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I have bought and sold stocks for decades, but I am relatively new to day trading. I hear most people talking about setting up a corporation in order to be able to deduct all of their trading expenses. But I am more interested in a corporation for asset protection. Maybe I am overly protective, but I am surprised more people do not seem to be concerned about asset protection. In fact I also invest in real estate and one of Landlord’s biggest concern is asset protection.
As I learn more about day trading, I see traders shooting to get a few ticks. In order to make any money on a few ticks you have to buy a lot of contracts. I see investors using more leverage than Lehman Brothers did when they went bankrupt. When I see investors using a few thousand dollars to buy millions in contracts I worry.
Maybe the best day traders are young bright individuals who have $10-20K and nothing else. If they lose everything they can just go bankrupt. But my understanding is if you invest as an individual (IRA or not) and you have a pot to piss in, then they can go after all your assets if something goes wrong.
And a stop loss is not going to protect you. What happens if you get a flash crash, a terrorist attack or Iran explodes a nuclear bomb or some other unexpected event and you have millions invested on the wrong side at that instance?
Does anyone else worry about asset protection or am I just pernoid? If so, any suggestions.
EnergyFrank, I would say it depends on the number of trades that you had. I hear the IRS is looking for you to have a minimum number of trades in the 500 range or better for the whole year. If you have that many round turns I would say you are good to go.
I'd like to start a new subject on Tax Avoidance (legal).
As many of you know, I am looking to move out of the country soon and "retire". Retirement is more a state of mind and financial independence, as I plan to continue to trade and would never imagine not trading.
I've been trying to do homework on how to minimize taxes as a US Citizen but living in, and trading from, another country. I am hitting a lot of roadblocks.
There has to be a lot of people here in a similar situation, so I'm looking for some suggestions to point me in the right direction before I hire a professional.
Well one route, which I'm sure you're aware of, is to renounce your citizenship. But I'm not sure of all the potential consequences that come with that. And reality is that's probably not an option most of us would take. And interestingly some countries, like Monaco, do not allow dual-citizenships.
Without having done much research about this subject, I'll guess that you could gain a lower tax bracket by trading under a company and paying yourself a "reasonable salary" ($30k-$40k) while most of your expenses and assets are paid for and owned by your (foreign/off shore/on shore?) trading company. Unfortunately there would probably be increased "trading professional" status expenses. Or a little of both: personal trading and professional trading firm.
My guess is you could find several tax pros who would basically be presenting you a "low risk-fly under the radar" trading entity setup.
