Hello - I have a regular full time job, but I trade on the side. This year I have been pretty successful and have yielded a decent profit. When is it appropriate to create your own company for any type of financial benefit? Is it advantageous to trade under a company name, instead of your own? I have plans of possibly offering subscription to customers, but that would be in the future some time. Thanks for your input! -Kartik
You did not say if you are in the USA or not. I will assume USA. Firstly, understand a subscription offering is distinctly different than a trading business. Trading generates "unearned income" while a subscription service would generate "earned income." At this point in time, in your case, trading and subscription are separate things. Unfortunately, trading profit or loss (aka unearned income) is not a deciding factor in the eyes of the IRS as to whether your trading qualifies as a business or not. The question you should be asking is do you qualify as a trading business. http://greentradertax.com/ is a leader in this area and has a set of golden rules for qualification as a trading business. ----------------------------------------------------------------------------------------------- Currently, there’s no statutory law with objective tests for how to qualify for trader tax status. Subjective case law applies. Leading tax publishers have interpreted case law to show a two-part test to qualify for trader tax status: • Taxpayers’ trading activity must be substantial, regular, frequent, and continuous. • The taxpayer must seek to catch the swings in the DAILY market movements and profit from these short-term changes rather than profiting from long-term holding of investments. GOLDEN RULES Our golden rules for trader tax status qualification are based on years of experience. The trader: • Trades full time or part time. • Spends more than four hours per day, every market day working the trading business. • Has few to no sporadic lapses in the trading business during the year. • Executes trades on more than 75 percent of available trading days. • Makes close to 500 round-turn trades (1000 sides) annually. • Has annualized trade proceeds in the millions per year on securities. Less is okay on options and futures. • Makes mostly day trades or swing trades. • Has the full intention to run a business and make a living. • Has significant business tools, education, business expenses, and a home office. • Has a material account size. WHAT DOESN'T QUALIFY? There are three factors that automatically don’t qualify for trader tax status: 1. Automated trading without much involvement by the trader. 2. Engaging a money manager. 3. Trading retirement funds. Success to you
is there any way to provide "money security" to investing clients without using a custodian (expensive) and IB friends account (too much trouble on clients side, opening and blah blah).