Professional Trader Status

[adiggs]

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

1. 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.
2. 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).
3. 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.

All told, when the benefits are stacked up, it was a no-brainer for me. Massive savings, relatively low cost ($5K up front, $35/mo, $800/year), access to a large staff of cross functional experts to help with any questions or strategies you need. Also, as new tax rules roll out (state cap gain, federal changes in cap gains, etc) they are actively looking for ways to mitigate for their 9000+ clients.

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.

Was there any particular activity level / hurdle you needed to clear to make this doable? I don't particularly care about trader status - the brief conversation I had was about 700 minimum trades a year, time in market for those trades (short) - stuff like that for a business to pass muster.

Was that part of the conversation at all? If so what threshold did you need to clear?

 

[MikeC]

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

1. 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.
2. 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).
3. 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.

All told, when the benefits are stacked up, it was a no-brainer for me. Massive savings, relatively low cost ($5K up front, $35/mo, $800/year), access to a large staff of cross functional experts to help with any questions or strategies you need. Also, as new tax rules roll out (state cap gain, federal changes in cap gains, etc) they are actively looking for ways to mitigate for their 9000+ clients.

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.

So your company pays 21% tax on gains - but then when your company pays out the earnings to you, don't you pay income tax on that?

 

[MP3Mike]

So your company pays 21% tax on gains - but then when your company pays out the earnings to you, don't you pay income tax on that?

You do. But I think that you setup your company to pay for things for you as a benefit instead of salary. For example health care insurance and expenses, vehicle expense, etc. Not to mention all of the company expenses; Internet, Phone, Travel, Computer, etc...

 

[MikeC]

You do. But I think that you setup your company to pay for things for you as a benefit instead of salary. For example health care insurance and expenses, vehicle expense, etc. Not to mention all of the company expenses; Internet, Phone, Travel, Computer, etc...

In that case - you're getting double-taxed, not saving on taxes, right?

I understand other deductions may balance it out, but for people already in a high bracket from their day job (and who may already be able to deduct some of those things), it would seem this would not make sense to do.

 

[ReddyLeaf]

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.

KTC, another question to ask is whether forming the WY Corp allows “trading” anywhere (e.g., still live in WA and trade from home) and not need a business entity in that location. The reason that I ask is that WA has a B&O tax that is based on revenue, not based on profit. So, does trading in WA mean paying B&O on wins (revenue) instead of net profits (wins - losses - expenses)? For active traders, I would expect a decent percentage of trading losses. So in summary, does forming the Corp in WY (or other location) mean paying taxes for that locality only, while still allowing trading to physically take place anywhere (vacation, business travel, conferences, etc). Thinking this through, it seems likely because businesses travel around all the time.

Edit: also, does your $5k+$35/mo trader package with Anderson include everything like setup, bookkeeping, tax filings, etc. or does one need to hire another firm for that? Thanks.

 

[KTC Lurker]

Was there any particular activity level / hurdle you needed to clear to make this doable? I don't particularly care about trader status - the brief conversation I had was about 700 minimum trades a year, time in market for those trades (short) - stuff like that for a business to pass muster.

Was that part of the conversation at all? If so what threshold did you need to clear?

There is no trading activity requirement for this path. The advisor also mentioned that obtaining Trader status from the IRS is very hard and is also subject to the most frequent audits if obtained.

 

[KTC Lurker]

So your company pays 21% tax on gains - but then when your company pays out the earnings to you, don't you pay income tax on that?

You don't pay out money that isn't deductible. For example, if you wanted to contribute to your 401K, you could give yourself a $20K salary and deduct $19,500 as 401K contribution, then an additional 25% contribution from the company - netting you negative income. When you stop bringing in W2 income and your tax bracket is reduced you can then use this or a non-profit they'll help you set up to pay out a salary.

 

[KTC Lurker]

KTC, another question to ask is whether forming the WY Corp allows “trading” anywhere (e.g., still live in WA and trade from home) and not need a business entity in that location. The reason that I ask is that WA has a B&O tax that is based on revenue, not based on profit. So, does trading in WA mean paying B&O on wins (revenue) instead of net profits (wins - losses - expenses)? For active traders, I would expect a decent percentage of trading losses. So in summary, does forming the Corp in WY (or other location) mean paying taxes for that locality only, while still allowing trading to physically take place anywhere (vacation, business travel, conferences, etc). Thinking this through, it seems likely because businesses travel around all the time.

Edit: also, does your $5k+$35/mo trader package with Anderson include everything like setup, bookkeeping, tax filings, etc. or does one need to hire another firm for that? Thanks.

