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TopstepTrader's Michael Patak (Founder) - Ask Me Anything (AMA)


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TopstepTrader's Michael Patak (Founder) - Ask Me Anything (AMA)

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  #361 (permalink)
Market Wizard
Ilsede, Germany
 
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PK007 View Post
The issue is explaned as follows: If you make $100,000 as an example for a period, your share is 80% (just to keep it simple, I'll use 80%, but in fact you start at 60% and work your way up to 80%). If you then have to pay 30% tax on $80,000, you will have to withdraw $24,000 from the account. According to the TST rules, if you withdraw $24,000, TST will also withdraw the same ammount (is this correct Michael?). In this case, their share is limited to $20,000.

Which means, your account balance will reduce to $56,000 ($100,000 - $24,000 - $20,000 = $56,000). Now, does that mean your lot size will also have to be reduced by 44%? Since the margin available in the account has reduced?
If this is the case, it will take considerably longer to build equity, if you have to withdraw that much every few months.

IMHO, if you make $100k in your TST account and withdraw say $80k, you have to deduct your taxes from the $80k you've taken out of your account.

And as a result, your account balance decreases by $80k, completely independent of what you'll have to give to your local (country-dependent) taxman...

And I think it depends on your negotiations whether or not your buying power will reduce linear according to the amount of $$ you've taken out of your account.

"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." - Jim Rohn
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  #362 (permalink)
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PK007 View Post
For me, the issue is on the remaining equity in the account. I don't mind paying the taxman what he deserves to get. But, if you can (legally) delay paying taxes, it gives you more time to increase the equity in your account, and therefore higher possible income in the future.

The issue is explaned as follows: If you make $100,000 as an example for a period, your share is 80% (just to keep it simple, I'll use 80%, but in fact you start at 60% and work your way up to 80%). If you then have to pay 30% tax on $80,000, you will have to withdraw $24,000 from the account. According to the TST rules, if you withdraw $24,000, TST will also withdraw the same ammount (is this correct Michael?). In this case, their share is limited to $20,000.

Which means, your account balance will reduce to $56,000 ($100,000 - $24,000 - $20,000 = $56,000). Now, does that mean your lot size will also have to be reduced by 44%? Since the margin available in the account has reduced?
If this is the case, it will take considerably longer to build equity, if you have to withdraw that much every few months.

Consult TST and an accountant. But I know in the US you have 3 years to file. So when 2014 is done, I have up till 2017 to file my taxes for that year.

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  #363 (permalink)
Market Wizard
Ilsede, Germany
 
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tturner86 View Post
But I know in the US you have 3 years to file. So when 2014 is done, I have up till 2017 to file my taxes for that year.

Are you kidding ? That would be kind of science fiction in Germany...or in other words, they would just estimate your income for the last year.

"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." - Jim Rohn
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  #364 (permalink)
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Daytrader999 View Post
Are you kidding ? That would be kind of science fiction in Germany...or in other words, they just would estimate your income.

No. In the US you have 3 years to file an income tax or claim income. I have done so from time to time, so I can carry a loss into a different year.

You can also claim a loss on a business for upto 5 years, after that you will have to show some kind of profit or it will be labeled a hobby. Used this a few times as well.

Again always talk to a professional before anything.

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  #365 (permalink)
South Africa
 
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Daytrader999 View Post
IMHO, if you make $100k in your TST account and withdraw say $80k, you have to deduct your taxes from the $80k you've taken out of your account.

And as a result, your account balance decreases by $80k, completely independent of what you'll have to give to your local (country-dependent) taxman...

And I think it depends on your negotiations whether or not your buying power will reduce linear according to the amount of $$ you've taken out of your account.

In my example,you would only withdaw the tax amount.

But nevermind, the questions that remain:

When will the income be taxable in the account holder's name:
1. When you make the profits or
2. When you do a withdrawal

In terms of your TST agreement:
1. Will TST reduce your lot size when you make withdrawals

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  #366 (permalink)
Market Wizard
Ilsede, Germany
 
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tturner86 View Post
No. In the US you have 3 years to file an income tax or claim income. I have done so from time to time, so I can carry a loss into a different year.

You can also claim a loss on a business for upto 5 years, after that you will have to show some kind of profit or it will be labeled a hobby. Used this a few times as well.

Again always talk to a professional before anything.

In Germany you've got a maximum of one year (after govt approval) to state your last year's income, and you've got only one year as well to carry your losses to the next year.

Overall this is quite a good solution for startups and young / small firms.

"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." - Jim Rohn
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  #367 (permalink)
Market Wizard
Ilsede, Germany
 
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PK007 View Post
But nevermind, the questions that remain:

When will the income be taxable in the account holder's name:
1. When you make the profits or
2. When you do a withdrawal

In my understanding, since you work as a contractor for TST, definitely #2 is the answer.

