Day-Trader Incorporation: Exposing the Myth While Discovering Tax Reduction Secrets of Corporations and LLCs

With a turbulent sea of misinformation, lack of knowledge, and outright accounting scams, finding the right information can be a complicated journey.

“Trading as a business may be your single most powerful profit-generating strategy”. said Ryan Gibson, Vice President of Boyer Tax Services, P.L.L.C. “A properly structured and well-documented business is what separates successful day traders and investors from failures”. “Trading as a business reinforces the two most important elements of trading - psychological discipline and cash flow management.” Mr. Gibson explained.

To help clear the murky waters, Ryan Gibson will present clear and concise information both new and seasoned traders need to know in a free webinar titled "Trader Tax Reduction Workshop: Trading as a Business". Michelle Boyer, CPA and Director of Taxation for Boyer Tax Services, stated, “This free workshop is certainly not marketing fluff or an attempt to up sale attendee’s more information. You will learn valuable strategies to apply to your trading today.”

With the year quickly coming to an end, time is running out for effective trader tax planning. As a trader, your largest expense is taxes, regardless if you make money or lose money! We all know it's easier to trade with more money than less and it’s not only about what you make; it’s about what you keep! This information packed webinar will provide you with essential tax reduction strategies.

During this time-sensitive webinar you will learn:

• The tax treatment of your trading activity and how to use it for your benefit.

• The risks of filing as a Sole Proprietorship or Schedule C trader.

• How to eliminate Wash Sales starting today.

• Overcoming the $3000 a year loss limitation.

• The myths, benefits, and drawbacks of using the following for your trading business:
- “C” Corporation
- “S” Corporation
- Limited Liability Companies
- Limited Partnerships
- Self-Directed 401(k) Plans

• Deducting 100% of your medical expenses such as co-pays, deductibles, and other out of pocket expenses.

• Protecting your trading capital and profits from predatory creditors.

• And much more.

Attendance is limited to 100 registrants, so act quickly to reserve your seat. To register or for more information visit our Trader Tax Webinars page.

Downgrading of Spain's IDRs from AAA to AA+ Caused an "Insider Anticipated" Worldwide Equity Sell-Off!

Fitch, Inc., the International ratings agency downgraded Spain's long-term foreign and local currency Issuer Default Ratings (IDRs) to 'AA+' from 'AAA', caused a massive sell-off of equities and a sharp decline in the euro.

Fitch cited an inflexible labor market and a restructuring of regional and local savings banks as hindrances to the pace of adjustment.

"This should exacerbate the tremendous volatility we've seen in global stocks as the world wrestles with the idea of a debt-based collapse," said Chip Hanlon, president of Delta Global Advisors in Huntington Beach, California. "Adding to this is the fact that no one wants to be long over a holiday weekend."

The release in the drop of Spain's credit rating fueled investor fear in an already emotionally driven market. Those who are able to control their emotion and not allow it to control their trading decisions are remaining profitable in the current economic climate.

Restoring American Financial Stability Act of 2010 – A Day Trader’s Horror or a Brighter Future?

Starting in 2008, millions of Americans lost their jobs, homes, and savings while countless businesses have failed or downsized. Most of the so-called financial gurus can agree that lack of cash flow or insufficient liquidity caused our current economic crisis. With a devastating domino effect of collapsing investment banks and other institutions, this downturn is the worst financial crisis since the Great Depression.

The financial regulatory reform bill, titled “Restoring American Financial Stability Act,” was written in an attempt to create a sound economic foundation. The objective of this new legislation is to stimulate job growth, end the “too big to fail” theory, restrain or control Wall Street, protect consumers, and most importantly, prevent a future financial crisis.

The bill summary delivers a serene and assuring feeling: “Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street, End Too Big to Fail, and Prevent Another Financial Crisis.” The statement portrays a seemingly well-intended and much needed change.

Much Needed Change of Corporate Accountability and Shareholder Protection

The two most critically needed legislation additions contained within the bill are the prevention of “too big to fall” bailouts and shareholders' ability to vote on executive compensation.

With the past bailouts of auto and financial industries, these large corporations were not held financially responsible for their actions. This promoted further incautious decisions and substantially higher risk taking with the expectation that taxpayers would catch the fall. The elimination of taxpayer funded “too big to fall” bailouts will restore accountability and lead to more responsible business management.

Another positive section of the bill is the requirement of procedures for annual shareholders to approve executive pay. This will enable shareholders of a corporation to cast a non-binding vote on executive compensation and other business affairs.

