How to Set up a Trading Business (LLC, Trust, or Corp?)

How to Set up a Trading Business (LLC, Trust, or Corp?)

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- Hey, guys, Toby Mathis here and today we're going to be talking about setting up your trading business so let's dive right on in. Number one, what the heck is a trading business? I'm not talking about trading like hey, let's get some foreign items and trade them, or I'm a trader in the sense of foreign goods and things like that, or just goods in general. What I'm talking about is stock market traders, specifically this thing called trader status, that is not in the...

It's not even in the code. It's not even in the IRC, but is still something that we've been using for 30, 40 years, maybe longer cause people pay that are traders, I'm just kidding. I'll explain why accountants still use trader status, why we avoid it like the plague.

Like we just don't think it's a good idea because it's so tough to hit facts and circumstance test, and it puts people into hot water, but I kind of want to give you the background as to why there are these two issues. And so I'm going to spell it out real simple. A trader just means for the IRS that you are a trader business. Trader just means I am a business, and because I am a business, I get to take ordinary and necessary business deductions under 162 as opposed to investment deductions under 212 which are very, very, very limited. So what I'm really getting and focusing in on are these two words here, let me see if I actually have a piece of chalk, I'm going to say that one side, we have trader.

On the other side, we have investor. And so that's how we're looking at. Can I get it over here and why would I want to be over here versus over here and then is there an alternative? And so I'm going to break all those things out today. So first off, a trader is somebody who is in the stock market and taking advantage of daily trends in the stock market.

They're doing it on a continuous basis, a regular basis and they're in there substantially. They're not in there with just a little bit of money. They have a chunk of money in there that they rely on to make a living like they're going to be living off of. This isn't stuff that hey, I've got a little bit of extra dough over here and they're going to treat you as a business. It's actually very, very difficult to reach trader status unless you are trading on literally 75% of the trading days that the market is open and that you are available. In other words, it's going to be well north of probably 240 days a year that you have trading days so it's going to be a big chunk of that, whatever that is 180 days or more, somewhere in that neck of the woods, I'd have to get my calculator out.

But somewhere around the 180 day mark, that you are trading and not just trading, you are trading continuously. So I would say that the kind of the golden rule, and I'm using that phrase very deliberately cause there's some folks out there that are in this space that say the golden rule is really about four trades a day. So you just kind of do your math. Hey, I need to be in there for 180 days, four trades a day, sometimes five, year upwards of 750 trades a year, that would be kind of your starting point. That would be your starting point. That's where you're like hey I'm in the safe zone here.

The other factor Is hey, is this what you make you living? And are you making money? Those are big ones too. They're going to be looking at those. And when I say they, it's actually the tax court, sometimes the IRS before if you get audited, they're going to see hey, does it pass the smell test? So you're just going to hey, are you trading at least 75% of the market days that you're available that you could be trading? I would say probably 750-ish trades per year, whatever that is.

I could just kind of do the math in my head. 720 to 775, 780, somewhere in there, probably around the 750 mark, I would want to see at least four to five trades a day on each of those and a trade isn't a round trip. I'm buying to open something, I'm selling to close something. Those are two trades, it's not just one trade.

And then here's a big one. And this is like as close as you're going to get to something that's certainty in this space, because most of it is just facts and circumstances, which means it's anybody's guess as like a reasonable person. It's always going to be something that a jury decides, which means that it's a finding a fact. And I want to get away from that. I want to have a bright line test, like speeding.

Could you imagine if they just said speeding is driving in a reasonable manner under the circumstances. Otherwise I can get you a ticket for anything. It's nice to know that it's 55 miles per hour, 65, whatever the speed limit is to give yourself a guide. Now, if it was snowing out or just downpour, they might say even that's too fast, but you know what I mean? Like if it's normal circumstances, we need a bright line rule and here's as close as we're going to get. Your holding period of all your activities has to average less than 31 days or 31 days or less.

You need to be in that my holding period is a very short period of time. If my average holding period is 60, 90, over a year, 60 days, 90 days, over a year, forget it, you're never going to be a trader. You're never going to rise to the level of a business. Now, why is that important? Well, because my expenses, I don't get to write off period. I don't get them. I get to write off maybe some margin interest if I'm using my investment interest, but otherwise I can't write off like my computer, my cell phone, the cost of data, my internet, my data feeds, whatever I'm using in my trading, I don't get to write any of that stuff off.

