Howdy! After doing a little day trading for several years (little here and there, not consistently), and paper trading for the past couple of months (consistently, and profitably), I want to take the dive into day trading professionally. How do y'all have your businesses set up? I was thinking about opening up a spousal LLC, then a brokerage account in it's name. My understanding is that this would help with the qualification for TTS for the Section 475(f) election. My understanding is that if you qualify for it, not only is there the lower tax benefit, but then you also don't have to list every single trade on your taxes, correct? Any insight y'all can offer on the legal/structual side would be helpful.
Setting up an LLC is pretty easy I just did a new one on Rocket Lawyer with the free trial no fees other than the state fee and they'll file w the state for you. Tax wise, people will then Schedule C expenses home office etc.. as deductions. You could operate as a sole-proprieter without the LLC, but my feeling is (easy to set up and really you just file an annual report w the state once a year) that LLC better separates your business in that different names on accts vs. your personal accounts, expenses etc.. My understanding day trader status 475f you want to be trading every day (ie.. a real business). I used to have a C-corp for trading but I found the LLC more lightweight as far as requirements, reporting etc.. There may be better strategies for you specific situation check w a professional on specific tax or legal issues.
lets say you have an individual trading account already set up. Then you set up a sole proprietor llc after, would you be able to claim that individual account under the new llc after the fact and file taxes accordingly? or do you actually need to open an llc/sole proprietor account with your broker to make it official?
Thank you for the response. I agree with the separation issue. It is one of the reasons I want to set up the LLC. I own another business, an insurance agency, but will be, as of next year, be taking a more minor role in the agency. And, therefore, will much more time on my hands. So, since my passion is the stock market, and I find that I can trade profitably, I want to do this full time. But, I like to do things right, so I am in my due diligence phase of getting set up, and trying to figure out everything. Including the things I dont even know yet. I understand day trading status is hard to get, but not impossible either. If I don't qualify for it, would I still have to show every single trade on my taxes? Or could I just show the bottom line profit/loss?
Paper trading is to trading as a game of monopoly is to business. Success at one is no assurance of success in another. So don't get too far ahead of yourself. For tax related issues visit Greentradertax.com
Trader Tax Status: How To Qualify https://greentradertax.com/trader-tax-center/trader-tax-status/how-to-qualify/
Might be wrong/off-base, apologies if I am, but that reeks of being insufficiently funded. Even $5-$10 stocks. Correct me if I am wrong.