The Strongest Consumer Protections in History OR is the Government Overstepping its Bounds?

Political parties are in yet another heated debate over this bill. Arguably, highlights of the bill can be interpreted as Socialism. Socialists advocate ownership and control of production, capital, land, and property by the community as a whole in the interest of all people.

Limiting of large, complex financial companies by discouraging excessive growth can be viewed as an anti-capitalist approach. Capitalism by definition is an economic system in which the means of production are privately owned; supply, demand, and price are set by market forces rather than economic planning.

The bill has strict rules for capital, leverage, liquidity, risk management and sets other requirements as companies grow in size and complexity. In addition, through the Volcker Rule, the bill prohibits banks from proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and limits banks' relationships with hedge funds and private equity funds. These restrictions could also be interpreted as Socialism.

A Day Trader’s Horror or a Brighter Future?

As traders, we pursue the American dream with the freedoms provided by our great nation. As a day trader, and tax professional, I spend countless hours researching trader tax issues, self-directed retirement plans, and corporate/ LLC statutes. Interfacing with the various government agencies such as the IRS, Department of Labor, and Secretary of State, I have experienced our government’s bureaucratic red tape, lack of organization and slow results first hand.

The Restoring American Financial Stability Act of 2010 may be a good way to protect traders and investors from unscrupulous business and financial practices and it may also sustain our banking and financial industry. I worry though that additional government regulation may inhibit the trading of the people and firms that drive today’s success in the markets.

U.S. Posts 19th Straight Monthly Budget Deficit - Will IRS Come to the Rescue?

The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department said on Wednesday.

Receipts in April -- mostly from income taxes -- were $245.27 billion, up from $153.36 billion in March but lower than the $266.21 billion taken in during April 2009. Receipts from individuals, who faced an April 15 filing deadline for paying 2009 taxes, fell to $107.31 billion from $137.67 billion in April 2009.

The U.S. full-year deficit this year is projected at $1.5 trillion on top of a $1.4 trillion shortfall last year!

"Due to incorrectly filed returns, many taxpayers have already donated hundreds of millions of dollars to the IRS!" said Michelle Boyer CPA, of Boyer Tax Services, P.L.L.C. - the largest online tax preparation and tax reduction planning resource, announced.

With this large government deficit, stay clear of the IRS cross hairs! Now more than ever it’s extremely important to make sure your tax returns are filed correctly.

Astonishingly, misreporting of income not only effects those who self-prepared using tax software programs such as TurboTax® or H&R Block At Home™, but it also plagues those who used a paid preparer. With a wizard-like interface, tax software programs are narrowly focused "cookie cutter" approaches to our tax code of over 60,000+ pages of regulation.

For those of you who hired an accountant or CPA, we have found that a general review could reveal costly mistakes. Although you may have paid your tax professional good money to prepare your returns, the ultimate burden of responsibility lies with you, the taxpayer.

Racing to beat the April 15th deadline creates what we call "tax time anxiety". This leads to poor judgment and mistakes that cost you thousands of dollars in additional taxes. Unfortunately, the FDA does not recognize "tax time anxiety" as a medical condition nor is there approved medication for treatment. The good news is there is a cure! And yes, it could be tax deductible!

The common phrase "haste makes waste" is particularly true when it comes to the complexities of preparing tax returns. Being rushed when gathering records creates a multitude of opportunities for errors even with the most organized and detail minded people. During tax season, most tax professionals are overwhelmed. The available time to spend on each tax form becomes stretched thin. Chances of poor judgment and errors are statistically higher during this time. These costly mistakes are compounded with preparers who lack organization skills and work ethics.

There is high probability that you failed to capture certain tax deductions or missed a tax code change that could reduce your tax liability. In addition, you may have been given bad advice from a professional preparer or tax software program.

Don't become the co-signer on 2.9 trillion of projected government debt!

To help ensure accuracy, maximize your tax savings, and reduce your chances of being audited, consider the following for your 2009 tax return.

Amend your tax return - Many worry that an amended return will increase the chances of an audit. The IRS clearly states that this is not the case. An amended return is much better than an incorrect return. Always take into consideration, filing an amended return. A correctly amended return will decrease your chances of being audited and could put additional cash back into your pocket!

Carefully select a knowledgeable tax professional - You are urged to use care and caution when choosing a tax preparer. Remember, you are legally responsible for what is on your tax return even if another individual or firm prepared it. Most tax return preparers are professional, honest and provide excellent service to their clients. However, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Therefore, it is important to find a qualified tax professional.