I can't write off if I do education, if I'm a member of groups, if I sign up for newsletters, things like that, I can't write any of that stuff off if I'm an investor, but I can if I'm a trader. And so let's kind of walk through this. Number one, here's why we like trader status. So investment money. In a trader, it's going to go on schedule D. In investor, it's going to go on schedule D.

Why is that important? Because schedule D is for your capital gains, it's treated as capital gains. So if you have short term capital gains or long term capital gains, you don't get hit with this thing called old age disability and survivors or hospital insurance or Medicare. You don't get hit with social security. Social security sits out there at 15.3%. So it's really important that just being a trader and being a trader business does not subject you to that extra tax that it normally would if you were like, let's say I was going to go out and be a plumber. Toby the plumber.

If I make a dollar, it's subject to that 15.3%. Toby the trader, it's not, same dollar, I'm going to get to keep a lot more it if I'm a trader so it's very attractive to some people and they're immediately like, oh my gosh, that's really cool. Now here's where it gets interesting. Your expenses on a trader, it's going on schedule C.

Investor, it's just investment expenses. It's just on your schedule D if anywhere, there's not much there. The issue is schedule C is the sole proprietorship return. It's a trader business, but here's what's weird. Expenses, but not the income. So the income's going on another form.

So what is that schedule C going to look like every year? It's going to be a negative amount, cause there's no income that goes on there. We're not even talking about losses yet. What if I trade and I lose money? We're talking about I'm just going to have a bunch of expenses listed there. It's going to be a loss no matter what every flipping year.

You want to put a bullseye on your back and say hey IRS, please come get me. That's how you do it, that's why I'm not a big fan. Now speaking of expenses and creating losses, what if we trade and we lose money? So then we look at it and say okay, our losses. Now ordinarily, cause I have capital gains, capital losses, I'm have just your normal capital loss. It's limited to your capital gains, and then you get to take $3,000 a year as loss. That's normal, so if I lose...

Let's say I make in my W-2 job, I make a hundred thousand dollars a year and I go out there and I think I'm going to be Toby the trader and I absolutely lose money left and right. Let's say that I lose so much money that on my schedule C, I have expenses of $10,000 and I lose another $10,000. So I'd have $20,000 of loss. I can use my losses against my capital gains. Other capital gains, I have to look around.

Do I have any other capital gains? Short term or long term, it doesn't matter. I guess to just use them against any other capital gains I have. I have no other capital gains. I can use 3000 of the 20,000 against my a hundred thousand dollars of income.

So I can use $3,000 a year. And what happens to the 97 or the, excuse me, it was $20,000 a total loss, what happens to the other 17? I would just carry it forward and use it next year. If I have $17,000 of capital gains, I'm not going to pay tax on it cause I have all these capital loss carry forwards that I could use. So that's number one. So that's number one if you are a trader. It's the same rule if you're an investor.

If I'm an investor, the only difference is I don't get to write off my expenses. So in my example, I had $10,000 of loss, $10,000 of expense. I would only get a $10,000 loss, assume the same scenario, I made a hundred thousand dollars in my W2, I would use a three of the 10,000 and I would carry forward 7,000. Now this is why people really like trader status. I'll never quite get my head around it, but if you're going to lose money and you can be a trader, you want to make something called a mark to market election and it makes your losses ordinary, which means same scenario. I had $10,000 of expenses, $10,000 of loss.

If I make a mark to market election, I have a $20,000 loss on my tax return that offsets my W-2 income. So I would get this big tax deduction. That's why accountants gravitate to trader status all the time. I'm not a big fan of going in thinking well, what if I create a whole bunch of losses. I wouldn't be doing that. I wouldn't be doing the activity period.

I only want activities that it is a strong likelihood that I'm going to be making money. I'm not going to be a trader if all the traders are losing money, there's an old adage in my world cause I'm a tax attorney who plays with this stuff. A lot of traders become investors, but investors almost never become traders. Usually goes the other direction. So if you want to be a trader and you really want to like I'm going to be a day trader, the deck is stacked against you, my friends, it's about 5% that actually make money.

