I attended a trading seminar recently and they mentioned that a serious trader should for a corporation/LLC. Have any one of you done this and what are the advantages/disadvantages? Thank you.
I am also looking at the same question. The options are as I see them: 1. Pay at least $1000 to $2000 for a services company to set up the corp/llc. I see little advantage over most of these services which will use a 'form template' approach (they do have better marketing than the cheaper services). Is the entity created any better? Impossible to tell in advance or unless you have a problem down the road. 2. File the papers yourself for much less. This is the Nolo press approach. Buy the forms, follow the checklist, etc. Estimated cost $150. Looking at the paperwork it does not look too difficult. All I need is a very plain corp, started with cash, 2 members on the board. Ultra-simple. Paying $1500-2000 for this work seems to be overkill. At this point I am leaning toward going option #2 and then using a service to complete the first year tax forms. Any suggestions or comments? Thanks for the thread golfnut. ramora
If you trade through an entity, you might be required to pay professional data fees which can exceed $200/month if you subscribe to data from the NYSE, Amex, NASDAQ and options exchanges.
until you are a proven profitable trader i wouldn't go through the headache of setting this up. you have to reach a certain level of profitability to make it worthwhile.
I don't think you really need 2 people. I understand that a corporation needs a couple of *officers*, but they can be the same person, I believe. Otherwise, no individual in the country would be permitted to incorporate, and that's obviously not the case.
My contribution: 1. Single member LLCs are possible in most states and generally provide all the advantages of more complex entities. 2. If you miss the April 15th deadline to file for Mark-to-Market and still want to trade under MTM acct, setting up an entity gives you the opportunity to make the MTM election any time. 3. Most CPAs say trading in an entity does not provide a significant tax advantage, but since trader classification in the IRS's view is not a black and white process, my belief is that creation of a trading entity demonstrated more of a "serious business endeavor" than trading without one.
The only reason you should really mess with forming an S-corp or LLC (which can be single member depending on the state of incorporation) is to establish a pension plan. If you are serious about trading for a living (and you are making money), you should establish a pension plan immediately. In addition to the ability to sock away 40K for yourself (and an additional 40k for your spouse assuming she works with you), you also have the ability to grow that money tax deferred, trading it yourself. Uncle sam can't touch it and neither can you. So without your uncle draining off 40% each year and without letting yourself buy a new SUV with it each year the money grow exponentially. I have only been trading for 6 years and I've had a pension plan for 5. I have 5 times more equity in my pension now. Oh if you do start an S-Corp and a self directed pension it makes sense to pay top dollar to a top notch law firm to start and maintain both. You don't want to go pinching pennies here, especially when an audit could cost you millions down the road (pension could be disqualified, etc.). You want your corp and your pension to be professionally managed and bullet proof to the IRS.
Iâm aware of this post, but I am snowed under now with the workload from the upcoming tax season and I am not able to prepare a response to this question at this time. Thank you for your understanding. I invite other participants in this Forum to give their input to the question that was posted so that others may benefit from our collective wisdom.
I formed a corporation to handle the medical stuff. I make sure it has enough income against which you can deduct medical expenses at a much greater rate than an individual can. And much more can be deducted like therapy and other things. I had to make sure the corporation had a medical reimbursement plan to include about everything.