The IRS has provided the following tips to help you choose a preparer who will offer the best service for your tax preparation needs.

1. Check the person’s qualifications Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
2. Check on the preparer’s history Check to see if the preparer has any questionable history with the Better Business Bureau, check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the Office of Professional Responsibility for enrolled agents.
3. Find out about their service fees Avoid preparers that base their fee on a percentage of the amount of your refund or those who claim they can obtain larger refunds than other preparers can.
4. Make sure the tax preparer is accessible Make sure you will be able to contact the tax preparer after the return has been filed, even after April 15, in case questions arise.
5. Provide all records and receipts needed to prepare your return Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
6. Never sign a blank return Avoid tax preparers that ask you to sign a blank tax form.
7. Review the entire return before signing it Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
8. Make sure the preparer signs the form A paid preparer must sign the return as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.
   

Report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A here or order by mail at 800-829-3676.

Boyer Tax Services, P.L.L.C. Discounted Flat Rate Tax Return Review Service

Stay clear of the IRS cross hairs! Let our tax professional review your return now to ensure accuracy. Now more than ever it’s extremely important to make sure your tax returns are filed correctly. Our new discounted flat rate is only good until the end of the month! For more information visit our Tax Return Review Service page.

Advantages of Trading in an LLC

A Limited Liability Company has many advantages such as simplicity to operate, reduced corporate formalities and minimal documentation requirements. Structured as a “flow-through” entity, the LLC’s profit and loss will flow to each partner’s return. The characteristic of each income type will stay intact as it flows to each return. This enables a trader who has a capital loss carry forward in their personal name to be offset by future LLC capital gains. In addition, each partner will be able to take advantage of the beneficial 60/40 split (60% taxed as long-term capital gain and 40% taxed as short-term capital gain) of 1256 contracts.

The LLC also avoids the 15.3% employment tax. Thus, you can take cash out of the LLC without having to draw a salary! In order to receive benefits from trading inside an LLC, it should always be structured and taxed as a partnership.

Disadvantages of Trading in an LLC

The major disadvantage of using an LLC for your trading business is that you need a partner. You may also want to consult with our tax professionals to make sure there is no adverse state tax on an LLC where you are domiciled.

Click here for more information about "trading as a business".

Advantages of Trading in a “C” Corporation

A “C” Corporation can have many advantages for traders. This “separate” taxpayer is taxed at a 15% rate on the first $50,000 of net profit. This would allow a trader who is in a high personal tax bracket to have his $50,000 of trading profit to be taxed at 15% instead of his personal rate; thereby, paying fewer taxes.

In addition, a “C” Corporation is the only entity that may deduct 100% of out-of-pocket medical expenses through a “medical reimbursement plan”. Yes, you read that correctly! A corporation can deduct 100% of out-of-pocket medical expenses! Compare this to the inferior 7.5% of your AGI reduction you must take as an individual on your personal return.

Disadvantages of a “C” Corporation

A “C” Corporation could impose disadvantages on the unsuspecting or ill-advised taxpayer. The possible tax traps that one may step into are the accumulated earnings tax, double taxation on dividends, and the additional employment taxes (Social Security) which would be required to be paid on a salary.

When it comes to capital losses and 1256 contracts, the "C" Corporation also isn’t very favorable. A "C" Corporation cannot deduct ANY capital losses – and you thought the $3,000 personal limit was bad. The "C" Corporation also does not receive any benefit from a long-term capital rate. Therefore, the 60/40 split of 1256 contracts that is so beneficial to an individual has the possibility of being wasted at the corporate level.

What’s more, a corporate owner needs to be mindful of the activity that generates corporate profit. In the event that 60% or more of corporate profit is from passive income (as defined in IRC code section 543), the Corporation will be considered a Personal Holding Corporation and subject to an additional 15% tax on the undistributed personal holding company income.

Click here to learn more about "trading as a business".

Like a Defective Seatbelt: Your Limited Liability Company’s False Sense of Security!

Mass Production of Well-Marketed Fallacies

The extremely fashionable and single most powerful asset protection tool, the Limited Liability Company… Like most Americans, there is a good chance you have repeatedly heard advertisements about the benefits of an LLC to protect your most precious assets. Yet have you ever taken the time to research how an LLC stands up to IRS and/or civil court proceedings? In all likelihood, probably not… why would you? Your illzoom.com or “online document mill” sales rep is looking out for your best interest.

If LLCs Don’t Provide Asset Protection, Then Why Are They So Popular?

