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Zen & the Art of The Small Account


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Zen & the Art of The Small Account

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  #111 (permalink)
 TheWizard 
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aztrader9 View Post
I started something today: Trading two accounts. The first one is my daily income: On CL, thats 10 ticks. No more, no less. Five trades max to achieve that. I chose 10 ticks because you can be totally wrong about the larger trend and still get ten tick on the back and forth. Not that you'd want to get them that way, but you understand what I am saying.

The second account is to build my wealth and repay my debt. This account's target is 40+ticks net. In time, this will provide me with income and with wealth building.

Slow and steady. Thats my new motto.....

By the way, not sure if I mentioned it but got my LLC papers sent off to the state so I can open my new account in the business name instead of my own. Tax reasons. Should have that done in a couple of weeks and then live trading!

Here is my stats from today: One is the new account....and the other is the wealth account.....the one I've been updating here in this thread.

az, Would you be kind enough to share with us the benefits of having the trading accounts in the name of the LLC, rather than your personal name? Feel free to enumerate at length. This is something I was considering, but my CPA advised against it. I'd like to have your perspective. Thanks.

After all, it's what you learn AFTER you know it all, that counts!
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  #112 (permalink)
 PandaWarrior 
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TheWizard View Post
az, Would you be kind enough to share with us the benefits of having the trading accounts in the name of the LLC, rather than your personal name? Feel free to enumerate at length. This is something I was considering, but my CPA advised against it. I'd like to have your perspective. Thanks.


I am uniquely unqualified to discuss this topic. But it seems most tax preparers are unprepared to adequately help traders as most do not understand the business.

There are two firms I know of that specialize in traders: I would suggest you consult with one or both to see where they stand on the issue.

They are: CPA firm - Accounting & Tax Advisors for Traders and Active Investors and GREEN TRADER TAX I am currently not affiliated with either of these firms but have spent a fair amount of time on their sites learning. This will be the first year I will have needed a CPA for trading. My normal CPA said he would not prepare the taxes for trading as it was to involved for him. I doubt that but figure he has the right to turn certain types of business away. His loss I guess.

On edaytrader.com, read the section on entities. They have a primer on them there. There are several reasons they give and they may or may not apply to you.

I am doing it because I have a trading partner and we want to both have access to and trade the accounts. Doing this allows us to get around the rule that says no one but named account holders may have distribution from a trading account. Holding the account in an LLC provides us with that capability and allows us to pay ourselves a salary just like a regular business.

There are probably other ways to do this but this is the way we have elected to do it. It is in effect, a partnership and we get to have cool hedge fund sounding name.

Hope that helps.

Oh one other thing, I have owned buildings, companies, etc....all in an separate LLC's. I would never consider doing any business without the corp structure. There are certain protections they afford and I also like having some anonymity to my affairs as well.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #113 (permalink)
 427Rat 
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Great thread! I've subscribed!

 
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  #114 (permalink)
 PandaWarrior 
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427Rat View Post
Great thread! I've subscribed!

Hi 427Rat,

Glad you like the thread, hope you are benefited in some manner by it......

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #115 (permalink)
 studio88 
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aztrader9 View Post
Oh one other thing, I have owned buildings, companies, etc....all in an separate LLC's. I would never consider doing any business without the corp structure. There are certain protections they afford and I also like having some anonymity to my affairs as well.


Being in Australia, I cant and probably should not speak of all this, but having done a trader dvd course type seminar thing a while back, this did reflect on quite a few benefits of to why.


As to TheWizards question of "the benefits of having the trading accounts in the name of the LLC, rather than your personal name?".

Well, things might be different from year to year but from what I have read here are some differences that I seem to understand, but this is from 2007 thereabouts so dont quote me ok.

Limitation of being a Sole Proprietorship (SP)
- Increased chance of being audited
- No asset protection
- Any medical expense you pay will still be limited to 7.5% of your adjusted gross income
- A SP can not deduct the cost of a life insurance or disability insurance
- A SP does not have the ability to go back 12 Months and capture business expenses related to trading (starup costs etc)


What is a Legal Entity?

No Technical, Legal Definition in Internal Revenue Code:

Working definition:
a legal structure or arrangement that is treated separately and differently from its owners for tax and other legal purposes.
Examples:Corporations, Partnerships, LLCs, certain types of Trusts, Estates.


Benefits of a Legal Entity.

