A couple of people referred to me Robert Green, but none of them said that they use his service....Is it because he's expensive? I mean I understand the concept of "you get what you pay for." Anyway, While I was getting a report from other account on "C-corp" suggestion, I ordered a book, "The Tax Guide for Traders" by R. Green. It finally got delivered Friday. I haven't gotten far yet, but so far I like what he says in this book. - very comprehensive. He brought one of his clients as an example. The client lives in CA, has a full-time job, and trade in the morning, just like myself (only income level is different). And he files schedule C..... An LLC does not provide me with much of benefits other than I could possible appear more professional in the eyes of the IRS (I get an retirement account and health care insurance from my employer). And that's the whole reason why I am considering to set up an entity... But maybe filing schedule C and being ready to be audited might be an option.... Don: Thanks for putting some numbers about CA state tax thing. I was thinking about that the other day when I found out there is no state tax in Nevada. $26,000 out of $100k income is serious money. It always helps to see numbers than just vaguely thinking about it. I am a newbie, and taking baby steps right now, but I see some light in this business and seriously want to pursue this. When I get more confident in my knowledge and skills, and ready to let go my day-time job, I will definitely consider re-arranging my life. One thing though, I thought an LLC does not have to file anything if you chose a disregarded entity for tax filing. In the case, do you still have to file K-1 and FICA?
I used Green to set up my LLC. I have a two member LLC (with my father) which made it a good deal just so we could pool our money. We also both have other jobs that take care of a lot of the Soc Sec part of taxes, leaving mostly just the medicare which isn't so bad. Also it's my understanding with the LLC entity the deduction of expenses is automatic, and not subject to the >2% AGI deduction limit. Plus of course you can use a mini-401k to tax defer your income. Green is very expensive but he's the best and also if you use him you can expect to be able to get him to go to bat for you if you do get audited. Personally I'm comfortable doing my own taxes so I just bought his service with examples (it's $100 and includes a copy of his book -- which I already had and I'll probably sell the second copy on Amazon). The examples should be enough for me, but if I wasn't familiar with filing taxes then I'd probably hire him. SSB
Thanks for sharing your experience with Green. Looks like the most challenge to me would be to prepare Form 4797 (mark-to-market method). Are you going to use his GTT TradeLog software program, or you just know how to do it?
I only had about 25 option trades last year, the rest are all futures which are only a single line item, so I won't use it. I probably would use it if I had stock trades that required it -- putting them into quicken and then turbotax is just too cumbersome....
However, if you establish a sole proprietorship with a separate tax id, you are effectively establishing a separate "entity"....so I don't think the 2% AGI limitation applies in that case. I've just posed this question on Green's forum. With all of the costs of trading, computers, monitors, phone lines, software, trading services, etc., I don't see how anyone could stand to "blow-off" these expense deductions. It seems unfair that a trader would need to go LLC just to get these deductions. What the heck, the local sign shop is a proprietorship, and HE gets to deduct all of his expenses !
I didn't claim you need an LLC -- just that I think with it the 2% rule effectively goes bye bye. I have no idea about a sole prop -- I'll defer to you/Green/anyone with a clue. I didn't know Green had a forum -- I'll have to check that out.
You don't need an LLC, an S-Corp, an X-Corp, a Y-Corp, or a Z-Corp to deduct your trading expenses as business expenses. You DO need to be a "trader in securities". The thread initiator worked a full-time job (assumed to be outside of trading). Given this it will be unlikely the IRS will agree he is a trader. A trader can deduct his expenses right off his Schedule C (Green even covers it in their book or elsewhere). Your sole proprietorship with a separate tax id won't get you very far if the IRS considers you an investor. They will conclude it's tax avoidance and they will hammer you. The main two reasons I've seen for forming an entity is 1) a liability shield if you deal with clients, or 2) to convert your trading proceeds into income to then fund a retirement plan (this invokes SE taxes so be careful). Guys, quit talking to the accountants and talk to a lawyer.
so the issue is all about insuring you have "trader status", correct ? Does Series 55/7 licensing help in that regard ? I mean technically, someone could be licensed, and still have another non-trading job, but it would seem to at least put=up a smoke-screen in front of the IRS, no ?
"Trader Status" is only for retail traders, and has nothing to do with licensing. Licensed traders always are taxed "mark-to-market" - and don't have all the record keeping hassles involved in being a retail guy. FWIW, Don