Yes, you are able to continue trading from anywhere. You would not pay the B&O tax in your locality.

The fees include setup, book keeping, advisory services for managing deductions, etc. The tax filings would be a separate cost, but you don't need to use their CPA services if you prefer to stick with your own.

 

[bkp_duke]

KTC, another question to ask is whether forming the WY Corp allows “trading” anywhere (e.g., still live in WA and trade from home) and not need a business entity in that location. The reason that I ask is that WA has a B&O tax that is based on revenue, not based on profit. So, does trading in WA mean paying B&O on wins (revenue) instead of net profits (wins - losses - expenses)? For active traders, I would expect a decent percentage of trading losses. So in summary, does forming the Corp in WY (or other location) mean paying taxes for that locality only, while still allowing trading to physically take place anywhere (vacation, business travel, conferences, etc). Thinking this through, it seems likely because businesses travel around all the time.

Edit: also, does your $5k+$35/mo trader package with Anderson include everything like setup, bookkeeping, tax filings, etc. or does one need to hire another firm for that? Thanks.

We have a corp (not trading, but an S-Corp) in WY state. We pay ZERO taxes there, because we don't have a physical presence and don't have customers there (i.e. no Nexus requirements met).

Do your trades outside of the state, don't set foot in the state, and I don't see a reason why you owe them any money. This is why MANY corporations go for WY, it's the middle of nowhere with few customers to service there or little reason to do business "in the state".

Not advice, do your own research, but that is what our CPA and attorneys have told us, and we've been incorporated in WY for 10+ years now.

 

[EnzoXYZ]

Has anyone used gains from option trading under a company to reinvest in real estate as there are good amounts of tax break? Seems like more of the gains can be used to compound vs paying it off as short term gains. Anything I’m missin?

 

[UltradoomY]

Has anyone used gains from option trading under a company to reinvest in real estate as there are good amounts of tax break? Seems like more of the gains can be used to compound vs paying it off as short term gains. Anything I’m missin?

The company can do what it sees fit with the profits - to generate more profits.
If that is real estate, so be it. Or a yacht or a plane or a chalet in Vail, CO or you can even buy more companies to merge under your "umbrella"
Truly unlimited as long as it is all reported correctly through your proper accounting and tax channels.

There is no hard rule as to what a company has to do with it's profits as long as it's ethical and used for company purposes.
That Chalet in Vail - rent it out and block off days when you want to use it and pay the company for the time you use it.
Lot's of things can be done instead, like the time you are there is for a quarterly company meeting.....

 

[UncaNed]

If I meet trader status requirements and jump through all the hoops... Will I also realize the same tax benefits from, say, LEAPS and any HODLING shares I sell, even if the LEAP income and income from shares I've held makes up the vast majority of my taxable income in my professional trading account?

 

[UltradoomY]

@AquaY
here you go

 

[vikings123]

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

1. 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.
2. 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).
3. 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.

All told, when the benefits are stacked up, it was a no-brainer for me. Massive savings, relatively low cost ($5K up front, $35/mo, $800/year), access to a large staff of cross functional experts to help with any questions or strategies you need. Also, as new tax rules roll out (state cap gain, federal changes in cap gains, etc) they are actively looking for ways to mitigate for their 9000+ clients.

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.

Bumping this thread as I’m looking at my options to set up a partnership. What specific company type reduces your capital tax gains? Is it an LCC taxed as an S-Corp?

I had a consultation with Brian from tradertaxcpa and while he mentioned the benefits of salary, 401k etc in an LLC taxed as an S-Corp, I don’t think he mentioned anything about a reduction of capital gains taxes. This is huge.

I also recall a guest on Dave Lee’s channel mention something about paying lower taxes on option income.

Would you mind referring me to Anderson Associates? I should definitely have a consultation with him. I will message you.

 

[Chicagoguy]

This will depend on your personal and tax situation. There are a few things you need to consider:

• Your marginal tax rate
• Corp rate = 21%
• Employee FICA + Medicaer tax rate = 7.65%
• Self employment tax = 15.3%
• C Corp maximum retained earnings = $250,000

If you are self employed, your marginal rate = your tax bracket + 15.3%.
If you are an employee (W2), your marginal rate = your tax bracket + 7.65%.

If you already have high income generated by your job/business, then a C Corp setup can make sense. My wife's and my self-employment incomes alone put us in the 24% bracket. However, if I keep trading (I buy/sell options) under my name, our total income is pushed into the 32/35% bracket. This means for every dollar I make through my self-employment business, I am paying 47.3% (32% + 15.3% SE tax) in taxes. Every short-term profit will also get taxed at 32%.