What you've gained:
- Certainty n the tax law
- Reduced your audit risk
- Added two layers of asset protection where none previously existed
- You can deduct in your trading business (indirect expenses, direct expenses, business assets)


Direct Expenses of your Trading Business

Example of expenses you can deducted (at a 100%) in your trading business but all must be recorded and annotated properly.
- Dues and subscriptions
- Salary (paying your kids between 7 & 17)
- Internet and data feeds
- Education - Training related
- Travel - ie: going to seminars)
- Meals and Entertainment (be careful with this one)
- Depreciation and Amortization
- Cell phone
- 2nd phone line
- Home office repairs
- Medical
- Office Supplies

401(k)'s
An Entity sponsored 401(k) is the way to go for a Trader. Why?
- Maximum flexibility
- Maximum contribution limits
- Ability of the employee to reduce individual taxes (elective deferrals)
- Can not have a 401k in an LLC


10 Reasons to trade as a Business
(Why you want to trade as a business)
- Medical reimbursement
- Hiring family members
- Sponsoring a 401(k) plan
- Home office expenses
- Travel
- Convert other personal expenses to business expenses
- Deduct more than $3,000 in trading losses
- Create your own job security
- Create asset protection
- Insulate and isolate your trading business away from personal dollars.

Note: There is no cookie cutter approach in choosing which entity is best.



Now people, I type the above out by hand and by no means am I giving advice here, and nor do I know how accurate this is as of today as no doubt it will always be a change year to year.

Obviously, you will need somebody whom specialises in doing LLC-Corporation setups, and get it done at the same time which can save you a few $$$, so just because your accountant does not think that this is best for you, He is not you, and maybe he just does not want to do the hard work, in which case look for somebody who does. From what I heard both can be done for approx 2-3K. But again that was years ago. Now? who knows.

Anyway folks, there is some input to the subject be it useful or not.

Cheers.

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  #116 (permalink)
 PandaWarrior 
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Awesome, thanks for all the hard work....much better than I could have done....

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #117 (permalink)
 PandaWarrior 
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I avoided the early chop, got a win under my belt for the income account, missed a couple of trades due to fear, CL was moving slow today so I was a bit hesitate. Next trade was a loss after getting in late, the early entry would have been fine. Then 4 wins in a row. Obeying the rules, taking profit at appropriate targets is the way to go.

Total profit today, $770 with $95 in the income account and the rest in the wealth account.

A good day today.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #118 (permalink)
 ZTR 
 
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You are on the road to being a consistently profitable trader.

You have done this the right way. You have a system that you follow, while you do second guess your self at time you are getting better & better.

I know that you are a beacon of hope for small traders everywhere

R.I.P. Andy Zektzer (ZTR), 1960-2010.
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  #119 (permalink)
 PandaWarrior 
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I'll be back in a while with the stats...but I had tough time with the early movement, then the chop came....My major issues lately is overcoming early bias. I am getting better at it, but struggled with it today. Did not take a couple of trades due to the issue.

So I switched to "sim" and practiced losing money in the chop. I got good at that today!

I actually made money for the income account and lost money in the wealth account with three straight losses. Thats when I quit and went "sim".

I'll have the spreadsheets up in a while with some more discussion about the trades.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #120 (permalink)
 PandaWarrior 
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I am now 5 days away from having my first ever profitable month! I could quit right now and finish profitable but that is not real.

So decided to play small ball this week. Just go for smaller gains....I may rethink this tomorrow as those who play NOT to lose, usually do. However, sometimes defense is called for.

Anyway, today's small ball tactics worked. On my income account, I made 5 trades, up $148. There was 1 BE trade, 2 losers and 2 winners. The two losers were a total of 16 ticks of loss, the two winners were 8 and 25 which netted me 15 ticks total.

I was very pleased with this performance today.

On the wealth account, I took three trades with 2 cars. First one was a 10 tick winner and the second was BE. The second trade was nearly picture perfect entry, got cold feet and bailed at BE.....the entry went on to pay 50 ticks! I netted $182 today on the wealth account.

Was done by 7:50AM PST. Spent the rest of the morning calling trades using my system, marking up the charts and in general getting my entries correct. Very valuable screen time this AM. I made a structural change to my charts and this seems to help with my bias issue. We will see the remainder of the week.

If this week goes as planned, this will be my last week on sim. Stay tuned.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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