Trading in an LLC vs outside an entity

Discussion in 'Professional Trading' started by kcgoogler, May 21, 2009.

  1. Hello All,

    I have been thinking about setting up a LLC to trade. Main reason being i've heard that as an LLC you are protected against major losses in any one year.

    From my understanding, if i trade as i currently am, if i have a major loss say of 30000$ any one year (not that i want to), i can only take 3000$ or so as ordinary capital gain loss (and carry over for a couple of years i think); but if i trade as an LLC i can write off my losses across previous years gains and potentially even get money back from the IRS. (according to what Traders Accounting says).

    So even though there can be a lot of paper work and a bit more taxes from year to year, i am thinking this benefit would save my a$$ if crap were to happen when my trading account gets real big. Is there any truth to the above statement? or is it just baloony to sell their product?

    thanks in advance.
  2. a little late for this year, as has to be done before tax day w/no extensions but make the mark-to-market election and you eliminate that $3000 loss limitation.

    you can take many more deductions (computer, software, books, part of mortgage/rent) as you are declaring trading as your business. also, you are taxed on it at your regular income tax rate, which could be good or bad but best if "bad" because if you are really successful, could be charged up to almost 40%.

    another potential down side is that if you trade futures, you can't get the 60/40 benefit rule inherent to them, i.e. 60% long term gains rate (now 20%) and 40% short term rates.

    just google mark to market and all will be revealed
  3. oh, sorry dude, am thinking if you got the LLC info off of a traders accounting website, you must have seen some info on mark-to-market.
    if so, count the last one as side effects of age and selective vision:confused:
  4. Hello Colonelangus,

    Thanks for the reply.

    But yes, i dont care for the deductions etc; my trading costs (other than commisions) are negligible. Its not a motivating point at all; and neither am i talking about this year. I actually paid taxes on my gains for 2008 (kinda proud about it too.. :))

    My main question is, if i go to an LLC structure, if i have a major loss in one year; can i write it off completely the same year (instead of only 3000$ per year otherwise). They also claim that any additional losses in addition to my other incomes can be written off from gains from pervious years and therefore get taxes paid in previous years back; which sounds too good to be true..
  5. one of my trading accounts is as partner in an LLC and i get an unbelievably simple K-1 (form 1065) just before tax time in which there is only line 1 filled out,
    ordinary business income _________

    if there is a loss, it is WHATEVER that loss on the year is ( i.e. more than the $3000) to be deducted from any other ordinary or business income you may have from other job that year, etc.

    They also claim that any additional losses in addition to my other incomes can be written off from gains from pervious years and therefore get taxes paid in previous years back

    if i understand correctly, the folks are telling you that if you have losses this year, you can use them to eat at previous year's income thus the taxes you had paid (or not yet paid) on them?

    never heard of anything like that but speaking with my accountant, it seemed like the IRS is reluctant to have any decisions made now retroactively affect how income was classified in prior years. thus, it sounds like it wouldn't happen. also, not sure how you are structuring your LLC but she said something like if you are listed as the manager/director then you may also have to pay self-employment tax.

    i think you got that from my first post but just in case it slipped by, if your primary objective is just to eradicate the $3000 loss limitation, you can make the mark to market election and you are good to go (and not have to worry about the costs for setting up the LLC). i am thinking if you are going to all the trouble to set it up for trading (unless it is a blanket for all your business) then you are way into the game so

    oh, and as you sucked a little or lot of money out of the markets last year, with their sick volatility undulations and other anomalies, congrats man:D