He is a generalist but I think...and I am just playing with this this year as I am not sure about his knowledge level (he is a new CPA for me) he wanted to use the 3k in losses plus a bunch of additional things (home office, meetings, equipment, cars, ...) as he would with any other business. I don't plan to claim trader status (even though made 100s of K worth of trades) because I am afraid of how it might turn out. He is just trying to lower my AGI...and if I make some money trading that is bonus...hopefully I am not being misdirected. Why can't my trading business be treated like any other business - like a law firm or gas station?
as been said above-get profitable first,then worry about taxes,deductions etc. what you are trying to do doesn't make any sense unless either your expenses are ridiculously high or you expect that your losses will be ridiculously high(but since you are starting with 20K)- your losses are limited and all this LLC crap should be least of your worries. come back to tax adviser when you are making at least 100K -250Ka year. and expecting it to last forever. seriously. save yourself (and us) some time
We haven't seen automated trading come up in a trader tax court case yet, but we expect it will. We've seen executives with demanding full time jobs who turn a switch on to automated trading systems spending 30 minutes a day. They have no involvement with trading decisions relying entirely on the automated system which they lease from a third party creator of the system. Even with very high volume and frequency of trades, they don't qualify for trader tax status (TTS) in our view. Conversely, we have clients that create their own automated trading systems and are very involved with trading decisions. They can qualify for TTS. It's analogous to engaging an outside RIA or CTA for money management, which doesn't qualify for TTS, versus hiring a trading assistant to work directly for you full time which can qualify for TTS. Just make sure you fly the plane with automated help, rather than be a passenger in an automated plane. It's an area that minus direct IRS guidance you need to use common sense.
The trick is finding one who's only a partial con artist (actually practices as a lawyer, but charges so much you know you're being scammed) instead of a full-on con (isn't a lawyer, but says he is, and charges a lot for nothing)...
Assume you are responding to the original poster...My spouse and I made over $500K from our regular jobs and I am looking for a way to control my tax liability. I made 100s of trade this year and he (CPA) suggested the LLC as way to potentially control my taxes. Again if trader status is not an option why can't the business be treated like any other? For the record...I ended the year having made about 300k in options purchases and incurred a 27k loss - lesson learned on going for a home run trade...
What do you(or your cpa) mean by 'control my taxes'? You can have your llc, but w/o trader status what you can do with it? Yeah, you can write off your legit expenses, but in trading we don't have much. Are you seriously thinking about things like calculating internet usage for trading? 50-100 bucks for data and another hundred for news. Maybe pc once a year . Thats all my expenses
He is suggesting lots of things...renovation costs to build home office, meetings with him or bankers..., travel expenses (meeting minutes from llc meeting or conference related to trading or running a business), auto leases, lunches where I talk about the llc or my trading, and computers... He is the CPA for a relatives law practice and I was told he is aggressive...not sure he understands the trading business aspect...I think he is looking at it like a law firm and as I am putting a nice chunk of money into this and being able to use it somehow to reduce how much we have to pay on our taxes. He keeps talking "basis" for the llc... I certainly do not need any tax trouble but it is tough to have the max withheld every pay period and then be told I need to write a 25k check every year And just to be clear...I haven't done anything at this point other than create an llc, fund it, make some trades. I have only consulted with him...I am asking the questions here to bounce off what he tells me...I may or may not have him do my taxes...a friend recommended I see a tax attorney to make sure I am doing/thinking about this correctly...might be time to do that.
What a surprise, you ask a person who makes a living off fees for compliance and he advises you to do things that increase compliance costs. Walk into a barbershop, you're gonna be told you need a haircut. You're not the first individual to contemplate offsetting high wages with losses from a side "business," but you are the first I've come across who wants to qualify as a trader in securities to run it as a tax shelter. You are cruisin' for a bruisin'.
boy oh boy..i don't even know where to start. don't just walk away from this guy. RUN. what he suggesting is a sure way to get yourself into the prison. yes,i'm not kidding -PRISON. ask Mr Green,who posted here. he is a real PRO. it's surprising to see such lack of knowledge on subject from such high income people. i'm russian guy,who happens to live and trade in US ,but looks like even i know more about your taxes and tax system and more importantly-possible consequences than you are. keep in mind(looks like your 'lawyer' forgot to tell you ) that when it comes cheating on taxes you are GUILTY,until you proven innocent. all this scheme of yours will fall apart after just couple questions from IRS audit agent. you leased a car for your trading llc? then it can only be used for it. how you can use a car in trading related business-i have no idea. keep in mind that if you read thru this (and other threads related to LLC ,mentioned here)-i own LLC and trade thru it for many many years.
Most tax professionals don't know much about trader tax status (TTS). They mistakenly think an LLC gives business treatment by default and it does not. The LLC needs to qualify for TTS. 1000 total trades per year annualized, trade executions 3-4 days per week, average holding periods well under a month, and other factors. Investment expenses don't allow home office and education. Get informed and don't let tax professionals give you the wrong advice on Form 8949 wash sales, trader tax status, section 475, entities, section 988 forex rules, and more.