So I tend to stay away from that stuff. I am firmly on this side of making money and not exposing myself to crazy risk. I want to be the casino as opposed to the gambler. And unfortunately 99% of the trading courses out there teach you to be the gambler.

If you don't want to be the gambler, follow Buffett and all those good investors advice and get yourself out of the daily swings to the extent you can. If you want to incorporate an activity like kind of like looking at the long term, hey, I'm doing dividend stock, I'm doing value investing and things like that and you want to do covered calls all day long and do a whole bunch of transactions, I have no problem with that cause you're the seller of the option, not the buyer of the option. You might buy them back.

But for the most part, I'm going to stay away. Some of you guys are probably ready to wring my neck already. You're like, oh, but I make really good money. You're in that 5%.

But if I grabbed a hundred people and said hey, we're going to teach you all to be traders, there's a good chance that 80% to 95% are going to lose their share trying to trade in the market. So why is this so important? Because we are right here when we're an investor, we never get these things as an investor so people want to be the trader. So if I make an election to be a trader, then in theory, I do not have to worry about if I have big losses, it's going to offset my other income. So again, if I am in a situation where I make a hundred thousand, lose 20,000, I'm not sitting there carried forward forever. If you remember 2003, 2002, even recently when the pandemic started and we had these huge losses, 2008 was a big year, 38% loss.

All these people that sold at the bottom of the market and had these huge capital losses, a lot of them are still carrying it forward. They only get $3,000 a year against their income and they bailed out of the market. They said no more, no mas, I'm done. No more stock investing for me cause I got killed in it. They're staying away and it's like, you're going to be carrying forward a lot of loss for a lot of years. You may never use it up.

You have hundreds of thousands of dollars. You're never going to use it up unless you can create some capital gains so you really need to be active in making some capital gains if you can, if you have those carry forwards, you should be planning with it. That's what you and your tax planner should be doing and saying hey, let's look at some of these opportunities and the market is up on average in the last 10 years, more than double digit. So yes, it goes down temporarily, but there's not a single period of time where you look at multiple decades where it's not up. It's crazy not to, especially with inflation and things like that, topic for another day though.

So what do we do if we're not going to be able to jump through all these hoops and we're worried about our investment, we still want deductions. That's where you get into creating a trading structure. And let me kind of show you what a basic trading structure is and why we structure it in a particular way. So number one, I look at things and I don't just look at tax. I look at creating a legacy.

I look at creating asset protection. I look at business planning and I look at taxes. I don't sit here and say I am an accountant, I'm only going to look at tax. I want to look at these things as a whole.

So one of the things I know that when I create a trading business, I want to create something that's not going to die. So from a legacy standpoint, I am a continuation. I don't want to lose the benefits that I might get. So for example, if I own something individually like stock and I die, there's something called a step up and basis. I don't want to lose that by using an entity. So I still want the entity that I'm holding to give me those benefits, but I'm looking at it from my legacy.

Like I can create something that doesn't go away if I die and I can only do that through the use of an entity. I can't do that individually. Just can't, sorry, it doesn't work that way. So we have to get it out of your name and we're going to use either a trust, an LLC, or a combination of those two on title, but at the end of the day, we want to create something that is perpetuating existence and that we can't kill. Number two, the kind of the business planning sight. I like things that end up on page two of my schedule E for lending purposes.

And the reason being is cause the way that underwriters work is they'll use 75% of something that shows up on your schedule E by the way is other income. I want to see things that are being listed on my tax returns in such a way that they're going to use a hundred percent. So if I have different types of income coming down, if I have real estate or any of those things, I want them to go on my tax return. Generally speaking, I want to see a K-1 and I want to be careful at where it lands on my return.

The only way that I know that I can get the best treatment and not get posed is to generally use partnerships. And so I like the idea of using partnerships. Even if a trading business might flow through, hopefully it's going to flow through onto a return the way they're going to count a hundred percent. I want it to flow through. In real estate, for example, if I have a disregarded entity and it lands on my return, it's going on page one of my schedule E, they're going to use 75% of that income.

