Robert A. Green
Registered: Nov 2007
08-20-12 06:40 PM
Quote from Bourbon84:
So I am currently trading a futures prop trading account that is under the name of another trader. He splits 50/50 net P and L with the firm, and he pays me half of that.
I do all the trading but have no downside. I trade about 50 hours a week for this account. I work 30 hours a week doing operations at a hedge fund. I am also a part time student. I trade from a studio loft (so you can't the office is x% of the square footage).
I am making magnitudes more than I anticipated. This generated a few questions:
-What would you consider the best tax structure for this?
-Should I ask him to pay me as an employee or private contractor?
-Am I edible for trader tax status?
-What should I be deducting (30% of rent, internet (%?).
I'll be sitting down with a CPA in a few weeks, but just wanted to get ideas to overall tax strategy. Thanks so much!
Get an independent contractor agreement and make sure you are not acting as an outside investment adviser. If futures, no CTA registration for under 5 separately-managed accounts.
As an independent contractor, you get paid non-employee compensation reported on a 1099-Misc. If you remain a sole proprietor, report that 1099-Misc. on a Schedule C (profit and loss from business) and deduct your business expenses, including home office. The net Sch C income is subject to SE tax, but you may be over the FICA base of 110k from your job already. The Medicare tax portion of 2.9% is unlimited.
Don't make trades on someone elses account without a formal agreement, that could be illegal and subject you to owing the person for all losses. You need an agreement and should consult an attorney - I am not an attorney.
See our prop trading resources and a separate chapter in my guide on that.
Does your hedge fund allow you to do outside trading for others, or personal trading? Did you sign a non-compete agreement?