THE #1 GUIDE FOR TRADERS
Traders Accounting has been assisting traders with their tax planning for many years. We can provide professional trader tax services that will help you avoid the pitfalls of incorrect tax planning.
Startup your trading trading entity in ways that will help you keep more of your hard-earned trading income with Traders Accounting.
-Traders Accounting
Traders Accounting has been assisting traders with their tax planning for many years. We can provide professional trader tax services that will help you avoid the pitfalls of incorrect tax planning.
Startup your trading trading entity in ways that will help you keep more of your hard-earned trading income with Traders Accounting.
-Traders Accounting
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NewsTranscript
00:00 Glad to be here with you all.
00:02 This is kind of an exciting time of year.
00:04 I know some of you weren't excited,
00:06 but we are going into tax season.
00:08 So this is a great time to be thinking
00:11 about a lot of this right now.
00:13 So what we're going to be talking about,
00:15 the title of my presentation, of course, is trading in 2024.
00:19 But we're also going to be looking a little bit back
00:22 at 2023, because there's still a couple of things
00:25 that you can do.
00:26 And the previous presenters mentioned
00:29 that it's a good idea to think about taxes.
00:33 And it really is.
00:35 You have a trading strategy.
00:37 And your trading strategy dictates
00:39 how you're going to do things.
00:40 Well, you need to link a tax strategy to that as well.
00:45 And so I'm going to be talking about some of the things
00:47 that you can do today.
00:49 Hopefully, it'll save you some money.
00:51 It may save you some effort, not just effort,
00:54 but angst maybe with the IRS as well.
00:57 I will tell you that everything I'm presenting here today
01:01 is based upon US tax law.
01:03 So there is nothing about Canadian or Mexican
01:07 or any other country.
01:08 They're tax laws.
01:10 This is purely US tax law.
01:12 So if you're in one of those other countries,
01:14 you need to talk to an advisor there.
01:18 OK, before we get started, we need to make the lawyers happy.
01:21 So let me state this.
01:23 To the best of our knowledge, the information
01:25 given in this presentation is accurate
01:28 as of the presentation date.
01:30 So we do go through this constantly
01:32 to make sure the information that we're giving you
01:35 is up to date.
01:37 Matter of fact, there haven't been any major changes
01:41 in the tax law recently.
01:42 But I have seen some murmurings in Congress
01:45 about changing some things.
01:47 So we want to keep an eye on that.
01:48 So as tax changes do happen constantly, you may say,
01:52 well, Congress hasn't changed anything.
01:55 But what has happened is the IRS does have some discretion
02:00 on some things, how you elect certain elections
02:05 or how you do things.
02:06 And so those changes can make a significant difference
02:10 in timing on whether you get an election
02:12 or you can get a credit or whatever.
02:15 So make sure that you, before you use this information,
02:19 you talk to a tax advisor.
02:22 This presentation does not establish
02:24 a professional or confidential relationship
02:26 between you, me, or Traders Accounting.
02:29 And Traders Accounting is not a law firm.
02:31 So nothing here is legal advice.
02:33 We give tax advice, but we do not give legal advice.
02:37 So be aware of that.
02:39 And then one other thing before we get going
02:42 into the actual presentation
02:44 is I want to give you our contact information.
02:47 And I will return to this at the end of the presentation
02:50 as well in case you miss it.
02:52 But our website there, we have a special link
02:56 just for the viewers today.
02:58 It's www.tradersaccounting.com/benzinga.
03:04 So tradersaccounting.com/benzinga.
03:07 And at that special link, we have an e-book
03:10 that you can download that has a lot of the information
03:13 that I'm talking about today.
03:16 And also it goes a little bit further into some things,
03:19 but it's free.
03:20 There's no obligation whatsoever.
03:22 You can type that into your browser right now
03:25 and go ahead and download that e-book.
03:28 Our phone number is 800-938-9513.
03:32 If you want to give us a call,
03:34 we are a full-fledged accounting service,
03:37 tax service, and consulting service
03:40 for traders like yourself.
03:43 So if you want a consulting session
03:45 to find out what's best for you,
03:48 then feel free to give us a call
03:49 and we can set up that consulting session.
03:52 Our e-mail also is learn@tradersaccounting.com
03:55 if you'd rather contact us that way.
03:58 Okay, let's go ahead and get into the presentation here.
04:02 And I want to talk to you about basic information here.
04:05 Now, I used to be a few years ago a college professor
04:10 and I was teaching business
04:13 because I've got a degree in business administration.
04:17 I teach business.
04:19 And so I always start with a business 101 class for traders.
04:22 And the reason for that,
04:24 if you read through the IRS code
04:28 and you want to do anything serious with taxes and trading,
04:33 then you have to treat it like a business.
04:35 It needs to be your mindset.
04:36 And so that's why I start off a little bit with this
04:38 and I will bring it in later on.
04:41 But if you're serious about trading,
04:42 you've got to treat it like a business.
04:45 You're going to all these links to get money in.
04:48 You're going to have your gains from your trading
04:51 that you're seeking to get.
04:53 And you're focusing on getting that revenue in, if you will.
04:58 Think about it as a business.
04:59 Well, you need the flip side there.
05:02 You've got to think about costs as well.
05:05 In other words, one main point under here
05:07 is be concerned about your cash flow.
05:10 Traders get focused on getting trades in,
05:13 on their gain, getting the gains in.
05:15 And that's fine. You have to do that.
05:17 I mean, that's your income there.
05:19 But they tend to ignore the expenses going out.
05:24 They ignore things that the money going out.
05:28 I mean, one of those things can be taxes
05:29 that can seriously hurt you.
05:32 I've seen people who've lost money in accounts
05:34 end up paying taxes on that account in a year
05:38 because they did not understand what was going on.
05:41 So this is an extremely important concept.
05:44 So you have to not only be concerned
05:46 about the money coming in,
05:47 you really need to be concerned about the money going out.
05:52 So you need to develop a plan.
05:53 Just like trading, you need to develop a plan
05:55 about what you're doing.
05:57 And hopefully this presentation today
05:59 will take care of that plan.
06:01 Also, and this is a point that I need to stress,
06:06 because business owners of any type,
06:08 doesn't matter if it's trading or not,
06:10 do not seem to get this.
06:12 It's you need to make financial decisions
06:15 based on your business needs, not on the tax codes.
06:21 I have watched people over the years
06:24 come to the end of the year and say,
06:25 "Hey, you know, I made some money last year.
06:27 I need to go out and buy this piece of equipment
06:30 because I need a tax break."
06:32 And so in the end, they start thinking about tax breaks
06:35 rather than about running their business.
06:37 And it almost never works out well.
06:39 The general rule is if your business needs something,
06:42 go get it.
06:43 I mean, that's not a problem,
06:44 and then use that as a tax break.
06:46 But the first thing is making sure the business needs it,
06:52 or your trading business needs it,
06:54 and so they can use it.
