I quit my full-time job earlier this year. I trade during the mornings with the intention of being a trader. But, in the evenings, I work as an independent contractor. I have losses in one business (since I'm a newbie) while having profits in another. So here's my issue: I have some W2s. I have some 1099s. I have some trading income. I have some trading losses. Who exactly should I be looking for or what should I be looking at to figure out how to solve my tax issues? Should I be paying quarterly taxes + social security? I'm scared I'll have to pay some extraordinary fees for an accountant.
Los Angeles, California, USA. Sorry for not being clear. I suppose I should worry about CA state income tax also.
when I did this I had a corporation and all my monies from gigs went into the C Corp and I had a trading account on the name of the corporation. The tax work and keeping books made my life a living Hell and my wife is an accountant. So of you keep good records better have a good bookkeeper or just do it yourself. You are better off keeping it as a sole prop in my opinion.
You might be okay with two sole proprietorships. Or not... depending on all the facts and circumstances and depending on what side of the bed the IS auditor got up from. Having more than one sole propereitorship can be challenged - meaning the IRS wants all your expenses as itemized deductions, rather than above the line items. Court case Groetzinger v. Comr. 1985 can be used to support such a position by the IRS. But if you are treating your trading as a true active business, you could win trader status in spite of an initial challenge by IRS. Forming a separately filing entity is a method some traders use to deflect such an IRS challenge. You mentioned you had losses... if you had trading losses (on top of the trading expenses which was what I discussed above) then these are generally limited to $3,000 per year whether you are a trader or an investor... Unless you elected M2M. Using a separately filing entity is a method some traders use to obtain M2M after the April 15th deadline has passed,
A couple of questions: 1. Do you operate your contracting business under an LLC or Corp? 2. Do you trade as an individual or entity? 3. What do you trade? 4. From where do you trade?
Answers: 1) No. This is my first year contracting, so I'd say I'm a 1099 software & electronics engineer. 2) I trade as an individual 3) I trade equities on the NYSE 4) When I started and was losing money, I traded at a trading company called "Assent." I lost about $2000 there, and then I joined another trading group on the internet. I get better rates, but now trade remotely (more successfully) from home through genesis securities.
my suggestion is to use your roth IRA to trade and try to make as much money as a contractor as you can, while you can... When you see the roth making good money you can perhaps open an account to trade but make sure you have six months living expenses set aside. Forget about the trading business until you can prove that you can actually make it a business by being profitable. In a roth I would use one IRA to invest and one to swingtrade.
Well, I already started trading. I have some mentors, they've helped me out. I pretty much decided I want to be a career trader. I went through about 3 months of losing, then flatlining. I'm doing ok on the trading front. I'm not losing major cash, though I still have a bad day now and then. It's gradually getting better, but only gradually because it seems like every month gives me exposure to something I haven't seen before. At this point, I'm fairly confident I'll make consistent money. It's just that I need to go through more shit to know what kind of shit can hit me. I always get a new surprise every few weeks or so. It's just that I just don't want to get screwed on taxes at the end of the year. I got the contract job so I could work in the evenings to support my trading habit. Since I live on the west coast, I can show up at work at 2pm, leave at 8pm, and then put in time on the weekends.
As 1099 contractor you have to pay selfemployment tax which is social security (12.4% for up to $90,000 of self employment income) and medicare (2.9%). Plus regular Federal and California taxes. And you have to make quarterly payments. Just search the internet for more details. I'm in the same situation and I pay regular capital gains taxes on my trading income.