Why Prop??

Discussion in 'Trading' started by Smikkey Trader, Dec 27, 2001.

  1. Don, one question : when trading at your firm or any other LLC for that matter, every trader, from what i understand, uses mark to market accounting. Does each trader have to make this election to the IRS or is it automatic?
    #11     Dec 27, 2001
  2. This is automatic for all our traders. Great benefit, saves $$ and time on accounting (plus taxes).
    #12     Dec 27, 2001
  3. As a prop firm LLC member, I have found that it has severe negative tax consequences when compared to a Schedule C filer. The biggest problem is that there is no way to defer taxes on your income. If you make a decent living (+6 figures), you end up paying 39.6% of your income to the IRS every quarter. As a Schedule C filer, you can use Mark-To-Market accounting and not pay the Social Security tax (same as prop firm), and you also get the added benefit of writing off $20K of computer equipment each year versus depreciating it over 5 years as an LLC member. The biggest advantage of filing Schedule C, is that you have numerous options for reducing your taxable income I.e. SEP-IRA, VEBA Trusts, LLCs etc. Of course, you will have to eventually pay taxes on this income, but letting it grow tax deferred until 65 is a lot better then paying it to the IRS every quarter. I’m using GreenTraderTax.com, so if anybody knows something that I don’t … please reply.

    I’m still a happy prop firm LLC member, because the benefits of leverage, low commissions, sophisticated execution systems and social interaction outweighs the tax consequences.


    #13     Dec 27, 2001
  4. You must be with the wrong Prop firm.:) All of our traders turn in expense reports for all of their "out of pocket" expenses, including computers, Cable, DSL, and whatever else, and we simply cut them a check for that amount and (thus) reduce their K-1 taxable income. And by taking the proper IRS election, we are exempt from all Self Employment taxes.

    Being a Public Accountant by trade (albeit years ago), one of my passions is providing our services with such accounting simplicity that we can eliminate the need for all the fancy tax planning. With all deference to my friend Mr. Green (who is excellent in my opinion), we simply have most of the bases covered (for most, not all, traders).
    #14     Dec 27, 2001
  5. I never said I was trading $30,000. I said that a new trader with $30,000 could learn on his own, using the new margin rules.

    Let's say my stake was $200k. Thats $800k in daytrading buying power (which is more now than I use). I never hold more than 10% overnight, and thats extreme cases. My preference is to never carry, which I adhere to nearly every time. The only time I bend this rule is if Im profitable. I NEVER carry losses to the next day.

    Thanks for all the responses.

    ZORRO- I heard you were carried away to a long lost world by crazed Amazons. Any truth to that??
    #15     Dec 27, 2001
  6. Don,

    I have to tell you that I am with the right firm :)

    If you know of a way to defer taxes on my trading income please tell me. I'm talking about a way to shelter some of my income for retirement purposes I.e. SEP-IRA, Keough, VEBA Trust etc. To the best of my knowledge and my accountant's, this is not allowed as a member of an LLC :(

    If I was filing Schedule C, there are several methods available to potentially shelter a huge percentage of my trading income.


    #16     Dec 27, 2001
  7. As a new prop trader, I can see the advantages right away. I've been in two offices with the same firm and have been exposed to many different trading (successful) strategies. One trader at my firm holds over $5 million overnight using sophisticated spreading techniques with a program he has developed. He was up over $7000 today when I was in his office. His insight alone is worth trading there.
    #17     Dec 27, 2001
  8. Some of the ones who didn't are no longer around. All of the firms allow trading NYSE or NASDAQ. They are VERY different vehicles --traders tend to specialize with one or the other.
    #18     Dec 27, 2001

  9. Ok so let's say you have $200,000. One of the benefits of LLC's is you can take $150,000 and put it somewhere else maybe some real estate , CD's or such. Trade with just $50,000 with the exact same kind of mindset and more buying power than the $800,000 you would normally have. That's the advantage of how Professional firms can work.
    #19     Dec 27, 2001
  10. Hitman was right Proprietary usually don't allow trading remote.

    WOuld you give someone $500,000 and have very little watch on them ......and you are responsible for the losses?

    Professional firms such as Echo and Bright allow traders to trade remote.
    #20     Dec 27, 2001