06:55 In other words, it's going to pay for itself
06:57 in the long run.
06:59 But don't base things on the tax code.
07:01 That will mess you over every time for a couple reasons.
07:04 One, let me give you an example.
07:06 I had an automobile repair mechanic many years ago,
07:12 and we came to tax time,
07:13 and he wanted to buy a $20,000 tire machine for his business.
07:18 I said, "Okay, we can write that off.
07:20 That'll give you about a $6,000 deduction there."
07:23 And I asked him then, I said,
07:25 "How often are you going to use that tire machine?"
07:27 He said, "Probably once or twice a year."
07:30 And so now I'm starting to think,
07:31 "Okay, he's using this thing once or twice a year.
07:34 It's never really going to pay for itself.
07:37 He gets the $6,000 tax deduction,
07:39 but he's going to end up, if you take the $20,000
07:42 minus the $6,000, he's going to end up losing $14,000,
07:47 and that has to recoup itself in business over time,
07:51 and he's never going to do it."
07:53 So I advised him not to do it.
07:55 So that's one thing.
07:56 A second thing, as a trader, you know trading is psychological,
08:01 and this is a warning that I really need to give you,
08:04 is I have watched some of our clients
08:08 do this over and over again.
08:09 They trade, they trade, they trade,
08:11 and then they get focused on taxes.
08:14 And once they get their view off of trading and onto taxes,
08:19 and they change their trading because of the tax situation,
08:24 they screw everything up.
08:26 So what you need to do is set down a plan
08:29 and make sure that plan is solid.
08:32 You talk to somebody about it, let it run,
08:34 and you don't think about it until the end of the year.
08:37 Or you put some automatic checks into place,
08:40 maybe once a quarter,
08:41 so maybe you can make estimated tax payments,
08:43 but you don't think about the taxes while you're trading.
08:47 It's very dangerous to do that.
08:50 So what we want to do is be aware of all our tax
08:54 and protection options,
08:55 and that's what this presentation
08:57 is going to go into today.
08:58 So the topics that we're going to talk about
09:01 are one, trader tax status.
09:04 Now, this is available for all traders.
09:06 It doesn't matter whether you're trading Forex,
09:08 if you're trading stocks, if you're trading crypto,
09:11 you're trading futures, what it is, it doesn't matter.
09:14 This is available for everybody,
09:15 and this is the one thing that we can go back
09:18 into 2023 and talk about.
09:22 Also, we're going to talk about entities.
09:24 You may have heard that it could be beneficial
09:27 to set up an entity like an LLC for trading.
09:31 We will talk about the possible benefits,
09:33 what we generally recommend, and how it can help.
09:36 And we'll also talk about, you know, good things, bad things.
09:39 I want to make sure that we get a full picture here,
09:42 but basically we are scratching the surface here
09:44 in this one hour,
09:45 so I want to make sure that you understand that.
09:47 Then finally, we're going to talk about
09:50 the mark-to-market election.
09:52 This is only for stock and options traders,
09:55 and this is going forward.
09:57 You cannot go back to this one in prior years
10:00 unless you've already elected it.
10:02 So we will get into that for the stock and options traders
10:05 at the end, and then I got a wrap-up slide
10:07 on things to watch out for
10:09 because there's some topics that have come up recently
10:12 that I want you to be aware of and kind of pay attention to.
10:15 So let's start off with trader tax status.
10:20 Trader tax status is a choice.
10:23 It's not an election.
10:24 It's not something you have to let the IRS know you're doing.
10:28 It's just you do it on your tax return.
10:29 That's it.
10:31 Now, trader tax status deals with deducting trading expenses.
10:37 So you're trading expenses that you might have in trading,
10:40 your margin interest, if you have data feeds,
10:44 if you have subscriptions to software,
10:46 if you've got-- or in a chat room
10:48 where you have to pay to discuss with people,
10:49 if you have education or you belong to Benzinga,
10:53 you got fees there or whatever,
10:56 that all those are deductible if you meet the criteria,
11:00 and that can add up to a very sizable deduction.
11:04 So now, what are the criteria?
11:07 Well, let me explain first that our go-to manual with the IRS
11:12 is publication 550.
11:14 That's publication 550.
11:17 You can go to the IRS website, type in the search engine,
11:21 publication 550, and you can download that to your computer.
11:24 It's PDF format, or if you don't want it on your computer,
11:27 you can read it in HTML on the IRS website.
11:31 But publication 550 talks about every type of investing--
11:35 interest, dividends, original issue discounts, bonds, stocks,
11:39 options, futures, indirectly cryptocurrency.
11:43 But I mean, it's got everything.
11:45 It's 70-something pages long.
11:47 And so that's our go-to manual for the IRS code.
11:51 Well, if you read through that,
11:52 it does not give very good criteria for trader tax debts.
11:58 It says you have to consider it--
12:00 you have to treat this like a business.
12:02 Well, that's why I started with the business 101 thing
12:05 a little bit ago.
12:06 You have to be-- you have to live on it,
12:08 not totally, but in part or in whole.
12:11 You have to be able to use the proceeds from trading
12:15 for supporting yourself.
12:17 And so those are very vague.
12:19 And so what we have to do is we have to turn to court cases
12:23 where the IRS has defined TTS very narrowly
12:30 and used it against the taxpayer,
12:32 and the taxpayer took it to court.
12:34 And so what we have coming out of court cases
12:37 where people have won are some of the following criteria.
12:41 There are three criteria.
12:43 All three need to be met if you're
12:45 going to deduct your expenses on your tax returns.
12:48 First of all, there are-- you need to have
12:51 720 trades or more per year.
12:55 Now, a trade is buying something,
12:58 and a separate trade is selling something.
13:00 So buy and sell are two different trades.
13:04 So many of you get that maybe in a month easily.
13:08 But some people, it takes a little while,
13:11 may not get it in the entire year.
13:12 But you do have to have those 720 trades per year.
13:17 Number two, there is trading at over 75%
13:20 of the trading days per year.
13:22 So there's 200-something trading days during the year,
13:26 and I've calculated 3/4 of that.
13:28 You have to be trading 188 or 189 days out of the year
13:34 in order to qualify for trade or tax debt.
13:39 Now, the reason for that, again, you
13:42 have to show that you are really establishing a business here.
13:46 Now, think about a different business, like a restaurant
13:49 or a mechanic or something.
13:51 They're not going to take significant amounts of time
13:53 off.
13:54 They're not going to work for a month and then take a month off
13:57 and then do it again.
13:58 There needs to be a consistent presence
14:01 and a consistent business going.
14:03 Well, the IRS is expecting the same thing out of a trader.
14:08 So 188, 189 days out of the year,
14:11 you need to be trading something.
14:13 It can be one trade, but you have to be doing something.
14:17 Then the last one is you have to have over 500 hours of trading,
14:22 research, and education.
