When to create a company

Discussion in 'Professional Trading' started by daytrader85, Jun 7, 2015.

  1. 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!

  2. tiddlywinks


    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.

    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.

    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
    JTrades likes this.
  3. 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).