Since its first inception more than twenty-five years ago, the LLC has become the standard, one-size-fits-all, recommendation for asset protection. However, celebrity status was not achieved until 1997 when the IRS enacted the "Entity Classification Election” or most commonly referred to as “check the box” election. This Federal tax change prompted most US States to create or modify their existing Limited Liability Company Act to follow suit. This groundbreaking regulation enabled newly formed LLCs the ability to elect to be taxed as a Sole Proprietorship/disregarded entity (IRS Form Schedule C), Partnership (IRS Form 1065), or Corporation (IRS Form 1120/1120S). Following this development, the entity gained unprecedented popularity.

Simple Planning is Simply Placing Your Assets at Risk

As simplistic as creating an LLC with your state may sound, many LLCs lack the legal substance and documentation required to be considered a separate legal entity. What’s more, in many states your LLC may not provide any protection at all, regardless of how detailed your documentation may be.

If you currently rely on an LLC for asset protection, ask yourself the following questions:

1. Do you have an operating agreement? If not its kind of like buying a car without any locks.
2. If you do have an operating agreement was it drafted specifically for you? Or is it a generic boilerplate with fill-in-the-blanks? You really do get what you pay for.
3. Are you and your spouse the only LLC owners? If so, chances are its no going to provide any asset protection.
4. Are you the only LLC manager? The one with sole authority over the account? The recent trend for creditors is to hit you with an asset freeze. If you are the sole signatory on the account, you could be in big trouble.
5. Have you made distributions from the LLC to yourself? Currently there is a one-hundred million dollar case where creditors are trying to make the LLC owners pay back the LLC for the value of any distributions and by the way, a number of the LLC owners have already agreed to pay the funds back!
6. Do you believe your LLC would protect you in bankruptcy?
   

Don’t allow an IRS audit or civil court proceeding to wipe out the assets inside your trading company. Shield your business from predatory creditors and the IRS!

To ensure your legal entity is treated separately for asset protection and tax purposes, you must show that the business is not an alter ego. In other words, you must be able to show that the business operates separately from its members, shareholders, officers, and directors. This is accomplished by continually following all corporate formalities and providing proof through written documentation.

Watch the video with Lynnett Gallagher, AZCLDP as she explains the importance of maintaining corporate records.

Reaction to Taxes, the Vicious Cycle of Costly Procrastination.

Proactive planning now could dramatically reduce your trading taxes.

Unfortunately, most Americans plan to fail, by failing to plan now! This astonishing habit will continue as people sit back and relax as the tax deadline has come and past. Costing thousands in over-payments to the IRS for traders, investors, and small business owners.

We have all been there, enduring the anxiety of April 14th because we have done nothing for tax planning. Unfortunately, most taxpayers will wait until after January 2011 to start planning only to find that its too late. Why? Any legitimate tax planning must be done early enough in the tax year to be effective and after year end, its too late. Unless of course you want to make an IRA contribution, but again that is not effective planning nor does it dramatically reduce your taxes.

We have worked with thousands of day traders and investors this last tax season. Our busiest day for phone calls and emails is April 14th!

Here are the most common questions we were asked;

• Can I file for the Mark to Market election for my 2009 trading?
• Can I establish a corporation or LLC for my trading activity and make it retroactive for 2009?
• What do I need to do to ensure that I meet trader status for 2009?
• What deductions may I take for 2009 and how should I keep track?
• Can I draw a salary out of my business now and claim it for 2009 for contribution to a retirement plan?
• I made money on Spot Forex, what do I need to do to take advantage of the 1256 tax treatment?

The Mark to Market election was the only question that could have been answered "Yes" however, there was not enough time before the deadline it implement. If you were to compare tax planning to auto insurance; you total a new car you just paid $75,000 cash for and out of the excitement, you failed to obtain insurance. How would your State Farm agent reply when you ask about a new policy? I am sure you would get the same chuckle from the insurance agent that most get from appealing to the IRS.

More to Life Than Tax Planning

All of us become wrapped up in our lives. After all, there is more to life than tax planning. We would rather spend our sparse free time with family and doing the things we enjoy. You do not have to sacrifice your free time to drastically and effectively cut your tax bill!

Our team of professionals have meticulously studied the tax code and trader tax cases to reflect the changes for 2010.

Practical Tips for Avoiding the April Rush While Reducing Your Trader Tax Bill

If you were to ask my children how many seasons there are their answer would come with no hesitation, FIVE – spring, summer, fall, winter, and tax. They know the drill – long hours and full concentration on reducing our client’s tax burden.