14:24 So the amount of time you spend trading, obviously.
14:27 Researching, a lot of you do research, and that's fine.
14:31 You spend time watching these webinars that
14:35 account for that.
14:36 If you go and watch a YouTube video,
14:39 if you spend time in a chat room discussing things,
14:41 all of that counts.
14:43 So you need to have all three of these.
14:46 Not that you have to prove it to the IRS up front,
14:49 but if they ever do come in, you can show them this stuff
14:54 and you could tell them, hey, these are criteria out
14:57 of court cases, and here's how I met it.
15:00 Now, how would you prove this?
15:02 Well, the first two, the 720 trades and the trading
15:05 at 75% of the trading days per year,
15:09 those are going to show on your monthly statements.
15:12 Every trade is logged on a monthly statement,
15:15 and you just hand an IRS examiner those statements
15:18 and say, you figure it out.
15:20 Let them make their earn their pay.
15:22 Now, the last one, the 500 hours of trading, research,
15:26 and education, that can't be gotten off your statements.
15:31 So we advise that you keep some type of a logbook.
15:34 There's no format for that.
15:36 You could do it in a spreadsheet.
15:38 If you're good with databases and want to do it that way,
15:40 that's fine.
15:41 If you want to do it on pen and paper, that's fine as well,
15:44 just so you can pull out something
15:46 to show the time that you spent trading during the year.
15:51 So these are the three criteria.
15:54 You have to meet all three of these criteria
15:57 in order to be able to deduct those expenses on your tax
16:01 return.
16:02 Now, the tax savings that you have or get from this
16:06 depend upon your current tax bracket level.
16:10 So if you're in the 37% tax bracket level,
16:13 you're going to get $0.37 on every dollar you deduct.
16:17 So that's advantageous.
16:19 Now, if you're only in the 22% tax bracket,
16:22 you're only going to get $0.22 for every dollar you deduct.
16:26 But it's still worth--
16:27 I mean, if you're going to spend the money--
16:29 and this is why I mentioned don't worry about the tax code,
16:32 because a lot depends upon your tax bracket.
16:35 If you've got the expense, deduct it.
16:38 Don't worry about your tax brackets.
16:40 And don't try to manipulate all that stuff,
16:42 because it just doesn't work out well.
16:45 So your tax savings are going to depend upon your current tax
16:49 bracket.
16:49 So now, as with anything, I have to create a warning here,
16:55 because in the tax system, it's easy to get tripped up.
17:01 And I spend a lot of time consulting people,
17:06 traders, on this stuff.
17:08 And I try to get them to avoid the pitfalls here.
17:12 And so a lot of my time is done consulting
17:14 when it's not doing tax returns.
17:16 So I want to bring these warnings out.
17:20 And the big warning here is a person
17:22 deducting trading expenses on their personal return
17:26 must use a Schedule C. You say, OK,
17:30 so I'm deducting my margin interest and my data feeds
17:34 and all that on my Schedule C. What's the big deal about that?
17:37 Well, Schedule C is a small business return.
17:42 It's used by people who own small businesses.
17:45 Some of you may have them already
17:48 with some other business you've got going.
17:51 But we try to avoid Schedule Cs.
17:54 And this is why.
17:55 One, the number one thing is your audit risk is increased.
17:58 Now, I'm not saying it's a red flag.
18:00 And I'm not saying it's guaranteed to be an audit.
18:04 But your audit risk does increase
18:07 as a result of having that Schedule C on there.
18:10 The reason for that is that Schedule Cs, one,
18:13 have been abused for decades.
18:15 People have tried to write off trading expenses,
18:19 hobby expenses, other expenses that really weren't deductible.
18:23 This is kind of a fertile ground for fraud, if you will.
18:27 Not necessarily everybody doing it is fraud.
18:29 It's just fraudulent.
18:30 But it is a ground for it.
18:32 And that's the way the IRS looks at it.
18:35 Number two, the IRS, for most of the stuff
18:40 you put on your return, the IRS already
18:43 has those informations, like your W-2.
18:46 That goes to the IRS and the Social Security Administration
18:49 before you ever file your tax return.
18:51 They know what the numbers are.
18:52 So when you put your W-2 information on the return,
18:56 they're just going to check to see if it matches.
18:58 It's not a question.
18:59 But the numbers you put on your Schedule C,
19:01 they have no verification of.
19:03 And so these numbers are unverified.
19:06 Therefore, they are more subject to being questioned,
19:09 particularly if there's something weird showing up
19:12 there.
19:13 So Schedule Cs are just kind of--
19:15 they increase the home off--
19:17 I'm sorry, they increase your audit risk.
19:19 Sorry, I read the next line on my notes.
19:23 Number two here, the home office deduction
19:25 may not be obtainable.
19:28 Now, some of you may be familiar with this.
19:30 The home office deduction on a Schedule C, the personal return,
19:34 has a lot of limitations to it.
19:37 Now, if you've got a business and you're
19:38 making another business, you're making tons of money
19:41 and profit, then there's not a problem.
19:44 However, if you're close to not making money
19:48 or if you're losing money, then this becomes a major problem.
19:52 And it gets limited and may not be attainable at all.
19:58 So keep this one in mind, because I'm
20:00 going to come back to this one.
20:03 Number three, there's maybe no asset protection
20:05 if you trade personally.
20:06 So if somebody were to sue you for something,
20:09 they get on your property and get hurt,
20:11 there's a car accident or something,
20:13 and the suit goes beyond your policy limits,
20:17 then that person can go start going
20:19 after your personal assets.
20:20 And guess where they're going to start?
20:22 They're going to start with your trading assets right away.
20:25 So this is where LLCs come into play or possibly trusts.
20:30 You can look at that.
20:32 You need an attorney to advise you on the trusts and that.
20:36 But you'll get some asset protection.
20:39 So if you're just trading as an individual,
20:41 you really don't have any asset protection there.
20:44 Number four, it's difficult to justify having a W-2 job
20:48 and being an active trader.
20:50 We have a lot of clients that have W-2 jobs.
20:55 And we tell them that the IRS, for whatever reason--
20:59 and I can't figure out why-- they don't like it
21:01 when you have a full-time job and you're trying to even
21:04 be a part-time trader.
21:05 I mean, most of us in life have had two jobs.
21:08 Maybe sometimes three and four over the course of our lives.
21:10 It's not a problem.
21:11 But for whatever reason, the IRS has an issue with that.
21:15 So these warnings are based upon a personal return.
21:20 When you trade and you deduct expenses
21:22 on your personal return, even if you meet the criteria,
21:25 these four things can be happening.
21:28 And so you could have issues with the IRS.
21:32 You could have limitations in the deductions,
21:34 stuff like that.
21:35 So what's the answer here?
21:37 Well, here's the answer, and it's entities.
21:41 And so some of you have already heard about entities.
21:44 And there's several different types of entities.
