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Just a word of caution. I work for the CBOE and do lots of public
seminars. I have met a great many people who have tried to claim trader
status ... I have never met anyone who has successfully survived an
audit. No One. Tesser's book is considered a farce in the community. I
heard a story last week, at a seminar in Arizona, of a very active
investor who didn't survive the audit because they entered their orders
over an electronic system .... by definition the system was not to be
used by professionals .. such as RAE's at CBOE where I work. The
acknowledgment of using a "nonprofessional" system means he failed the
audit.
Be very careful ... I've met a lot of people who say they file. I'm
yet to meet anyone who survived an audit as an off floor user.
Patrick White wrote:
> I didn't catch that he was trying to incorporate using an LLC
> until I saw it at the bottom of the last message. For those of
> you not familiar with an LLC, it is a Limited Liability
> Corporation. Basically it was created as a hybrid of a
> partnership and a regular corporation to emphasize the benefits
> of both entities. An LLC has limited liability, as the name
> implies, yet is also a pass-through entity (like a partnership)
> for income and losses. Pass through means there is no double
> taxation on earnings. Because of this many of the Big 6
> accounting firms have switched from partnerships to LLCs, so they
> could enjoy the same benefits of being a partnership, but with
> limited liability from litigation.
>
> If you form this type of entity, I think it has favorable
> handling for self-employment tax too, (like maybe none) but I'm
> not sure what the specifics are. (been out of bean counter school
> too long).
>
> Alternatively, if you qualify as an active trader (based on
> number of trades made in the year) under the broad rule Ted
> Tesser lays out in his book, you can take off all your expenses
> from the first dollar, without having to fool with the
> corporation thing. If you are a longer term trader who doesn't
> make say over 100 trades per year, you may want to investigate
> the LLC further. Your accountant likely won't understand this
> because it is based on court cases, not on what they get taught
> in school, or from the IRS code.
>
> By the way, most accountants aren't really working for you. They
> actually should be advocates for you to help you limit your
> taxation as much as possible. Most are more concerned with
> getting sued or being audited, so they advise caution, when they
> should be a little more helpful. Most of the H&R Block types
> don't have a very thorough knowledge of the tax code, so they
> don't know enough to try to save you money - they just are paper
> pushers. Let the IRS prove that the deductions you took aren't
> justified. Just make sure you have everything documented in
> writing that you are deducting.
>
> Patrick White
>
> >That advantage has to be balanced against other considerations -
> including
> >taxes. Once you incorporate - you become an
> employee/shareholder of your
> >corporation. When you pay yourself a salary - you have to pay
> payroll taxes -
> >15.3% (employer and employee shares) on the first dollar of
> income. You may
> >also have to pay state/federal unemployment taxes. Without
> knowing your
> >personal situation - unless you'll be spending an awful lot of
> money on business
> >expenses (you are correct about the 2% limit) - and not making
> that much money
> >for a while - the numbers probably won't work out. Run some
> hypothetical (but
> >realistic) numbers scenarios by your accountant - and see how
> they work out.
> >Robyn
> >
> >Kenlow7@xxxxxxx wrote:
> >
> >> greene@xxxxxxxxxxxxxxx (Robyn Greene) wrote ...
> >>
> >> >>
> >> P.S. Everyone's tax situation differs - and everyone should
> consult with an
> >> accountant/tax lawyer etc. before making important tax
> decisions.
> >> >>
> >>
> >> As my accountant has explained it to me, one significant
> advantage
> >> of incorporation (as an LLC, at least) is that all business
> expenses
> >> become deductible starting with the first dollar. If you
> simply file
> >> a personal (or joint family) return, you need to have business
> expenses
> >> exceed the IRS threshold of AGI before they are deductible (I
> believe that
> >> percentage is currently 2%).
> >>
> >> Obviously, you have to take into account the initial (and
> annual) costs of
> >> incorporation, but the breakeven is still fairly low.
> >>
> >> Ken
> >
> >
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