Hello Everyone, A friend of mine wants to give me X amount of money to trade with. Does anyone know how I can open an account, in my name only, (not a joint account, llc, llp, or a corp), and give him his percentage of the profits, without me paying taxes on his portion. I would pay taxes on my percentage, not his. When I receive my year end statement from the firm, it will say I made X amount of $, I would give my friend a percentage of X, I do not want be taxed on his percentage of profits. I would want to pay him with pretax dollars. I would like the account to be in my name, as an individual. I am looking for a hassle free way to do this. I do not want to have any problems with the IRS. If anyone knows of a legitimate way for me to do this, I would appreciate it.
If you are successful trading another's money, it may increase your taxes, or even bring you into a higher tax bracket. This means you will have to give the IRS a larger percentage of your profits. (This is not usually the goal of any person or business.) If you treat your trading like a business, you would either have your friend set up his or her account as a corporation (established in a state with no income tax) or LLC. Another way is to have your friend open account in their own name , and have you as "power of attorney", so you can make all trading decisions. That way, they would incur margin and commission costs, and could write them off, and even be able to write off any fees you may charge them.
I don't think it's legal for you to trade someone's funds without a licence, friend or foe. You might have a problem with one of the state regulatory agencies. voodoo
yes a power of attorny or trading autoriztion will work.The account stays in the name of the "owner "of the money.This way he can fire you when you loose too much.As for him paying you,the amount will be taxable if he pays you a fee.
i think it's perfectly legal to trade someone else's money, without requiring any special licenses. the account goes in the name of the person with the $$$, and you are named "trader" of the account. tradestation secs will do this, but not all brokers do (i.e. IB will not let you do this). TS's fees for stock trades are exhorbitantly high (10-15 each way plus pretty steep pass thru fees), but i think their futures commissions are pretty competitive.
When you make out your tax return, you can deduct "business expenses" to whomever you borrowed the money from...sort of "profit distribution"...no big deal. If you borrowed money to start a donut shop, then the shop made money and you paid back half the profits to the lender, would you not simply take that as a cost of doing business?
the only solution I've found that does not require licensing, setting up an LLC or other complications is to open an "Investment Club" account. It's fully supported by the law and lets several individuals co-mingle funds. I know that Schwab offers "investment club" accounts - I'm sure others do as well. Each will receive their own end-of-year statements, so that should help you work around the tax issues.
(just my $.02 - I'm not a lawyer) if you are trying to take in funds into an existing individual account, you're asking for trouble. As long as you're not advertising to the public, I don't see why such an arrangement would be illegal (you'd just be acting as an agent), but the IRS could make your life hell if you're audited, as you'd have to prove what was a business expense (some of which can be deducted) vs. what was a "gift" (which incur tax liability) or some way to hide assets, etc. Plus, if you have a falling out, it can get nasty to figure out who owns what, who deserves shares of the profits (or gets to deduct the losses!), etc. you could form a partnership and open a separate account in the name of the partnership, then split profits/ownership of assets however you want. you can also set out trading authority and custody. But again, unless you really trust this guy, you might need a lawyer to write up a partnership agreement and set out everyone's rights and liabilities. Also, you'd have to file a partnership tax return, so you'd need to keep 2 sets of books (but its pass-through taxed like a S-corporation) why do you want to have the account in your name, anyway?