21:46 First of all, there's a sole proprietorship.
21:48 And that's what we were talking about,
21:50 trading as an individual.
21:51 You don't have an LLC.
21:52 You don't have any protection.
21:54 You're just deducting expenses on your Schedule C.
21:56 That's a sole proprietorship.
21:58 And there's also a single-member LLC.
22:01 And I'll be honest with you up front, single-member LLCs
22:05 do not do much for a trader.
22:07 That's it.
22:07 Puts it right back on that Schedule C
22:09 again, where we don't want it, because you
22:12 have all those problems that we just talked about.
22:15 The only thing a single-member LLC does
22:16 is give you a little bit of asset protection in your state.
22:20 Then the other types are general partnership, limited
22:22 partnership, multi-member LLC partnership, S corporation,
22:28 LLC, S corporation, C corporation, LLC,
22:30 C corporation.
22:31 Now, we're going to eliminate most of these
22:33 and just talk about a handful of them.
22:35 As I've already mentioned, the sole proprietorship
22:38 and the single-member LLC do not do much for a trader.
22:41 It puts it right on the Schedule C of your tax return,
22:45 where you have increased audit risk.
22:48 The home office deduction is more than likely
22:50 going to be limited.
22:51 And you've got all kinds of issues there.
22:54 So which one is right?
22:56 Well, the type of entity that is right for you
22:59 depends upon your situation.
23:01 And so this is why I recommend, before you
23:04 take this information, always get a consultant or somebody
23:09 to help you that knows what they're doing,
23:12 because it is so easy to get tripped up here.
23:17 Matter of fact, I just mentioned the single-member LLC really
23:19 don't do a whole lot for you.
23:21 I can't tell you how many times I've
23:23 talked to individuals who come in,
23:25 and I get them for consulting.
23:27 And they say, well, I set up a single-member LLC already.
23:32 Well, Jack, you need to kind of back up a little bit.
23:34 Here's why.
23:35 I explain to them and go into detail.
23:37 So before you do anything, talk to somebody
23:41 and make sure that you understand what you're doing.
23:44 Now, let me go to where we generally
23:48 recommend for most people.
23:50 Not everybody, because there are exceptions
23:52 and those circumstances, every individual circumstances
23:55 are different.
23:57 But what we recommend for most people
23:59 is a multi-member LLC or an LLC partnership.
24:04 Now, why is that?
24:07 Well, I'm going to go through the pros and the cons here.
24:10 The pros, I think, outweigh the cons.
24:13 Now, this is a partnership, basically.
24:16 And I'll talk about partnerships here a little bit
24:18 and who you can use as partners.
24:20 Before the pros, though, I want to give you the cons.
24:23 I'm that type of person.
24:24 I want to give you both sides of things.
24:26 I am not going to waste your time by just painting you
24:29 this rosy picture.
24:31 And there are businesses out there
24:33 that do paint rosy pictures.
24:35 Matter of fact, we ran into a couple
24:38 in the last couple of weeks.
24:40 There are companies out there, they say, well,
24:41 you need an LLC and a C-corp.
24:44 Yeah, that's going to really just-- and it doesn't.
24:47 There are reasons.
24:48 They paint this rosy picture, and there's
24:50 problems attached to that.
24:51 So be very careful.
24:54 Get the pros and the cons on everything
24:56 before you set anything up.
24:59 Now, the pros or the cons of this thing, for any LLC,
25:02 you do have a yearly LLC fee.
25:04 That's single member or multi-member.
25:07 In most states, you have a yearly fee.
25:10 Some states just allow you to pay a one-time fee
25:12 and get it set up.
25:13 Those are few-- there are few states that do that,
25:15 and you never have to pay again.
25:17 But most states have a yearly fee.
25:20 And if you live in a state that doesn't have a yearly fee,
25:23 great.
25:24 I wish you the best of luck for that one.
25:25 And that's great.
25:27 You should be happy about that.
25:29 You also have a tax prep fee.
25:32 Because what we're doing here is we're
25:34 getting this stuff off of your personal tax return,
25:37 onto it, in this case, a partnership tax return.
25:41 Now, we could also do it on an S-corp return,
25:43 but we won't talk about that much right now.
25:46 But you do have an extra tax prep fee.
25:48 So that could be a few hundred dollars right there.
25:53 So you do have that extra fee.
25:54 And because you have to set up new brokerage accounts
25:59 underneath the EIN of this LLC, you're
26:02 going to have-- you're going to have to set up new brokerage
26:05 accounts as a business, basically.
26:07 And so you've got increased broker fees as a result of that.
26:10 Now, there are a couple ways around that.
26:12 We've had clients tell us that they keep their personal
26:14 account alive, if you will, and still trade in the business
26:20 account, but they use the free stuff,
26:21 like the real-time quotes and that,
26:23 from their personal accounts.
26:26 Be that as a way, you could probably
26:27 sidestep some of the broker fees that way.
26:30 But these are the cons right here, a few extra expenses.
26:33 And I'm going to talk to you in a little bit how to get those
26:37 and how to get those taken care of.
26:38 But let's look at the pros here.
26:41 These are your benefits.
26:43 Remember, this is a partnership, LLC partnership.
26:46 First of all, you get the asset protection.
26:47 So if somebody sues you personally,
26:50 it doesn't back up into the LLC.
26:52 So they can't touch your trading assets.
26:55 And also, generally, you hear about that, well,
26:57 if there's a lawsuit in the LLC, that it can't back up
27:00 to the individual owners.
27:02 That's true.
27:03 But for a trader, you have very few lawsuits from trading.
27:07 So that just doesn't happen.
27:09 So you do have some asset protection.
27:12 Number two, and this is one that most people don't realize,
27:16 is an LLC has a choice in taxation methods.
27:21 Now, you don't want to change this every year.
27:23 But you do have a choice.
27:24 For example, when we set up a multi-member LLC,
27:27 you theoretically have a choice to choose
27:30 between a partnership, an S corporation, and a C
27:33 corporation.
27:34 And then a few years down the road, you can change it again.
27:37 And then a few years down the road, you can change it again.
27:40 So this gives you flexibility if tax laws change.
27:44 Now, the reason we're heading towards a partnership first
27:47 is because it's the easiest thing to deal with.
27:52 In our view, we want to get people started trading.
27:54 We want to get their minds focused on trading.
27:56 So we want to give them something easy to deal with.
28:00 And then later on, when there's a profit,
28:03 when there's a lot of profit, we can then
28:05 start talking about S corps, which
28:07 requires salaries coming out for the owners.
28:10 And then we can start talking about 401(k)s and stuff
28:12 like that.
28:13 But we have to establish that base first of income coming in
28:18 before you add the infrastructure of salaries
28:21 and 401(k) fees and stuff like that.
28:23 So we generally recommend this partnership.
28:26 But you do have a choice later on.
