KTC Lurker
Member
This is a question I'll be posing on my next call, as well.
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Professional Trader Status
- Thread starter UltradoomY
- Start date
KTC Lurker
Member
Ha! I thought it might be, considering they are the only named outfit in the thread. I'm in WA, so I'm hopeful there are local options to explore too.
@Discoducky - with the impending state cap gains of 7% starting next year, a WY C-corp would also protect you from these taxes on trading gains. I'm also exploring car registration and purchases being routed through the company to see how far the savings can go. 4% sales tax in WY vs. 10% in WA and no pesky car tabs costs every year.
bballshinobi
Member
It's not a taxable event, That's what Merrill Edge told me at least. It's basically just a transfer. The cost basis will be what you (personally) paid for the assets. So if you bought the stock at $100 then that's the cost basis for your C Corp too.
bballshinobi
Member
By the way, if your total income is over $250,000 (married, filed jointly), then there is a 3.8% Net Investment Income for the amount over $250,000. Another reason to incorporate if you make a lot of profit each year.
bballshinobi
Member
You sure have some awesome problems on your hands lol!!!
I don't think C is necessarily better than S for your software company, because don't forget that C gets double taxation - 21% on the corporate level then when money is distributed to you it's taxed on your personal level. My understanding is that C Corp only makes sense for your "side hustle" when your "day job" income is already very high because it puts your side hustle income into the 21% bracket instead of your 37% marginal rate.
I'm interested in the WY incorporation. Supposedly my 'other' trading buddies who are doing well with SPY and SPX options have an experienced accountant to set this up. Hoping to have a call early next week and I'll take notes for this group.
KTC Lurker
Member
bkp_duke
Well-Known Member
"Not advice", but I have a company registered in WY and we didn't use an attorney to set things up.
We did it ourselves, with this company:
www.northwestregisteredagent.com
Have been with them now 10+ years.
Also, if you don't maintain a presence in WY and don't make sales in the state, the taxes each year are peanuts (less than $150). I think we pay that registered agent company about $100 per year as well. We picked WY for our company because of the low low fees and the history of never breaching the corporate veil.
We did it ourselves, with this company:
Registered Agent | Corporate Guides | NW Registered Agent
How to Start a Business the right way. How to Maintain A Business the Private Way! Let our Corporate Guides help you today.
www.northwestregisteredagent.com
Have been with them now 10+ years.
Also, if you don't maintain a presence in WY and don't make sales in the state, the taxes each year are peanuts (less than $150). I think we pay that registered agent company about $100 per year as well. We picked WY for our company because of the low low fees and the history of never breaching the corporate veil.
InTheShadows
Active Member
So I set up a brokerage account for my construction business and funded the account. Now I’m ready to start trading in it. Super excited about this because now I can put the excess cash on had to work.
On to the next order of business. How do you record the transactions in your books? I was thinking of making an income account “investment activity” and connecting the transactions to that account. I know stocks only get recorded when opened and closed. I’m just not sure how one would record short puts and spreads.
I have already duplicated my trading journal so I can keep one for the business too. This is where I will do all my investment analysis. I just need something for QuickBooks and to keep my business reports semi accurate.
On to the next order of business. How do you record the transactions in your books? I was thinking of making an income account “investment activity” and connecting the transactions to that account. I know stocks only get recorded when opened and closed. I’m just not sure how one would record short puts and spreads.
I have already duplicated my trading journal so I can keep one for the business too. This is where I will do all my investment analysis. I just need something for QuickBooks and to keep my business reports semi accurate.
InTheShadows
Active Member
You can set up a specific business brokerage account. I just went through this route with my S-Corp. The paperwork was slightly different and couldn’t be completed on the online web pages. I had to print docs, sign them in ink, rescan them and fax or secure email them in. (Snail mail too)
I’m kinda sorta I’m a similar situation and just met with my accountant and bookkeeper on this subject. Here is some important advice I can give from my point of view (take with grain of salt)
@adiggs- I think best way find good accountant and also a good business lawyer is through testimonial from other legit well respected business you already know or invest in that does solid sound work…. They always cost more but they protect me from myself and push back on bad ideas and green light good ideas…. Some of the best advice I’ve paid for is don’t change what you are doing, don’t give away equity to your business, don’t invite scrutiny by finding clever ways to deduct your 2 Tesla vehicles”
On the subject of trader tax status: I have a business already that I can get benefits, etc. the ability to avoid wash sale is valuable in case of losses but for me the thing that steered me away from trader tax status is that any loss I incur, I can use against my short term capital gains the following year regardless of the wash sale situation. If this is true, that is big news. While it will never count as a deduction, if I have 100k of Tesla trading losses at end of the year that are not deductible due to wash sales, then I can effectively offset all those losses by Tesla gains the following year with new profits on trades….
that did it for me… “keep it shrimple stupid” as a friend told me
Great advice! Yes, I haven't approached my CPA on this yet b/c I don't want him to think I'm undermining his expertise and/or make him feel any loss of trust. He's done well for me and helped me get me started. I just don't like plain advice like "Buy an airplane" and want to know all my options.
Can you please explain the concept of how to avoid wash rule? Is that only through professional trader status? I have some losses from other stocks this year, totaling about -50k in losses. Are you saying with a professional trader status, I could take that -50k from this year in 2021 and next year in 2022 if I had +50k in short-term gains it could offset?
I thought it only allowed carryover for a maximum of -3k, but if I could take advantage and offset my losses in future years that makes me very very happy!
This is my understanding and I hope it’s correct because it’s a huge incentive to just trade whenever and offset it in future. I know they add losses to cost basis of new position but I don’t know if that is only for same stock. Other than that I’m not sure
adiggs
Well-Known Member
This is, sadly, an area in which I sorely lack. My entire working career has been for a paycheck in a large company, leading to little or no exposure to business owners.