If I use a partnership, it's a hundred percent of the income that they use for underwriting loans. I never want to cause myself a problem. So I'm generally speaking going to use a partnership. Number two, the reason I use the partnership is because there's something called a guaranteed payment to partner. I can actually pay a partner and deduct it against the income so that just the net flows under my return. This is really, really important when you are involved in investing and specifically into the stock market, cause I never want there to be a situation where whatever I am paying an entity, if I have a management entity, if I am paying a manager, if I am paying somebody else and they are a partner, I want to make sure that that is deductible.

If I don't do that and I'm paying a third party, it might end up on my personal tax return and it used to go on my schedule A and I know I'm using these scheduled terms. If you get confused, stop this and take a look and see what it... Just Google 1040 schedule A, 1040 schedule D. What is Toby talking about? Schedule A is where your itemized deductions go. And it used to be hey, I had my medical expenses.

I had my state taxes. I had my mortgage interest and I had these miscellaneous itemized deductions. In 2017 under the Tax Cutting Jobs Act, they did away with miscellaneous itemized deductions, gone. And that's where you used to put these expenses. So now it's gone so it doesn't go anywhere. So if I am not paying a partner and I'm paying a third party manager, I can't write any of it off.

So if you have a third party manager that's managing your money and you're an investor, you don't get to write that off. That's not an expense you get to deduct. If you hold your brokerage in a partnership and you're paying a third party, you don't get to write that off. That goes on to your schedule A and there's no place to put it. There's no place to take that deduction. So what you need to be doing is setting up a partnership that holds your brokerage account.

I'm just going to put dollar signs. Where there is a management entity on top, and I'm just going to put manager for lack of a better word. And they're going to own a percentage.

So there's two partners then. There's me as a partner with a percentage and there's the manager with a percentage. We both have a percentage of that trading entity. Why is that important? Cause if I pay this manager a set amount on a... Let's just say it's on a monthly basis for managing this trading account, I am now doing what's called a guaranteed payment to partner and it becomes an expense, and not an expense that flows through to me, I would just be showing my percentage as a net. Now, why would I do that? Because that manager's the one that now can incur all of its expenses.

Instead of me trying to write things off, I'm going to set up a manager, generally speaking, this is going to be a C-corp or an LLC taxed as a C-corp. It's going to be taxed as a C-corp to the IRS. So when they look at it, they're going to see, it's called an 1120, that's the tax form. And then they're going to see me as a 1040 down here. So when they look at us, they're going to see a corporate return and they're going to see me as a partner with an individual return.

It's just going to end up on my tax return. Why is that critical? Because the portion that comes down onto my 1040 is the net figure. So if I have $10,000 of expenses that are in that corporation, and by the way, it's actually generally speaking going to be a lot more than the 10,000.

So if I would've been 10,000 over here as a trader, I should be considerably more than that if I am managing a portfolio plus other assets plus doing anything else that the corporation I want to do. Like if I have things like hey, I love photography and I'm trying to monetize it, make a profit, I could be doing that there. If I do gig work on the internet and I like to write, or I do things, hey, I could do that through there. If I'm dropshipping or anything like that, I could do that through that management entity. I could be doing other things to that management activity. I could also be managing other assets like hey, this manager could be managing an LLC that holds things like real estate, et cetera.

I could have this brought into my family affair so that it manages my assets so if something happens to me, none of this dies, it just stays there and I have a management in place, I just get replaced. It makes my estate planning so much easier. But getting ahead of myself, what I care about here is the ability to move additional funds into that corporate return cause this guy is tax here at a whopping 21 per percent flat if it has profit. So if I am somebody who's in the highest tax bracket, and let's say that I'm in a state with state income taxes as well, I may look at this and say you know what? I'm okay having additional monies running up into the corporation because it's going to be taxed at some cases half, maybe close to a fraction of what I'm paying.

I'm going to get to keep a lot more money. So I may say hey, it's okay pushing money up into that cause maybe there's other business activities I want to do. Maybe I just want to stockpile some capital for my family. Maybe I'm paying my kids.

Maybe I have other business endeavors that they want to do and I need to have some startup capital and I start pushing it up there. I know I'm going to have some expenses when they start up and I can have multiple businesses underneath that corporation. It just becomes the family corporation. And it's managing the various assets underneath.

