Set up a proper day trading business structure

[Karen Yang 1]

All Full Time Traders please, 

I would like to find out the proper process and procedures of starting day trading as a full time profession. Can any full time traders advise what steps should be taken in order to set up a proper business structure to enjoy the tax benefits in the US as self-employed or running a small business? I've been trading in simulator for close to 4 months and haven't started live trading yet; 

1. Set up a broker account and start trading live

2. Find a proper CPA for tax advise/consultation (can anyone suggest any cost effective CPAs?) 

3. Set up an LLC first? 

If anyone can advise which step i should prioritize first before starting live trading? or if there are any missing steps? 

Many Thanks, 

Karen Yang   

 

 

 

[Justin 264]

2 hours ago, Karen Yang said:

All Full Time Traders please, 

I would like to find out the proper process and procedures of starting day trading as a full time profession. Can any full time traders advise what steps should be taken in order to set up a proper business structure to enjoy the tax benefits in the US as self-employed or running a small business? I've been trading in simulator for close to 4 months and haven't started live trading yet; 

1. Set up a broker account and start trading live

2. Find a proper CPA for tax advise/consultation (can anyone suggest any cost effective CPAs?) 

3. Set up an LLC first? 

If anyone can advise which step i should prioritize first before starting live trading? or if there are any missing steps? 

Many Thanks, 

Karen Yang   

 

 

 

Hey Karen,

A traders business structure will vary from person-to-person depending on a lot of different factors. No one proper process unfortunately.

I would read this article (here), which explains a lot of the different structures and their pros and cons. I would specifically pay attention to the TTS and the Section 475 Election.

One thing I can tell you is if you are indeed going to set it up as a business (and not as a sole proprietorship) you will need to do that before setting up your broker.

[RTrader 20]

This is how I do it and it works (best if trading as a career and not working in a job)

1. Get residence, or move to a state with no income tax (WA, NV, TX, FL etc...)

2. Trade futures, NOT STOCKS! Futures give you a 60/40 tax structure where you will likely only pay less than 5-7% total tax on your profit up to around 70K.

3. TTS not really needed unless you plan to lose more than $3,000 a year and want to write that off in that same year 😞

4. Do not hold a job where you earn W2 income (ordinary income). This will raise your taxes owed from trading substantially because short term stock trading is taxed at whatever effective tax rate you are in (TTS might come into play here too)

As a beginner, though best to try it out live before worrying about the tax and business expenses. Trading is a hard thing to stick with and you want to make sure you can make a go at it for a while.

 

 

[Justin 264]

On 3/27/2020 at 4:36 PM, RTrader said:

3. TTS not really needed unless you plan to lose more than $3,000 a year and want to write that off in that same year 😞

Nobody plans to lose money, but unfortunately the chances of a new trader losing $3,000 in a year is extremely high.

[Hansabraun 7]

Karen, you asked for all full time traders only to answer and you've received very little response so I'm violating your requirement to suggest that  you to check out

the Green trader Tax webinar in the education center.  If your answers aren't there then check out Green trader tax website. If you need more answers I think  that you can contact him directly.  Norm talked about it in chat before and for the most part you need to file for trader tax status and another form for avoiding the wash rule and you can simply operate as a sole proprietor.  That way not only can you write off all losses against earned income but you can also write of expenses like office use of home etc.  Tax trader status is nice for writing off losses against real income in excess of the $3000.00 that you otherwise are allowed but it also allows you to treat your trading activity as a business, atleast  I think that's how it works.  I'm rather certain that most of the Mods are set up this way(but I could be wrong).  I'm going to be setting this up for myself in the next week or so.  I've set up 2 LLC's in the past for different businesses from the advice of accountants and it was mostly to create a "legal veil" to separate my personal assets from my businesses without needing to create a corporation, I don't think it's necessary for day trading.     This is if you are only trading your own funds and if you trade enough times a month to qualify.    I hope this was helpful even though I'm not a full time trader yet.

[Hansabraun 7]

I just checked the Greentrader tax website and its loaded with info.  There is an introductory type video that explains a lot about retail trader requirements etc.

[Hansabraun 7]

One last thing, setting up a Sub S corp could be beneficial for health benefits and/or retirement savings both getting preferred tax treatment.  It also can allow for part of your income to avoid self employment tax bay taking part of the profits as dividends .  Once again Greentrader tax can answer all this for you and more for you.  In fact I'm now considering using them to set me up.  Good luck

[onlyjava 12]

On 3/25/2020 at 8:22 PM, Justin said:

Hey Karen,

A traders business structure will vary from person-to-person depending on a lot of different factors. No one proper process unfortunately.

I would read this article (here), which explains a lot of the different structures and their pros and cons. I would specifically pay attention to the TTS and the Section 475 Election.

One thing I can tell you is if you are indeed going to set it up as a business (and not as a sole proprietorship) you will need to do that before setting up your broker.

@Justin   The Forbes articles you linked above is great - Thank you!