status qualification are based on years of experience. The trader:
• Trades full time or part time.
• Spends more than four hours per day, every market day working the trading business.
• Has few to no sporadic lapses in the trading business during the year.
• Executes trades on more than 75 percent of available trading days.
• Makes close to 500 round-turn trades (1000 sides) annually.
• Has annualized trade proceeds in the millions per year on securities. Less is okay on options and futures.
• Makes mostly day trades or swing trades.
• Has the full intention to run a business and make a living.
• Has significant business tools, education, business expenses, and a home office.
• Has a material account size.

WHAT DOESN'T QUALIFY?
There are three factors that automatically don’t qualify for trader tax status:
1. Automated trading without much involvement by the trader.
2. Engaging a money manager.
3. Trading retirement funds.



Success to you
 
is there any way to provide "money security" to investing clients without using a custodian (expensive) and IB friends account (too much trouble on clients side, opening and blah blah).
 
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