If that sounds complicated, by the way, piece by piece. We're just going to do this piece by piece. We would set this up and make sure that you're operating it and you know what kind of expenses that you can have. So like for example, a lot of people don't realize this.

If I have a family owned corporation and I don't own any other businesses, it's just me and a spouse or it's just me. Do you know that your C-corporation can reimburse you 100% of your medical, dental and vision expenses? 100%, it's called a health reimbursement arrangement. 100%, none of it is taxable to you. 100% of it is deduct to the corporation. It can cover your dependence as well, even parents that you might be caring for. If they qualify as a dependent, you can cover all of their medical expenses, no 7.5% of AGI or any of that nonsense.

If you are covered underneath your employer's plan, it covers your co-pays, your deductibles, anything that's not covered by your insurance, covers all of that. I can also do something called an accountable plan and I can do things like I can start reimbursing myself instead of for a home office, which gets me a tiny little bit. I could do an administrative office and I can use other ways of calculating it, net square footage or room methodology to boost that. Plus I could write off things like my computer, my data devices. Like if you have an iPhone, whatever you're paying for it, you can write off a portion of things like even your property taxes.

It gets pretty nice here when you're talking about an accountable plan and what you're able to do, nothing that's not black letter law either, you're doing something where you're operating it as a business, you have a profit motive. In fact, you have such a profit motive, you're going to be unlike a lot of the businesses out there where you might actually show a profit, 80% break even. So we have now another tax payer that we can push money into. And if you're saying, well, how do I get the money in there and how do I not pay tax on it? If it's coming out of my trading, that's where this little guy comes in.

I have my percentage. I would just increase the corporate percentage up to about 49% is about the threshold that I would use. I wouldn't go more, but I might say hey, I want 20% flowing into the corporation. So if I'm making money in my trading and I make, again, let's say that I make $10,000.

And I have already said hey, I'll pay the corporation $500 a month. Let's just say that that was my guaranteed payment. Doesn't matter whether I make money or not, I'm going to pay that corporation $500 a month. I would move up $6,000 immediately.

There goes 6K right up here, 6K and then it also gets 20%, let's just say that of whatever's left. So I had 10,000 minus six. So I have 4,000, 20% of that would be another 800 bucks. So I would add another 800 bucks and I would use that for my expenses.

Of course I had $10,000 of expenses so I'm going to blow through that. So again, if I used my example, if I made 10,000 and I had $10,000 of expenses, I used a loss, so in that particular case, wouldn't even use it. If I had $10,000 of expenses, I'd get a vast majority of it. I'd still have some profit flowing down to me.

So then you might say all right, maybe I need to increase either the guaranteed payment to the corporation, or I need to increase its percentage that it's getting. In my opinion, I would just be saying hey, do a minimal of like a thousand bucks a month. If it's trading a decent amount, that's not going to be an issue. And I could say pay it a thousand bucks a month, no matter what. And then we'll start adjusting its interest depending on how much you're generating.

If you are a absolutely masterful investor, it doesn't hurts you to do this. Even if you don't get to write off every dollar of expense, cause for some reason, you're running your expenses higher than that guaranteed payment, it doesn't hurt you because the profits that flow down to you is still going to be treated as capital gains. It's still going to be treated and it's not going to be subject to self employment tax. You're not changing it into active ordinary income. This actually works really, really well. There's some other things you could do with it.

For example, if you start generating too much money in the corporation, hey, we have a bunch of real estate, maybe it's doing some Airbnb, maybe it's doing some other things that start generating money. Well, we're looking at other taxpayers to pay. We could pay our kids, we could pay us as long as the kids are doing something, but we could also do things like fund a 401k. And so let's say that at the end of the year, I have way too much money in that corporation.

I have $50,000 and you're like oh shoot. Now my accountant said I have this double tax. Forget that, you and your spouse, we would each pay you let's say 20 grand. 19.5 goes straight into your 401k.

You have a little bit of employment tax. You could make a contribution from the company of another 25%, whatever they paid you. Like you're going to get almost all that money out, tax free. Not that difficult. That's what you end up doing.