But maybe I've got an avenue to success now that I'm doing volunteer work - I'm connected with a local organization that connects donors with nonprofits, providing more than just financial assistance - also various business type services (finance, HR, business strategy, project management, IT, ...) by people giving back their time and money to the community. I expect there is a pretty high fraction of business owner type people in that crowd
InTheShadows
Active Member
For bookkeeping this is how I ended up setting things up.
I have a construction business so this isn’t specifically for only trading but it might help those of you that are setting something up.
I created a “other long term asset” account which is my account value and what I make bank transfers into and out of.
I set up an “other income” account called investment gains/losses
I set up an “equity” called unrealized investment gains/losses.
so from my understanding is when I close out a trade. I figure out the gain/losses including fees and record that in the other income category with a journal entry.
Then at an interval of my choosing. (I’m going after market close Friday) I can record an adjustment with the equity account as a journal entry so my books reflect a semi accurate record of the value of the account.
I have a construction business so this isn’t specifically for only trading but it might help those of you that are setting something up.
I created a “other long term asset” account which is my account value and what I make bank transfers into and out of.
I set up an “other income” account called investment gains/losses
I set up an “equity” called unrealized investment gains/losses.
so from my understanding is when I close out a trade. I figure out the gain/losses including fees and record that in the other income category with a journal entry.
Then at an interval of my choosing. (I’m going after market close Friday) I can record an adjustment with the equity account as a journal entry so my books reflect a semi accurate record of the value of the account.
Recently came across this. Impressive. If his CPA skills are like his enthusiasm and oratory skills, maybe someone should set up a consultation. This video is about criteria to be classified for professional trader status. As others suggested 720 trades, but also 75% of days in the market, 4 hrs/day (not all trading, but research, including reading TMC, as well). These are not hard rules or numbers, just what they and others believe will pass the IRS criteria.
KTC Lurker
Member
Quick update - I'll be speaking with a senior member at Anderson Associates on Thursday to go over detailed questions not covered in the first call. Will come back to this group following that call to share my update.
In the meantime, has anyone else taken steps to begin the process of moving forward with a similar accounting strategy?
In the meantime, has anyone else taken steps to begin the process of moving forward with a similar accounting strategy?
KTC Lurker
Member
Alright fellas, gather round. After my follow up call with a senior member of Anderson today you're going to want to act sooner than later. Below are the highlights - spoiler alert, I paid the piper ($5K for their trader package) and have begun working with Anderson. I'm happy to share a referral for anyone interested, I believe we both get something out of the deal.
First, moving your brokerage to a partnership entity does NOT provide protection for the entire tax year - the tax benefits only start once you move your brokerage into the company name!
The tax benefit for doing so is MASSIVE - taking capital gains rates (regardless of term) from 40%+ for STCG to 21% flat. So every trade you do for the rest of this year in your name instead of your company name costs you 20% more in taxes - my motivation to act fast.
The benefits of moving your brokerage to a company held account OUTWEIGH the benefits of Trader status. You get the same low tax rate, can deduct more than just your trading expenses, and you get a myriad of other benefits like healthcare deduction, 401K contribution deductions, privacy, asset protection, etc.
It is NOT worth registering your vehicles under the company - main reason, it adds liability to your brokerage. If you get in a wreck, your company shows up on the insurance, not you. Opening your assets up to risk. You can still deduct mileage, etc.
Transferring your brokerage into your company name is NOT a taxable event. It is a Transfer In Kind, is easy to do through your brokerage, and Anderson will guide you through it.
Other opportunities to offset gains but keep control of your money
I hope this is helpful for you all. If more questions arise, I'm happy to use my unlimited access to them to keep going deeper.
First, moving your brokerage to a partnership entity does NOT provide protection for the entire tax year - the tax benefits only start once you move your brokerage into the company name!
The tax benefit for doing so is MASSIVE - taking capital gains rates (regardless of term) from 40%+ for STCG to 21% flat. So every trade you do for the rest of this year in your name instead of your company name costs you 20% more in taxes - my motivation to act fast.
The benefits of moving your brokerage to a company held account OUTWEIGH the benefits of Trader status. You get the same low tax rate, can deduct more than just your trading expenses, and you get a myriad of other benefits like healthcare deduction, 401K contribution deductions, privacy, asset protection, etc.
It is NOT worth registering your vehicles under the company - main reason, it adds liability to your brokerage. If you get in a wreck, your company shows up on the insurance, not you. Opening your assets up to risk. You can still deduct mileage, etc.
Transferring your brokerage into your company name is NOT a taxable event. It is a Transfer In Kind, is easy to do through your brokerage, and Anderson will guide you through it.
Other opportunities to offset gains but keep control of your money
- Found a non-profit - can have any purpose you elect, lets you transfer money to the non-profit to reduce income, while still allowing you to trade that money in a brokerage for the non-profit. You can later choose to take a salary from this non-profit in retirement, or defer income, or simply donate from this vehicle.
- Deduct travel related to your investment - you can hold meetings with your business partner (mine is my wife) and take notes from anywhere and deduct travel. You can also deduct the cost of a hotel conference room to hold your meeting and use your home to bill your business for this cost 14 times per year (~$1k per meeting).
- You can buy real estate (long hold) in tax abated areas to avoid 100% of cap. gains taxes, though this option generally takes 10 years.
I hope this is helpful for you all. If more questions arise, I'm happy to use my unlimited access to them to keep going deeper.
Aren't you exaggerating the numbers a little? The top STCG rate is 37%. So you are only paying 16% more in taxes not 20%. And even that is exaggerating things because of the graduated tax rate brackets. (Hmm. I guess I missed the 3.8% NIIT once you get past $200k of AGI.)
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