Should the Tax Season Be About Rush, Rush, Rush?

The IRS thrives on trader tax complexity and as a trader; your largest expense is your tax bill. As my children even say, haste makes waste. So why risk thousands of dollars rushing through such complexities? Here are some useful tax tips you should know as the deadline approaches rapidly.

Extension of Time to File Your Tax Return

Is it an IRS "red flag" to file an extension? One fact you must remember when filing an extension is that the request is an extension to file your taxes, not to pay your taxes. The IRS is very generous when it comes to giving you extra time to file your return. In fact, with an extension, you can wait until October 15th to file a personal tax return. HOWEVER, if you have not paid your taxes by April 15th (regardless of an extension), you will be charged interest AND penalties. Yes, you heard right. PENALTIES. The failure to pay penalty (different from the estimated tax penalty) is .05% of the tax not paid, for each month (or part of a month) it remains unpaid, up to a maximum of 25%.

These penalties are like bad investments, taking time to stop and think will help you avoid them. If an extension is necessary and you are concerned about owing tax, prepare an estimate of what you think you owe. If you are still unsure, take the time to have our professionals estimate the amount you owe. Also, remember that making an overpayment could be a great investment. After all, it carries a guaranteed 4% return!

Stimulus! Stimulus! Stimulus! What Do These Government Tax Credits Mean to You?

The year 2009 was a whirlwind. The government, in an effort to help the economy, has created, modified, and extended several credits and deductions which could possibly mean thousands of dollars for taxpayers. Why leave money on the table? These credits and deductions could range from home ownership, education, energy, to dependents. Take the extra time to learn from our professionals about what credits and deductions are available to you. Don’t miss out because you were rushed to file your tax return.

Does the IRS Owe You Money?

If you know the IRS owes you money or believe you may be entitled to a refund, why wait? Cash out your investment today! On request, our CPA’s will complete your return before the April 15th deadline to ensure the cash hits your pocket ASAP.

No Other Accounting or Trader Tax Firm in the Country Can Match the Expertise of our CPAs!

With a large government deficit, stay clear of the IRS cross hairs. Now more than ever it’s extremely important to get proper tax advice; although most CPAs won’t admit they are not always equipped to help day traders or investors. Our tax professionals have studied the IRS code and trader tax court rulings for years and are determined to slash your tax bill!

Register today for our trader tax preparation service and we will waive the $100 setup fee. Finally, rushing that actually saves you money!

Why do taxes on Forex seem so foreign?

It is no wonder that the taxation of foreign currency trading is so confusing. Understanding the fundamentals of the currency markets are confusing alone without the right trading education. Add a little dash of “modern day” taxman bureaucracy and voila, you have two very different tax code sections. Knowing the specifics about what you trade will better help you determine how your Forex trades are taxed.

Spot Forex

Spot Forex is where one trades the actual currency for immediate delivery and the transaction is settled "on the spot". This type of trading, by default, falls under IRC Section 988 and is not subject to short-term or long-term capital gains tax, but instead is reported as “other income” and is subject to your ordinary income tax rate. Since IRC Section 988 gain or loss is taxed as ordinary income, you are able to overcome the $3,000 dollar a year loss limitation.

Any person, regardless of trader status, has the option to opt out of Section 988 tax treatment and into IRC Section 1256 tax treatment. This election must be documented on a proactive basis and may not be a universal election made at the end of the year. Opting out of Section 988 could be a good decision in the event that you are in a profit position. If you generate a loss, you will still be bound by the $3,000 a year capital loss limitation.

Futures on Forex

Those who buy Forex futures contracts are subject to IRC Section 1256 tax treatment. These transactions receive a split tax treatment of 60/40, where 60 percent of the gains are taxed as long-term gains and 40 percent of the gains are taxed as short-term gains, regardless of the holding period. This is reported on schedule D and is subject to the $3,000 a year loss limitation. The benefit of IRC Section 1256 contracts are the long-term capital gains tax treatment on 60% of your profit. Currently this tax rate for individuals is anywhere from 0% to 15% tax.

No Other Accounting or Trader Tax Firm in the Country Can Match the Expertise of our CPAs!

With a large government deficit, stay clear of the IRS cross hairs. Now more than ever it’s extremely important to get proper tax advice; although most CPAs won’t admit they are not always equipped to help traders or investors.

Our tax professionals have studied the IRS code and trader tax court rulings for years and are determined to slash your tax bill with our Trader Tax Preparation Service!