In 12 months from now, I plan to take 10 grand and work with a proprietary trading firm that will allow me to begin trading with the weight of $50,000. Like all most everyone I know, I would like to deduct as many expenses as possible from my earnings as a trader (If I am lucky enough to have any). With this in mind, can I get some feedback on how I might want to set up my trading business? So far it looks like a Corporation, Subchapter S would be a good move Thanks
Spending precious seed-capital money on a tax avoidance plan with a corporation seems premature. Especially when $1,000 used for the corporation means $5,000 less working capital/buying power. That's a significant amount at the level you are talking about! Sure, the entity can provide you with legal tax advantages, but perhaps it is better to learn the ropes and build up a base first.
read this: http://www.alglaw.com/stockinvestors.htm If you take all the deductions that a corporation allows, you will more than cover the expense to set it up.
While I very much liked and understood that link you provided, the (perhaps too subtle) point I was trying to make was that this taxpayer generally will NOT be able to cover the expense of the entity set-up thru purported tax savings when his starting capital is only $10,000. After following the (well written and very thoughtful) suggestions at that link and forming a Living Trust, a Limited Partnership and a Corporation exactly how much do you propose will remain from his initial $10,000 starting capital to actually go out and start the business of trading and begin trying to make money? Better might be that he not go putting together sophisticated financial planning techniques just now; before he has the capital to do so with and the asset base large enough to make it worth his while to protect. ... rather than pay so much for the protection, that there's little left to protect.
name one expense that you can deduct as a corporation that i cant deduct as individual trader status. tax advantages are NOT the main purpose of a corporation especially if you are using it to trade.
There is really no need for a corporate structure unless you are pooling capital or have a very long term potential revenue source to ascribe to the corporation. It takes some overhead (time , money) to run a corporation or LLC. For an individual trader using their own funds and without the need for protection of massive amounts of capital, an LLc or corporation is probably wasted effort .....talk to an attorney and cpa before deciding (and even take their opinions with a grain of salt)
My understanding is that as individual your deductable losses are capped by $3000 a year. With corporation if you are proftable this year but you took a huge loss last year all of it can be deducted from this year profit.
Can you shield yourself from a blow up by trading in a limited liability company? Say you trade commodity futures or sell premium on a regular basis, your net worth is 300K. You don't want to put all this and more at risk in case your account goes into debit because of a limit move or black swan event. You start a company with 100K as capital. It's not that you plan to take up large risks it's just that you don't want to lose more than what is in the account no matter what happens. I suppose your liability is limited to 100K or whatever the company 's capital is. If this is actually the case, the question I am asking myself then is how can clearing firms guarantee your counterparty since many are llc's ? They could as well default on their obligations, if enough trading firms do that, what would prevent the whole system to collapse?
as a corporation, you can't take any capitol losses unless its a sub s or llc. as far as loss carry forward, anybody can do that, even an individual and im assuming that all have trader status. there is one area that is not proven but talked alot about and that is an entity could shield you from audit more often. again i don't believe it but lots of people say so.