Hello, I am a relatively small retail trader (~$20k) who was been developing some automated algorithmic trading software over the last couple years that I am getting ready to take live in the coming months. My strategies are geared towards the Globex Futures market (I know that is relevant for tax purposes). As a retail trader, are there any benefits from a tax stand point (or any other standpoint) to forming a LLC or corporation for my trading activities as opposed to just operating a personal retail account as a I am currently doing? It is my understanding that as an individual, profits from futures trading is taxed 60% at the short term capital gains rate, and 40% at the long term capital gains rate. Do corporations or LLCs get a better deal (i.e 100% at the short term rate..... or worse, 100% a the corporate income tax rate)? LLCs and S-Corps are set up as pass through tax entities, so does this mean If I make some profit trading futures, these profits are passed onto me and taxed at my personal income tax rate, or can I still treat them as capital gains? One downside that I can think of to incorporating would be that I would likely have to pay "Professional" data fees. One upside would be that I could start building a track record if for some reason in the future I wanted to seek outside investors (I have no intention of selling my software or seeking outside money right now or in the foreseeable future, but I like to consider all options all of the time) What other benefits are there to incorporating (or forming LLC) for a "successful" retail trader? If it matters, I do have a day job (not trading....engineering stuff) and have no immediate plans to leave that job.... but I would be lying if told you that it isnt a dream of mine to trade for a living. What are your thoughts? Thanks!! Brad
it's been discussed i don't even know how many times. try to use search. as for pro fees-there is an easy way around that-just open an retail account and use it data feed. or get data from a separate data provider(like IQ feed for example). i've done that decade ago with IB. two accounts,side to side both connected to my app.. data comes into application from retail personal account,but all orders\executions are handled by same application on corp account. piece of cake for a anyone with basic programming skills
http://www.elitetrader.com/vb/showthread.php?s=&threadid=226256&highlight=LLC http://www.elitetrader.com/vb/showthread.php?s=&threadid=225793&highlight=LLC http://www.elitetrader.com/vb/showthread.php?s=&threadid=157238&highlight=LLC http://www.elitetrader.com/vb/showthread.php?s=&threadid=237040&highlight=LLC http://www.elitetrader.com/vb/showthread.php?s=&threadid=183075&highlight=LLC
Sigh, this is an incredibly complicated and incredibly boring subject. I guess this is why people hire accountants. TurboTax online may not cut it for me anymore.
depends on on how you file. if it's just simple return-then it's not that hard to do it yourself on turbotax for corps\LLC. personally-my accountant charge me couple hundreds for 4 returns(including LLC). i can do it myself,but at this price it's simply not worth it. BUT! if you elect M2M then it would be totally different story
Well my plan is to be super active, I wouldn't be surprised if I am making round trip trades in the 10-30s time frame regularly. According to http://www.greencompany.com/EducationCenter/Trader-Tax-Center/Trader-Tax-Status.shtml , since my system is automated, filing as a LLC may get me the best tax benefits because I will be able to deduct more of my data expenses. I will be inelgible for active trader status because I am "automated". I think at the end of the day, I will need to hire a CPA to evaluate my situation. Unfortunately I live in a city that doesnt have a prominent financial industry, thus I'm concerned that the local CPA's may not be knowledgeable in futures trading tax law. I appreciate your insight.
--I will be inelgible for active trader status because I am "automated". -- how did you come up with this 'conclusion'? all i see is this- --- âTaxpayersâ trading activity must be substantial, regular, frequent, and continuous.-- it doesn't say automated or not on IRS page: http://www.irs.gov/taxtopics/tc429.html
Near the bottom of the page: WHAT DOESN'T QUALIFY? There are three factors that automatically donât qualify for trader tax status: 1. Automated trading without much involvement by the trader. 2. Engaging a money manager. 3. Trading retirement funds.
Its not a "fire and forget" automation, I will be there making sure nothing goes haywire, but the software is making the trading decisions