+1. Re setting up entities to get health insurance and other "benefits" in general, it's important to remember what costs there are to not only set up the entity but what ongoing costs you're incurring (you might have to pay SE taxes depending on what you're doing) as well as the increased risk of an audit which is no small matter esp considering they could hit you w/ back taxes, fines and interest plus all the stress which would negatively impact your trading. Keep it simple.
Your Advice, wait to make tradertax declaration for next year? Too, late now. File individual unemployed, trader tax? If i am semi, retired , receive some social security This can be my full time venture. I can do, a two member llc, or s corp wife my wife, and or my son.My son, can show this as full time job. Green and company seems sharp. Anyone work directly with them, or another firm?
We went through this years ago, and it always came down to SE taxes. Had a part time job for a while, and that did not eliminate my trader status. If you're a big trader, trading expenses may not be much, but I'm just a little guy and every dollar I spent on hardware and software could be deducted, plus any miles I drove to go do something, like the time I drove up to Chicago to see the CBOT building (and visit my daughter.)
As one of the earlier posters alluded to, the primary benefit of claiming trader tax status is the ability to deduct expenses as above the line deductions rather than investment expenses that are subject to a 2% AGI threshold. An individual without an entity reports trading profits as capital gains on Schedule D and expenses on Schedule C except for health insurance which is a direct adjustment to AGI on the 1040 itself. Personally, I do not deduct any expenses that have a mixed personal/trading use, such as internet connections, cable, utilities, office in home, etc. Hardware cost I expense in one shot under section 179 and I go years without having any hardware cost until replacement. My last hardware setup lasted 10 years including the 22-inch Samsung CRT monitors which I would still take over these LCD widescreens. It's been years since I purchased trading software or books; the thousands that I spent are sitting on my shelf collecting dust. I've condensed my monthly nut to $89 for data and charting, and so far as I can tell, the deduction for that is the benefit to me of claiming trader tax status and filing Schedule C. Since I stopped trading stocks, my tax returns are simple and I do them myself. If I had listened to the people who make a living off fees I might have set up an entity to do this or that, and maybe I could get a few more deductions. Of course then I would need to depend on their services to report the stuff they set up for me. The conflict of interest is a definite red flag. P.S. The biggest expenses by far and which can be addressed are commissions and the state income tax. But that's for another thread.
+1 to everything icarus said. re his point of state income taxes, IF you have the flexibility to move to another state you should do that if you're making enough for it to matter. there are 9 zero income tax states. http://www.irs.gov/efile/article/0,,id=130684,00.html 7 of them don't tax interest/div income (TN and NH do). another option is to live in a zero inc tax state for 6 months plus a day for it to be your main state of residence and live somewhere else (even a high tax state for the rest). just trying to keep money in traders' pockets and out of the gubmit's.
Anyone know of a little quirk in tax filing for mtm election. Not trading the first,31 days, and the last 31 days of the year?