28:28 And it does give you tremendous flexibility with the LLC.
28:33 Number three, there is a reduction in IRS scrutiny.
28:39 I have been doing taxes for probably 35 years now.
28:44 I keep adding it up and keep forgetting
28:46 how many years I've done it.
28:47 It's well over 30.
28:49 So I have worked for several accounting firms.
28:52 And every audit I've ever been involved with, except for one,
28:57 has involved a Schedule C of the person's tax return.
29:02 Those Schedule C's are audit magnets.
29:05 And so by getting this off onto a partnership return,
29:10 you reduce the IRS scrutiny considerably.
29:13 So unless you put something really, really strange
29:16 on the partnership return, they generally leave you alone.
29:20 I've never been involved with a partnership audit.
29:22 I've involved with an S corp audit one time.
29:25 And that was not related to trading.
29:27 It was something weird that the owner did.
29:30 So you reduce your IRS scrutiny as a result of that.
29:34 They tend to leave you alone.
29:36 Number four, I come back to that home office deduction again.
29:40 That home office deduction opens up fully.
29:43 So when you're doing it-- remember,
29:45 I mentioned on the Schedule C that if you're
29:47 doing a home office deduction, it can be restricted.
29:52 If you have a loss in trading, you
29:55 may not be able to take the home office deduction.
29:58 You might be able to take a percentage of your real estate
30:00 taxes and mortgage interest.
30:03 But if you're renting, you're out of luck.
30:05 And there is no simplified method.
30:09 You can't use it if you're taking a loss.
30:11 However, if you get into this partnership,
30:14 this LLC partnership, home office deduction opens up fully.
30:18 And we could take a percentage of your mortgage interest
30:23 and your real estate taxes or a percentage of your rent.
30:25 We could take a percentage of your insurance.
30:28 We could take a percentage of all your utilities,
30:31 including cell phone and internet.
30:34 If you've got HOA dues, we could take a percentage of those.
30:37 Repairs and maintenance for those of you
30:39 who live in snowy states, clearing out
30:41 your drive is maintenance.
30:43 And we could take a percentage of that.
30:45 So there's a lot of things here that you can start deducting.
30:48 And it's our experience that you can usually
30:52 get a lot in deductions.
30:55 $1,200 is usually the minimum.
30:57 But that's the base level.
30:59 And I've seen this go up to $2,000, $3,000 or more
31:04 for a home office deduction.
31:06 Now, keep that in mind, because I'm
31:07 going to come back to it a little bit again.
31:10 Number five, it solves the W-2 trading issue.
31:13 Remember, I mentioned that if you
31:14 trade on your personal return and you've
31:17 got a W-2 part-time or full-time trader,
31:20 the IRS has a conflict with that.
31:22 Well, this solves the problem.
31:24 Because now you've got a W-2 on your personal return.
31:29 You're trading in a partnership.
31:31 And so now it looks like you're investing in this business.
31:35 So they don't have a conflict with that.
31:36 Now, let me reiterate something.
31:38 A partnership is a pass-through entity.
31:41 So everything passes back through to your return again.
31:46 So it doesn't change anything tax-wise,
31:48 but it cleans things up so that the IRS doesn't
31:53 take notice of you as much.
31:55 The only thing it changes tax-wise
31:57 is those increased deductions, like the home office deduction.
32:01 You also deduct your tax prep fee.
32:03 That's another big item.
32:05 Because when you trade on your personal return,
32:08 you cannot deduct your tax prep fee,
32:10 because there's a personal component as well as
32:13 the business component.
32:15 And that could be a major problem.
32:17 So they're not going to let you deduct the tax prep fee.
32:19 However, in an LLC, that tax prep fee
32:21 becomes fully deductible for the partnership.
32:25 So number five, it solves the W-2 trading issue.
32:29 And then I haven't got to this.
32:31 I'm kind of getting ahead of myself.
32:32 But it solves a mark-to-market, long-term, short-term dilemma.
32:37 If you make the mark-to-market election,
32:39 that changes the accounting of your gains or losses.
32:45 And that's fine.
32:47 But if long-term holdings get under that mark-to-market,
32:51 which the IRS would try to do, then you
32:54 end up paying taxes on--
32:56 Hey, Jerry.
33:04 Sorry, I think-- I know I lost your audio.
33:10 Chat, let us know if--
33:12 nope.
33:13 OK, yeah, looks like the chat can't hear you either.
33:15 It was just the past 10, 15 seconds or so.
33:20 Oh, can you hear me now?
33:21 Yep, there we go.
33:21 You're all good.
33:22 I'm out.
33:22 OK, sorry about that.
33:24 There's the button-- the mute switch clicked on my headset.
33:29 We've all been there.
33:30 No worries.
33:31 Sorry.
33:32 So the home office deduction-- I'll go back to that point--
33:35 opens wide up when you have a multi-member LLC.
33:38 The W-2 trading issue--
33:41 because it looks like that you've
33:42 put the stuff into this business that you're sponsoring
33:46 or you're supporting now, and everything flows back
33:49 through to your personal tax return.
33:51 And then finally, the mark-to-market,
33:53 long-term, short-term dilemma-- mark-to-market changes
33:58 the accounting method of how gains and losses are
34:01 accounted for.
34:03 And so the IRS will try to put your long-term holdings--
34:07 anything for more than one year--
34:08 underneath the mark-to-market.
34:11 And that way, you end up having to pay tax
34:13 on your unrealized gains.
34:16 That's why they do it, because even if you don't sell it,
34:19 you still end up paying tax on the gains.
34:22 So we need to separate those two.
34:24 So generally, what we tell our clients
34:26 is keep the long-term stuff in your personal side.
34:29 Put all the short-term stuff onto the LLC--
34:33 on the short-term.
34:34 And that way, we can make the mark-to-market election
34:36 through the LLC and get those long-term assets as far away
34:42 from it as possible and make sure
34:43 that the long-term capital gains rate is kept intact.
34:48 So it's very important here.
34:50 Now, before I go on to the last one,
34:52 because this is a very important point-- this last one--
34:55 I want to talk about partners real quick.
34:57 Now, you say, who can I have as my partner?
35:00 A lot of our businesses that we work with, spouses are partners.
35:06 So then one spouse doesn't even trade--
35:08 doesn't have anything to do with it,
35:09 but they can still be a partner.
35:11 Say I don't have a spouse.
35:12 Well, you could find a family member or a close friend
35:16 that could take 1% of the business,
35:18 and you still have 99% of it.
35:21 And 1% does not affect their tax return a whole lot.
35:24 You say, well, I don't have any of those.
35:26 Well, here's another option.
35:28 You could set up what's called an irrevocable trust.
35:31 Now, an irrevocable trust is when you designate funds--
35:39 designate profit for the trust, it stays there.
35:42 You can't pull it back out.
35:43 That's why it's irrevocable.
