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Old Aug 10th, 2012, 05:00 AM   #1
Bourbon84
 
 
Join Date: May 2011
Location: United States
Posts: 36
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!
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Old Aug 10th, 2012, 09:32 AM   #2
bone
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Join Date: Apr 2002
Location: Chicagoland
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If you are doing this using futures, ask him to pay you on an IRS 1040, and get copies of the monthly brokerage statements as records for yourself. Whatever the hell you do, try to avoid getting paid on a W-2 and paying taxes on ordinary income for this income from your personal prop deal. I can tell you from personal experience that you can indeed get paid on a W-2 from your "real job", and also claim 1256 blended cap gains and take your itemized business deductions from the expenses you incurred in the course of trading that account as well.

1. Use IRS Form 6781 for Gains and Losses From Section 1256 Contracts and Straddles; those income figures go to:

2. IRS Schedule D ( Form 1040 ) for Capital Gains and Losses.

3. You will most definitely want to itemize deductions like your home office, internet, quotes and charting, hardware, software, your out-of-pocket insurance expenses and medical and maybe some entertainment and lots of shit like that, and then get the advice from your CPA about further smart planning like a SEP-IRA possibly ? Make sure you build out your home office into a real showcase and palace to your sweat equity - treat yourself and take the deductions.
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Old Aug 10th, 2012, 09:35 AM   #3
Bourbon84
 
 
Join Date: May 2011
Location: United States
Posts: 36
bone,

Thanks for the info, that's very useful.
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Old Aug 10th, 2012, 09:46 AM   #4
bone
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Join Date: Apr 2002
Location: Chicagoland
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Quote:
Quote from Bourbon84:

bone,

Thanks for the info, that's very useful.
Try to avoid a K-1 also - the tax treatment is not as good as flowing 1256 gains directly to your individual 1040 return.

And again, yes you will most definitely want to itemize deductions like your home office, internet, quotes and charting, hardware, software, your out-of-pocket insurance expenses and medical and maybe some entertainment and lots of shit like that, and then get the advice from your CPA about further smart planning like a SEP-IRA possibly ?

Make sure you build out your home office into a real showcase and palace to your sweat equity - treat yourself and take the deductions. Get a couple big desks, really nice comfy chairs, real legit workstation PCs with multiple monitors, ECN - Oh, and for God's sake, put a plasma on the wall "for you to monitor the finanicial news channels" ( ahem ). Put something there to relax you that looks great; lots of traders are partial to a nice marine aquarium setup. Maybe hang some nice art if you've really had a good year and that's your thing.

Congratulations, and keep a level head. Grind it out. Hit for average. Stay in the present. Don't quit your "real" job until you just can't stand it any longer and it just is absurd to your CPA that you keep it. Having that 'security' is a real and tangible psychological edge.
__________________
Spread, Relative Value, and Correlation Trading Instruction from a Professional Trader. The only thing that matters are Clients making money IN LIVE MARKETS. Why not interview my clients for yourself on an independent basis. My typical client is an outright directional trader looking to pick up an industry-recognized specialty technique. http://www.spreadprofessor.com
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Old Aug 10th, 2012, 09:50 AM   #5
Bourbon84
 
 
Join Date: May 2011
Location: United States
Posts: 36
Haha will do. I am meeting with him and a CPA next week. I have two tradIRAs I have traded from from 4k to 40ish when I was in college. I will consult further on SEP.
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Old Aug 10th, 2012, 04:12 PM   #6
marketsurfer
 
 
Join Date: Apr 2002
Location: NYC
Posts: 6,921
Your #1 concern should be getting paid at all. After that, worry about the rest.

Good luck!
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