Who is posting to this old thread. I set up an LLC and trade through that. It works great and cost was less than $600. Keep it small and you don't have to worry about any regulatory conflicts. Why not trade for your family and friends. If they want to make a real return on their investments - more power to them. I found that this forum is not a good place to post on this topic. Lots of negative people out there.
One disadvantage to LP/LLC over IB friends and family accounts is you pay professional fees for market data. For NYSE alone it is $130 per month. To get the equivalent of the option/stocks/futures package for individuals at IB is over $2k per year for an institutional account. Accounting for IB friends and family is easier, too. Need k-1 for LP/LLC with expensive accounting and auditing. One advantage of pooling smaller accounts into LP is efficiency with size which also may allow for more diversification, depending on what you trade.
Simply do not get market data associated with the professional (entity) account. Get your market data in a personal account. The cost of accounting is tracking the trades, expenses and allocating them to the taxpayers. Whether this is done via a LLC tax return or individual income tax returns is not necessarily going to result in much higher costs for the LLC. Actually, spliting trades could cost more in tax preparation fees if the trades are duplicated among various form 1040's. This is like when real estate rentals are jointly owned but reported on form 1040 Sch E directly by each owner rather than run through a K-1 to each owner. The tax prep is duplicated over and over by each participant, often costing more than filing a form 1065 and issuing K-1s. Auditing likewise could actually be higher if two or more form 1040's are interconnected resulting in multiple IRS examinations, whereas one LLC return done correctly generally is one examination, and perhaps a cursory review of one of more of the form 1040s. That's assuming you meant IRS audits, and not CPA audits, which of course are not triggered because an LLC is used. But if you were talking about CPA audits, the audit of one LLC would generally be significantly less expensive than two or more individual CPA audits.
Thanks guys. Say when automated trading with API is available or when trading only long term positions, how about an alternative of separately managing individual accounts for the (limited number of) F&F members, in terms of zero accounting/auditing and minimum computation on taxation? What would be the pros and cons of this alternative against others? TIA.
Not sure you can trade somthing on IB if you can't get a quote on it. Even if you could, would be difficult to know where to place and adjust limit orders realtime.
There are ways to get it done... (not speaking about IB specifically, just retail brokerage accounts generally) To make it clear: you still have real time quotes and charting (for example e-Signal or a secondary brokerage account) in your personal name.