35:45 Now, this is on paper, but you could set up
35:48 an irrevocable trust with somebody as a beneficiary
35:51 or a charity as a beneficiary.
35:54 We set one of those up a couple of weeks ago for somebody.
35:58 That where when something happens to you,
36:02 this trust then gets the money from the LLC at that point
36:05 and then pays it to the beneficiary.
36:08 So you could set one of those up.
36:09 That's the second partner.
36:10 Usually, that's 99 to 1 as well.
36:12 The trust gets 1%.
36:14 There are other ways to do this.
36:16 If you already have another business set up, S Corporation,
36:20 C Corporation, another LLC, that can serve as a second member.
36:26 So there's a lot of different ways to do this.
36:29 So again, need to talk to somebody before it happens.
36:33 Now, here's the last one.
36:35 And I like this one because this is one of my favorites,
36:38 is the tax savings can help pay for the LLC.
36:42 I'm not joking here.
36:44 The LLC can actually pay for itself.
36:47 And so let's explore that a little bit.
36:50 How will the government pay for your LLC?
36:52 Well, if you've already got yearly trading expenses,
36:57 the refund that you get from deducting those expenses
37:00 could pay for the LLC fee and the tax prep fee.
37:04 Now, remember what I talked about a little bit ago
37:07 with the home office deduction and how
37:09 that gets limited on your personal return?
37:13 That limitation is eliminated on the LLC, the partnership
37:19 return.
37:20 And that could be as much as $1,200.
37:22 That's usually a minimum.
37:23 It can go higher than that.
37:25 Keep that in mind.
37:26 So let's take an example.
37:28 Let's assume a person lives in Illinois.
37:31 The yearly LLC fee is $75 per year.
37:37 And the tax prep fee is about $600 per year.
37:39 That's an estimate.
37:41 I don't know what ours is.
37:42 And you can call to find out.
37:43 But I'm estimating there.
37:45 So just work with me on this.
37:48 So it's a total of $675 in extra fees that you would have.
37:52 And some people look at that and say, I don't want to pay that.
37:55 Well, stick with me.
37:56 Also assume the person is in the 35% federal tax
38:00 bracket and the 4.95% Illinois tax rate.
38:04 So you've got a total of 39.95% in taxes that you're paying.
38:11 Here's the calculation.
38:12 This person needs at least $1,015 in trading expenses
38:17 to get the government to pay for the LLC.
38:19 In other words, the refund that they get based on that $1,015
38:24 is going to take care of the extra fee of $675.
38:31 Now, let me prove it to you.
38:34 Here's the proof.
38:36 Recall our trader's got $675 in LLC expenses.
38:40 And a combined tax rate of 39.95%.
38:45 And we calculated that there's $1,015 in extra trading
38:48 expenses.
38:49 Remember a little bit ago I said the home office deduction opens
38:52 up wide for a partnership?
38:56 And that the minimum people usually take
38:58 is $1,200, that already takes care of it right there.
39:02 That extra amount that you get at home office deduction
39:06 can take care of the LLC, extra fees for that.
39:09 And here's the math behind it.
39:11 So your total deductible expenses
39:13 are the $675 that you have in tax prep fee and the LLC
39:18 yearly fee.
39:20 You also have the extra expenses of $1,015.
39:23 Think home office deduction there if you like,
39:25 or other deductions.
39:26 That's a total of $1,690 in LLC expenses.
39:33 When you deduct those on your tax return at the 39.95% rate,
39:39 you get a refund of $675.
39:41 There's your extra LLC fees.
39:44 The government can pay for your LLC.
39:48 And in most cases, it will take care--
39:50 so the LLC will pay for itself, quite frankly.
39:54 And I've watched it happen many, many times.
39:57 OK, so what we've looked at so far
39:59 is we've looked at trader tax status,
40:01 how you can deduct expenses on your tax return.
40:05 And we've looked at entities, how
40:06 entities can be used to actually benefit you to get rid
40:11 of the IRS scrutiny, as well as probably pay for itself,
40:16 and most likelihood.
40:18 OK, let's move on to the mark to market election,
40:21 our last major piece here.
40:23 The mark to market election is a special election
40:26 for stocks and options traders, only for stocks and options
40:31 traders.
40:31 And I'm going to say most options.
40:33 There are some options that do not work with this,
40:38 because they're traded through the Chicago Board of Trade.
40:45 SPX is the big one.
40:47 So if you're trading SPX, that is actually not
40:50 treated like a stock or option.
40:52 That is treated like a 1256 futures contract.
40:56 And so you have a totally different taxation there.
40:59 So SPX is a big one.
41:00 There's a handful of some smaller ones.
41:03 But you might want to check that out
41:04 to make sure you're not caught off guard.
41:06 Because every year, I work with some clients,
41:10 and I do their tax return.
41:11 And their 1099B comes to me, and I put the 1256 contracts,
41:17 which a lot of times is SPX, onto their returns.
41:20 And it's handled differently than their mark to market
41:22 stuff.
41:23 And they wonder why.
41:24 They have a cow, and I say, this is it right here.
41:27 So SPX is taxed differently, and it does not
41:29 qualify for the mark to market election.
41:33 All right, this election, what it does,
41:36 it eliminates wash sale losses.
41:38 And you end up paying taxes on what you actually earn.
41:43 If you're not familiar with wash sales, what happens
41:46 is the IRS has set up a really screwy system, quite frankly,
41:49 that if you have a transaction, and you close the transaction
41:54 out, and you lost money, if you buy back anything
41:59 under that ticker symbol-- could be
42:01 an option with a different expiration date,
42:03 could be the stock, it could be whatever,
42:07 anything under that ticker symbol--
42:08 that loss from the first transaction
42:11 moves to the second transaction.
42:15 Now, that doesn't sound like much.
42:17 But if you keep doing this, those losses
42:19 keep moving in time.
42:21 And let's say by December, you've
42:23 racked up $20,000 in these wash sale losses.
42:28 That can cross December 31st.
42:32 And so now, you've got $20,000 of losses moving from,
42:36 let's say, 2023 into 2024.
42:40 What does that mean?
42:41 It means you're going to pay tax on that $20,000
42:43 that you lost in 2023, and you're
42:46 going to get it back in 2024.
42:49 So you're paying taxes now on stuff
42:52 you actually lost money on.
42:54 So the mark to market election gets around that.
42:57 It actually looks at your account.
42:59 It's a very simplistic way of doing things.
43:01 It looks at your account, value of your account
43:03 at the beginning of the year, value of the account
43:05 at the end of the year.
43:07 If your account goes up, then that's
43:10 exactly what you pay tax on.
43:11 Now, you have to account for contributions, distributions,
43:14 interest, dividends, and all kinds of other stuff
43:16 that goes into that.
43:17 But the concept is very simple.
43:20 You pay tax on what you actually did.
43:22 Or you can write off exactly what you lose.