But don't get me wrong, I'm NOT a tax advisor, especially not for US taxes and IRS affairs.

"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." - Jim Rohn
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  #368 (permalink)
South Africa
 
Experience: Intermediate
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tturner86 View Post
No. In the US you have 3 years to file an income tax or claim income. I have done so from time to time, so I can carry a loss into a different year.

You can also claim a loss on a business for upto 5 years, after that you will have to show some kind of profit or it will be labeled a hobby. Used this a few times as well.

Again always talk to a professional before anything.


I used to be a tax accountant many moons ago, but unfortunately never dealt with trading related taxes.

In terms of paying taxes in advance, in South Africa, corporations and contractors in general need to pay provisional tax every 6 months for the current year (depending on turnover). Doesn't matter when you file your tax return. You therefore need to make an estimate of your last 6 month's profits and pay tax on that which will reduce the final payment you need to make when you file your return in the future.
When you eventually do file your return, and you've underpaid provisional tax by a certain percentage, you will have to pay penalties.
Death and taxes...

I am not qualified (anymore, in any country) to give tax advise, so ask your tax advisor.

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  #369 (permalink)
South Africa
 
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Daytrader999 View Post
In my understanding, since you work as a contractor for TST, definitely #2 is the answer.

But don't get me wrong, I'm NOT a tax advisor, especially not for US taxes and IRS affairs.

I hope that is the case. It makes more sense.

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  #370 (permalink)
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PK007 View Post
For me, the issue is on the remaining equity in the account. I don't mind paying the taxman what he deserves to get. But, if you can (legally) delay paying taxes, it gives you more time to increase the equity in your account, and therefore higher possible income in the future.

The issue is explaned as follows: If you make $100,000 as an example for a period, your share is 80% (just to keep it simple, I'll use 80%, but in fact you start at 60% and work your way up to 80%). If you then have to pay 30% tax on $80,000, you will have to withdraw $24,000 from the account. According to the TST rules, if you withdraw $24,000, TST will also withdraw the same ammount (is this correct Michael?). In this case, their share is limited to $20,000.

Which means, your account balance will reduce to $56,000 ($100,000 - $24,000 - $20,000 = $56,000). Now, does that mean your lot size will also have to be reduced by 44%? Since the margin available in the account has reduced?
If this is the case, it will take considerably longer to build equity, if you have to withdraw that much every few months.


Daytrader999 View Post
IMHO, if you make $100k in your TST account and withdraw say $80k, you have to deduct your taxes from the $80k you've taken out of your account.

And as a result, your account balance decreases by $80k, completely independent of what you'll have to give to your local (country-dependent) taxman...

And I think it depends on your negotiations whether or not your buying power will reduce linear according to the amount of $$ you've taken out of your account.

Hi @PK007,

Your point makes sense, but fortunately there is -- at least as I understand it -- a mistaken assumption.

Although you have "made" -- in the sense of, created by your trading -- the $100,000 in "your" account, it is not actually your account, as in, your money. It is part of the capital of the firm you are trading for. It is theirs. You own none of it.

Since it's part of their earnings, the company has a tax liability on the profits that are in the account. After all, it's theirs. You have no liability, since it's not your money.

Now, suppose you want to have some of it. Because of the agreement you have with TsT, you can request a withdrawal, and at that time, they will withdraw the amount you specify, then take the 80/20 split, send you the 80% and keep the 20% of the total withdrawal amount.

(So if you want to receive a specific amount, say 30,000, you have to request a total withdrawal that is large enough that you will get 30,000 after the split. For example, for you to get 30,000, you request that they withdraw 37,500. 37,500 x .8 = 30,000 for you, 37,500 x .2 = 7,500 for them.)

At that time, you have received some money, at last, and so you will have to pay tax on it. You will not have to pay tax on it before they withdraw it from the account, because you will not have received anything yet.

It's important to not think of this as "your" account, like your personal retail account that they have been nice enough to fund for you. It's firm capital and the profits on firm capital. You get paid a percentage of that, per your agreement and not as a matter of ownership, and when you do, you have a tax bill. You have no ownership interest in the account itself, just in what is paid to you under the agreement, and only when it is paid, because that's the only time you actually own any of it.

So, that's what Michael said:


TopstepTrader View Post
Scalpingtrader- Since the trader is treated and considered an independent contractor, they are taxed on the money they receive from their equity partner. Money received would be withdraw requests.

That is the best I can answer tax related questions. I would seek a professional tax advisor if you have further questions.

mp

I hope I didn't beat on this poor dead horse too hard. If I did, I'm sorry.

But the point that you only have income from this account when you are paid by TsT for trading it, is pretty important.

Bob.

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