I dont have much expense to deduct and it's no big deal if I deduct them or not. Are anyone in the same situation? If LLC or Corp, which firm are u guys using to do your year end tax? thanks in advance.
I spoke with a lawyer some time back about this issue, and he said it doesn't make a different. You can still deduct all your expense even without the entity. Of course, I haven't yet make 200 to 300k a year.
You can do many more things with an LLC than you can as an individual, and there are many perks that you can receive while trading under one. Any good taxman can help you with this ... if your current guy can't, for the sake of your financial health, please find one who can (I had no problem dumping a guy who wasn't up to snuff in lieu of someone better - and who's son works for the IRS, LOL) ... ... and keep up the good work.
I like this route more since I dont have much to deduct. Many tax articles said an office deduction is an automatic red flag to be audited. If I am legitimate and got nothing to hide then it's no big deal but I it's still a hassle.
Seriously do you expect day traders and scalpers to form an entity to trade? Do you think they possess that kind of sophistication and finesse?
HT2, sounds you have a lot of idle time. You really should spend more time focusing on your mutual funds and your sophisticated long only, buy and hold strategy. le140 is a real trader asking something you obviously know nothing of, or you would have had positive input instead of insults.
Get thine ass back to your tax man and do something you never see mentioned on ET - set up a retirement scheme. Find out about the different plans, reducing the social security component of your tax burden, whether you should be a weekly paycheck man so that your taxes get withheld and remitted the 15th of every month... . Better check how owner health insurance premium deductions are treated too.
If you form a corporate entity, you'll be paying a lot more in taxes. The greatest advantage to filing as a trader is that your income is not considered to be "earned income". So you pay no self-employment tax (a big savings), or social security. If you pay yourself through an LLC or other corp structure, you are essentially "salaried" and earning income, for which you will be taxed and pay Soc Sec. On the other hand, a big advantage to setting up a corp is that you can establish some nice retirement programs. If you can earn good income for a long period of time, that is an advantage. Each direction has pros and cons that have to be carefully weighed by a good CPA, based on your expected returns and long term goals. Regarding deductions, it makes no difference with either filing status. You should not fear to deduct anything and everything that is appropriate.
Tell me if I am wrong, but as a trader, you are allowed to actually allocate some of your earnings as earned income, pay the SS taxes, etc, so that you can take advantage of retirement plans. FWIW I tihnk I read that in a tax book once.
I am read the IRS has two classifications, investor and trader. If you are considered an investror you could end up with some large tax liabilities. I read something like if you have a trading loss of $200k and then you have a winning of $100k the irs can tax you on a $300k gain ... I am not sure how correct it is but I could not beleive that can happen ... Is anyone familiar with these tax classifications ?