Opening a LLC

[draz 10]

I am currentlly trading YM futures in an individual account. I was wondering if anyone can advise me if it would be beneficial to open a limited liability corporation or maybe another type of corp like and s or a c?

[swansjr 10]

I am currentlly trading YM futures in an individual account. I was wondering if anyone can advise me if it would be beneficial to open a limited liability corporation or maybe another type of corp like and s or a c?

 

 

I'm no expert but I did incorporate as an LLC this year. I now perform all my trading activities under this LLC. I did some research and an LLC seems good for my needs.

 

If you are serious about trading I would think forming some type of legal entity to trade under would be beneficial. My main reason was to treat my trading as a business. Under an LLC all trading related expenses can be written off (computer, trade shows, books, classes, and ebooks) immediately against your profits - which is not true for trading as an individual.

 

For most people an LLC seemed like the choice to go. If I remember correctly I picked an LLC for the simplicity of the paper work, simplicity in tax reporting and I will be making withdrawals from the company for my salary. On the other hand, if I recall correctly, a major reason to choose a corporation (instead of an LLC) was to build wealth - that is if you were not going to be taking money out of your trading profits as regular salary but instead building a nest egg, then a corporation had some benefit over an LLC.

 

Again, you'll want to do more research. However, you'll probably find an LLC is the way to go.

 

ou may also find these links interesting:

Green Trader Tax

Traders Accounting

[dandxg 10]

Single member LLC's are disregarded for tax purposes. In that case S corp makes more sense. Lower chance or IRS audit for trading expense write off, but more paperwork. I don't have time to field your questions it would take hours and I am no expert. I used Paul Mann, daytradertax.com. He gave me a free hour consult and charged me $600 I think several years ago. Stay away from traders accounting they make it too damn complicated and are quite $$$$. Green is good, but $$$$.

[jfarchitex 10]

I want to caution anyone about giving or receiving advice on this subject because it is so situationally specific. For example, in many states [but not all] a single-member LLC can be started and elect S Corporation status. You loose one of the main benefits of organizing in that fashion in that you will have extra tax paperwork, but then you're in business to make money - so who cares about the paperwork volume, so long as it is managable and doesn't cost you the ability to generate revenue right? But if you're not focused on this new found responsibility and you make a few key mistakes, it can cost 'DIY'ers a pretty penny and a nasty visit from the IRS. So while establishing an entity is definitely the right move longterm for any trader who is doing this for significant income, take your time and learn what you need to execute this process properly.

 

[Guest Andre]

I want to caution anyone about giving or receiving advice on this subject because it is so situationally specific. For example, in many states [but not all] a single-member LLC can be started and elect S Corporation status. You loose one of the main benefits of organizing in that fashion in that you will have extra tax paperwork, but then you're in business to make money - so who cares about the paperwork volume, so long as it is managable and doesn't cost you the ability to generate revenue right? But if you're not focused on this new found responsibility and you make a few key mistakes, it can cost 'DIY'ers a pretty penny and a nasty visit from the IRS. So while establishing an entity is definitely the right move longterm for any trader who is doing this for significant income, take your time and learn what you need to execute this process properly.

 

 

If not for tax reasons, the most important benefit of an LLC or any other type of limited liability company is exactly that, limited liability. It doesn't matter if you're day trading, you don't hold positions overnight, have stop losses in place. Something extremely bad can happen, and an LLC is the only way you'll not have to shoot yourself if that happens. Please, don't ruin you, your family and relatives.

[Cruiser 10]

First off - I think the best advice you can get is to talk this over with your lawyer and or accountant. I would quickly review IRS publication 550, which you can download at IRS.GOV. Read the section around page 79 called "Special Rules for Traders in Securities". This will arm you with just enough information to talk to your lawyer or accountant and see if they know anything about tax rules for Traders - if they don't (and most will not) I'd find one who does rather than you footing the bill so they can learn.

 

With that said, I dont' see much of a benefit to forming an LLC or any other special entity unless you have an unusual tax or legal reason. As far as i can see the best possible reason to do this is that your lawyer or CPA will make several thousand dollars in fees from you for setting it up and make thousands more every year to maintain the entity and prepare extra tax returns for you. Of course this doesn't benefit you but it will help your lawyer or CPA pay their bills.

 

In most cases I think all the tax benefits available under a special purpose entity like an LLC can be taken individually. I don't think the "less chance of an IRS Audit" is a good reason unless you have an intention of cheating on your taxes. Your odds of getting audited are very low in any event. Your best course of action is to understand the tax laws, or have your accountant/lawyer advise you on them so you can know what you are entitled to.

 

As for liability - I don't understand what liability you'd be escaping. If you think you'd protect your trading account if you had some other liability issue then think again, your ownership interest in the entity (Corp or LLC) would be an asset someone could levy a judgement against just as easily as they could get a judgement against an account in your name (well almost as easy).

 

Please consider that while I am an accountant I don't have more than a passing personal knowledge of these areas and these are my opinions based on very little research. You need to either research this matter to your own satisfaction or hire a knowledgeable professional to advise you.

[Guest Andre]

Thanks for the legal questions Cruiser. Despite what me, you or anyone can say, if daz wants to get serious about it he should talk to a lawyer. Period.

Speaking of liability again - correct if I'm wrong. Assume you are the sole proprietorship and maganer of the company:

 

- LLC will never protect you from tax lawsuits or anything illegal. That is, if your LLC doesn't pay a pax, your personal assets are liable to it.

- Your interest in the LLC will be always considered your personal asset, so If you have say some personal debt, your LLC stake may be seized to pay for the debt.

- What a LLC can do is to protect your business risk, it separates the LLC assets from your personal asset. Think about a Long-Term Capital blow-up situation. A huge gap, something that completely wipes out the LLC assets and then some. The LLC can go bankrupt and the creditors can't seize your personal assets to pay for the LLC assets that may be left. That is, always provided that the case against you or the LLC doesn't relate to anything illegal - misrepresentation, fraud, taxes, etc.

 

This last situation is the biggest plus of any limited liability company in my view.

[Tams 20]

yes, you talk to a lawyer and an accountant.

but it is also important to hear other people's experience.

lawyers and accountants are not perfect,

they have traps and agendas, just like you and me.

you cannot trust anything from an anonymous forum,

but you can still get a pointer or two,

maybe an overlooked question,

maybe a misplaced priority,

at any rate, it is good to know what to think over before meeting the professionals.

[draz 10]

I appreciate all the responses. Thank You

[Cruiser 10]

"... if daz wants to get serious about it he should talk to a lawyer. Period..."

 

This is true (and/or a CPA). The biggest thing in my post above someone should definitely do is to read the one page mentioned in the IRS Publication 550 so when they are selecting a tax advisor they can use the buzzwords there to find out if the tax advisor knows anything about trading taxation. It is not a frequent topic so to just pick anyone would be like taking your battery operated hybrid car to a local mechanic that never worked on one. Sure he is in a better position to figure it out than you are, but do you want to be the one he figures it out on?

 

"A huge gap, something that completely wipes out the LLC assets and then some. The LLC can go bankrupt and the creditors can't seize your personal assets to pay for the LLC assets that may be left"

 

This is true. It would also be true if for some reason one had a separate office location for trading, especially if you ever had employees. Those activities could involve liability strictly related to the business, such as a slip and fall of a . I guess I was interjecting my own practices and plan here as I can't foresee myself getting into such a situation, or the risk of it being so low in my personal case that it wouldn't be worth the cost & bother. Of course I'm just starting out so the future could change.