43:27 Because under normal accounting, without mark to market,
43:31 you have a $3,000 loss limitation.
43:33 So now, this is computed after you add everything up.
43:36 So we're getting ready to do 2023's taxes.
43:39 You add up all your gains and all your losses.
43:42 And let's say you've got a $30,000 loss for the year
43:46 after everything's been added together.
43:49 You can only write off $3,000 on your tax return.
43:54 The remaining $27,000 has to get carried forward to next year.
43:59 It's another deferred loss, is really what it is.
44:03 What this does is it eliminates that.
44:06 The mark to market election eliminates that limitation
44:09 so that if you lose $30,000, you get to write off $30,000.
44:13 And that's very advantageous because that
44:15 means your refund's bigger.
44:16 And you could take that money and put it back
44:18 into trading or something else that you need.
44:21 So the concept here with mark to market
44:24 is that you are paying taxes on what you actually earned
44:27 or deducting what you actually lost.
44:30 Very simple concept.
44:31 Really, quite frankly, the way you think should be.
44:35 However, this is an election that
44:38 has to be made at the beginning of the year for most
44:42 individuals or most entities.
44:44 Now, let me say this.
44:47 In order to do mark to market, you
44:50 have to meet the trader tax status requirements
44:53 that we laid out at the beginning of the presentation.
44:56 The 720 trades, the 75% of the trading days per year
45:01 is 500 hours of trading, research, and education.
45:04 If you don't meet those requirements,
45:06 then you cannot make the mark to market election
45:08 as an individual.
45:10 So what we're doing here is we're
45:13 setting it up so an individual can make the mark to market
45:16 election if they meet the trader tax status requirements.
45:18 Entities can make the mark to market election.
45:22 But for existing entities and individuals,
45:25 you have to do it by either March 15 or April 15.
45:30 Depends on when the tax return for the prior year is due.
45:33 So for those of you out there who
45:35 are wanting to do this personally,
45:37 you have to make the mark to market election
45:39 by April 15 of this year.
45:41 And it will go into effect for 2024.
45:44 That is the earliest you can do it.
45:45 You cannot go backwards with it.
45:48 Publication 550 is very clear that you cannot go back
45:51 with the mark to market election.
45:52 It has to be done in that time frame.
45:54 If it's not done in the time frame for 2024
45:57 between January 1 and April 15, then
46:00 you will not be able to make it for 2024 at all.
46:04 For S-Corps and for partnerships,
46:07 the election has to be done by March 15.
46:09 And C-Corps, that's April 15 if you're not on a fiscal year.
46:14 So any entity can make the election.
46:17 There is one exception to this.
46:19 When you form a brand new entity,
46:22 you can make the mark to market election immediately.
46:26 So for example, let's say you're not ready to form an entity
46:28 right now and you decide in July you
46:31 want to form that LLC partnership.
46:34 So you form the LLC partnership in July.
46:36 You can make mark to market there immediately.
46:39 Now, it will only be for the LLC.
46:41 It will not go backwards into your personal stuff
46:44 for this year.
46:45 It only starts when the LLC starts.
46:49 But you can make it.
46:50 And once you get your stuff transferred into the LLC,
46:54 then from then on, you've got the mark to market election.
46:57 So that is very important.
46:59 So I wholeheartedly recommend to anybody that's
47:04 trading stocks and options except SPX
47:08 that you strongly consider making the mark to market
47:11 election if you qualify.
47:14 So let me kind of summarize this.
47:15 And then I'm going to go to what we need to watch out for.
47:18 Trader tax status, first of all, allows
47:21 you to deduct trading expenses if you qualify.
47:24 Now, that's a very important plateau right there
47:27 because that also ties into mark to market personally
47:30 because you've got to meet the trader tax status
47:32 requirements to do mark to market.
47:35 Forming an LLC, a multi-member LLC,
47:37 provides asset protection, decreased audit scrutiny,
47:41 and it could be free.
47:42 You could get the government to pay for it.
47:46 Also, the mark to market election
47:48 allows stocks and options traders
47:50 to pay tax on what was really earned
47:52 or write off entirely what was lost.
47:55 And that's an important thing because you save money and taxes
47:58 by doing that.
48:00 And you close out things.
48:02 You don't have these deferred losses, wash sales,
48:05 and all that stuff that are going on.
48:07 Now, I've added one thing into my presentations.
48:11 And it's things to watch out for because these
48:14 are things that we have noticed in the last few months that
48:16 are cropping up.
48:18 So I want to mention these to you as we go.
48:21 First of all, a prop firm changes everything.
48:25 Those of you who are not familiar with prop firms,
48:27 a prop firm is where you get involved with a company,
48:30 you invest a little bit of money,
48:32 but they give you a ton of money to invest.
48:35 And you're trading for them, basically.
48:38 When you do that, you are now an independent contractor.
48:42 Those are not gains and losses.
48:44 They will pay you a 1099 NEC.
48:47 And now, it's not just subject to income tax
48:50 like normal gains and losses are.
48:52 You're now subject to self-employment tax as well.
48:55 That changes everything.
48:57 So we want to make sure that if you're doing a prop firm,
49:01 all this is really out the window
49:03 and you need to get some guidance there.
49:05 As I mentioned, some options like SPX
49:07 are treated like futures contracts.
49:09 So make sure that if you're trading SPX or some other ETFs,
49:15 make sure you know how they're being treated tax-wise.
49:19 Really, where it's being traded is being important.
49:21 If it's traded in Chicago, it's probably
49:23 treated like a futures contract.
49:26 If it's traded in New York, more than likely,
49:28 it's treated like a stock option.
49:31 Number three, this has become a big one.
49:33 Trading other people's money or even giving them advice
49:37 can create major problems.
49:40 We have clients or people coming to us say, hey,
49:43 I'm doing pretty well at trading.
49:44 I want to start trading my family members.
49:48 Or I've got friends out there who
49:49 want me to start trading their money.
49:52 That will get you into trouble with the SEC.
49:54 Now, Traders Accounting had an issue with this.
49:56 Not that we were recommended, but one of our clients
49:59 was doing this and they got in trouble with the SEC.
50:02 There are regulations with the SEC.
50:04 There are state regulations.
50:06 There are federal regulations that
50:08 have to be met if you're going to do that.
50:10 And you really need to be licensed
50:12 if you're going to recommend or trade somebody else's money.
50:16 Even giving them advice--
50:18 if I came to you and said, I think
50:22 you should be trading XYZ stock next week, wink, wink,
50:27 or something like that, that can get me in trouble.
50:30 I can't even give advice.
50:32 And most companies like Benzinga do not
50:34 give advice on what to trade.
50:36 They may tell you what's happening,
50:38 but they don't give you advice on what to trade
50:40 because they have to be licensed.
50:43 And so you don't want to get into that situation
50:46 where you get in trouble with the SEC, federal law,
50:49 or state law.
50:50 And all three of those have to be met.