So basically, here what I have done:

• Create a C Corp
• Get a Business Investor account from my broker (Merrill Edge)
• Transfer assets from my personal accounts to the C Crop account
• C Corp can pay me by:
  • Salary (taxed at my personal rate)
  • Benefits / reimbursements (medical, business expenses, etc. - not taxed)
  • Dividend (taxed at 15% on the personal level, but 21% on the C Corp level, so 36% total)
  • Interest payment (taxed at my personal rate)

My income from my business will just have a marginal tax rate of 39.3% now (24 + 15.3) while all my trading will be at 21%.

If your job/self-employment income isn't above the 22% bracket and/or your trading profit doesn't push you up the tax bracket, setting up a C Corp probably doesn't make sense. However, if both incomes are significant, a C Corp can be a good strategy. Talk to a professional CPA/tax planner about your situation though.

Did you use a specific CPA to discuss things and assist you in setting up your C-corp? My wife and I are already in the 37% bracket and the money we make selling options getting taxed at 37% + 3.8% seems like it makes sense to do the C-corp based on what you describe. We don’t need the money now from selling options, so getting this to grow faster by lowering taxes on this now would definitely help. If you wouldn’t mind sharing your CPA’s info, that would be great.

 

[vikings123]

Bumping this thread as I’m looking at my options to set up a partnership. What specific company type reduces your capital tax gains? Is it an LCC taxed as an S-Corp?

I had a consultation with Brian from tradertaxcpa and while he mentioned the benefits of salary, 401k etc in an LLC taxed as an S-Corp, I don’t think he mentioned anything about a reduction of capital gains taxes. This is huge.

I also recall a guest on Dave Lee’s channel mention something about paying lower taxes on option income.

Would you mind referring me to Anderson Associates? I should definitely have a consultation with him. I will message you.

Just to close this topic:

Thanks to @KTC Lurker referring me to Anderson Advisors. I had a really good discussion with Anderson on Friday and was very impressed with their knowledge.

I also consulted with a number of other firms, namely tradertaxcpa, green trader and trader tax accounting. Every one of those forms seemed to specialize in TTS which is not something that applies to most of us on this forum.

I’m planning to sign up with Anderson Advisors for my LLC/C-Corp setup and will also be exploring the set up of a living trust to tie everything together. Very impressed and happy to share referral for anybody that is interested. I believe their first consultation is free(45 minute).

 

[Ad Astra]

Just to close this topic:

Thanks to @KTC Lurker referring me to Anderson Advisors. I had a really good discussion with Anderson on Friday and was very impressed with their knowledge.

I also consulted with a number of other firms, namely tradertaxcpa, green trader and trader tax accounting. Every one of those forms seemed to specialize in TTS which is not something that applies to most of us on this forum.

I’m planning to sign up with Anderson Advisors for my LLC/C-Corp setup and will also be exploring the set up of a living trust to tie everything together. Very impressed and happy to share referral for anybody that is interested. I believe their first consultation is free(45 minutes)

Can you share the referral with me, please? Thank you!

 

[Chicagoguy]

Just to close this topic:

Thanks to @KTC Lurker referring me to Anderson Advisors. I had a really good discussion with Anderson on Friday and was very impressed with their knowledge.

I also consulted with a number of other firms, namely tradertaxcpa, green trader and trader tax accounting. Every one of those forms seemed to specialize in TTS which is not something that applies to most of us on this forum.

I’m planning to sign up with Anderson Advisors for my LLC/C-Corp setup and will also be exploring the set up of a living trust to tie everything together. Very impressed and happy to share referral for anybody that is interested. I believe their first consultation is free(45 minute).

Can you share your referral?

 

[BornToFly]

I just discovered this thread. Good stuff! Thanks everyone. KTC Lurker - I sent you a PM regarding Anderson.

If I can reduce my tax rate from 50% to 21%, that would be enormous on 8 figures.

 

[strago13]

Just to close this topic:

Thanks to @KTC Lurker referring me to Anderson Advisors. I had a really good discussion with Anderson on Friday and was very impressed with their knowledge.

I also consulted with a number of other firms, namely tradertaxcpa, green trader and trader tax accounting. Every one of those forms seemed to specialize in TTS which is not something that applies to most of us on this forum.

I’m planning to sign up with Anderson Advisors for my LLC/C-Corp setup and will also be exploring the set up of a living trust to tie everything together. Very impressed and happy to share referral for anybody that is interested. I believe their first consultation is free(45 minute).

Would also be interested in a referral please

Thanks