50:51 So be very careful about that.
50:54 And there may be some ways to structure it,
50:57 but we want to be very careful.
50:59 And you do not want to just trade somebody else's money
51:01 or be giving advice because you want to stay out of trouble.
51:05 All right, here's our contact information again.
51:08 Again, our website, tradersaccounting.com/benzinga.
51:12 For that free e-book, please go ahead
51:15 and get that for yourself.
51:18 Our phone number is 1-800-938-9513.
51:22 And our email is learn@tradersaccounting.com.
51:27 So I'm going to leave this up for a little bit.
51:29 And then I'm going to probably take some questions here
51:34 and try to get the chat.
51:40 Yeah, I'll go ahead and pay attention to the chat
51:42 and see if anyone has any questions.
51:43 But I appreciate the insights there.
51:47 And the most important thing where
51:48 I've messed up in the past before I called you guys
51:51 was not selecting the--
51:54 what was it, the trader tax status for April 15th?
51:58 I know that's definitely something.
52:00 And of course, if I wanted to make an S-corp,
52:01 you've got to do it during a certain time and all that.
52:04 Right.
52:05 Big stuff there as well.
52:06 So--
52:06 Yeah, timing is very critical on things.
52:08 So make sure that you pay attention to those time frames.
52:11 Yeah, and of course, just like you said,
52:13 keeping up those receipts is the biggest thing for me.
52:15 So I have a Google Doc where as soon as I know that, hey,
52:19 I've purchased something that is genuinely
52:21 for trading expenses, I write down, hey, here's what it is.
52:25 Here's the receipt.
52:27 It looks like a Google Drive very easily.
52:29 And then here's how much it was.
52:30 That way, at the end of the year,
52:33 I can just download that, send it, and then we are good to go.
52:37 I'm glad you covered the prop firmage, because that
52:39 is such a major part of today's trading world, where everyone's
52:45 trying to get a funded account.
52:46 Hey, how does that work?
52:48 And that's one of those things where, hey,
52:49 you might be getting someone else's money
52:53 or however that works with that company.
52:55 But you might pay more in taxes, because the self-employment
52:58 obviously, you know--
52:59 Absolutely.
53:00 Yeah, and that could become a rude surprise to some people.
53:02 And in fact, I'm going to have to probably counsel
53:04 some people through that this year,
53:06 because you not only have your income tax,
53:08 but that self-employment tax is an additional 15.3%.
53:12 So that could come as a really rude surprise
53:14 when you get your tax return.
53:16 Yeah, especially because if you're
53:18 used to being a W-2 employee, then you hit it big,
53:20 and then you thought you were good.
53:22 Yeah, it's not the fun.
53:23 I think that's where, depending on every situation,
53:26 it's different.
53:27 But if you want to create an S-corp
53:29 and see if you want to try to properly pay yourself
53:32 with different things like that, it's
53:34 really interesting how many different ways
53:38 you can get creative in the proper situation.
53:41 That's right.
53:43 That's one thing we deal with is creativity
53:45 to make sure everything works for our clients properly.
53:49 And you mentioned the S-corp again.
53:51 When you form an S-corp, there is a salary requirement there.
53:54 So you do have to pay yourself a salary, which
53:56 means payroll taxes, W-2s, all the quarterly filings.
54:01 And really, the only time we recommend our clients do that
54:04 is if they've got a really good cash flow
54:07 and they want to start setting up a 401(k).
54:10 Because trading income-- and most people don't know this--
54:13 trading income is not considered earned income,
54:15 and you cannot use it for any type of retirement.
54:17 IRAs, 401(k)s, nothing for trading income.
54:21 So that brings up an interesting point for me to ask.
54:25 Obviously, the name of the business
54:26 is Traders Accounting, but do you guys
54:29 do other types of businesses as well?
54:32 Like if someone had a lawn mowing business
54:35 that they wanted to set up or whatever, maybe?
54:39 Absolutely, we do.
54:41 Now, primarily, probably 95% to 99% of our returns
54:46 have some type of trading on them.
54:48 But some of our traders do own other businesses.
54:52 We've got some traders who are medical doctors.
54:55 We've got some that own other--
54:58 they're construction companies.
54:59 So we've got all over the place where we do tax returns
55:03 for all of that as well.
55:04 I've been in the business, as I mentioned a little bit ago,
55:07 for over 30 years.
55:08 I've seen just probably every kind of return that there is.
55:13 And I was a generalist accountant.
55:16 I did returns for all kinds of businesses.
55:19 So we can handle just about anything that you've got.
55:22 But we do specialize in trading.
55:24 Gotcha, yeah, because I know for me, for example,
55:26 I've got--
55:27 being an on-air host or whatever,
55:29 that's a separate business than doing trading.
55:32 But of course, when it's time to then pay your taxes,
55:34 all right, which expense kind of goes where?
55:36 How does that work out?
55:38 And all that other good stuff as well.
55:40 Chat, we've got about another minute here.
55:42 If you guys have any questions.
55:44 Jerry, I know-- how does it work in terms of extensions?
55:48 I guess if you wanted to file for an extension,
55:50 you just have to make sure that you pay the IRS whatever
55:53 you believe you may owe.
55:55 That we penalized on it, right?
55:57 Yeah, what happens is with extensions,
56:00 you have to make sure that you get your tax completely
56:04 paid by April 15th if we're talking a personal tax.
56:07 Because what happens if you pay--
56:10 let's say you get an extension to file your taxes
56:12 and you do it, let's say, in September.
56:15 That's fine for the filing.
56:17 But if you still owe in September,
56:19 they are going to hit you with a penalty
56:21 because you didn't pay back in April.
56:24 So usually, I advise clients--
56:25 and I hate saying this to people,
56:28 but if you're going to file an extension in April, overpay.
56:31 So you avoid that penalty because you will get it back,
56:34 but you don't want to have to pay that penalty
56:36 and lose some of that money.
56:37 Yeah, no, that makes sense.
56:39 And I don't know how big the penalty is,
56:40 but the word penalty definitely isn't nice.
56:44 Yeah, it could be 0.5% per month up to a particular limit.
56:48 So it can be quite hefty.
56:50 I mean, if you owe $10,000, you're half a percent.
56:53 So you owe $10,000, that's--
56:58 what is that, $50 a month there that you're spending.
57:01 I mean, you could spend that on something else.
57:03 Amen to that.
57:04 All right, Jerry, appreciate you, man.
57:06 Always great talking to you.
57:07 Again, love you guys over at Trader's Accounting.
57:09 Tell Raven I said hello.
57:11 Appreciate you guys in chat.
57:13 We appreciate you guys for hanging out with us as well.
57:15 We'll be back with live trading.
57:16 And I believe AB's coming up here at 11 o'clock.
57:18 But Jerry, always a pleasure, man.
57:19 Thanks so much.
57:20 All right, thanks, and I appreciate it.