I'd much rather be in that situation than you sitting over here going, how come I don't get a single write off. I'm killing it in the stock market, I can't even ride off the monies that are going over to my manager. And somebody told me about being a trader. And they said, you should be a trader and I go through the steps with you and I say how many trades you do this year? Ah, I did a whole bunch.

I did a hundred trades. You're not a trader. I traded a whole bunch in the beginning of the year.

In fact, every day I was kind of on this extended vacation and I was trading literally every day for three months. Sorry, it's not continuous and regular. Well I traded six months.

Sorry, nope, there's lots of cases. Nope, that's not regular and continuous. How about I made so much money during that six months that then I just kind of took a vacation, still not regular and continuous.

What if I don't do anything else, but I trade a whole bunch and I love to buy leaps and I love to buy stock and I have a portfolio that's now gone up to $10 million. I have a huge portfolio. And I'd look and say, well, you're not making short term trades less than 30 days.

You're not going to qualify. There's people with 15 million, traded it all the time, still didn't qualify because they violated the rule. They had majority of their stuff over 60 days on average. So there's all these little things that can trip you up if you're trying to go over to this trader side and they all require, they require that nasty audit, which we don't want.

So where do I go, right over here. 0.2% audit rate. In fact, I think last year it actually went into a fractional percent, about a less than a 1% audit rate on the corp versus an individual, you're almost guaranteed an audit if you're doing a trader status. I mean, it quite literally is.

You're waving a flag because trader status does not exist in the internal revenue code. There isn't a thing that says, here's what you need to do to reach trader status. It is purely publications, it is purely this whole here's how we test it in its court law, which is common law, which means that we're constantly trying to figure out our facts and relate them to somebody that came before us. And I don't want to be in court period.

You don't want to be in court unless you're a lawyer and then you're getting paid for it. But otherwise, it's just not worth it. It's just too much of a hassle.

It's an emotional toll. You never know what's going to happen. I would just recommend that you go the path of least resistance with maximum benefit and enjoy life a little bit and then create something. So for all four things I talked about, we have a legacy, we have a better business plan.

We have tax planning and the last one, asset protection. The most beautiful part about setting this structure up, we'd like to do these in Wyoming. Nobody could ever take that from you.

You could get into a massive car accident. You could be sued for $10 million and guess what they can't go take. They can't take away your brokerage account because it's in an entity, in a state where the sole and exclusive order or remedy for somebody who gets a court order is what's called a charging order. And that is a fancy way of saying I get to put a lien against the LLC in case you ever distribute monies out of it.

They'd be standing there going, please pay me. Now, never seen that come to fruition. 25 years, why is that? Because there's no guarantee that they're ever going to get paid so why would they spend the money to go to trial, get a judgment, go to supplemental proceedings, go after you, file and take this thing all the way to Wyoming, refile, try to collect on an order on a judgment and try to attach that lien.

They're going to be spending, in most cases, I say it's about a quarter million dollars. So that doesn't mean you just tell everybody to fly a kite if you have liability, it means it's not a factor that they're going to use. Because it's so difficult to collect, the lawyer's going to devalue for settlement purposes that claim saying hey, we know we can get the insurance and we don't have to go to trial, we don't have to do all this other stuff. You can say hey, I'm willing to pay a portion in just to make this stuff go away, but they can't go unilaterally just take it.

And more importantly, they can't see it. And it's not something that's going to generate the deep pocket lawsuit. They're not going to see your business. They're not going to see or know what's in that trading account. That's not even something that they're going to get in the original lawsuit of being supplemental proceedings.

But it's something where it's not a guarantee. I can't just take your brokerage account. If it's in your name, if it's over here and it's in your name, I could levy on it.

I could just garnish the bank account, garnish the brokerage account, take all the assets. They're easy for me to liquidate and that's a really good thing if I'm a plaintiff. I want the defendant's money. If I'm over here, not something that they can take, they might say hey, I'm willing to wait around and hope that you distribute monies, but there's nothing that can compel you to distribute that money to them so it's kind of like just getting a lien and hoping somebody sells their house someday. They would just have a lien against that LLC and say, I hope you give profit some day. And you're still able to run the management company on the other things.

It's just at the end of the day, it's nothing that I have ever seen where somebody goes after this, when they find out about it, it just drives the settlement value down and allows your insurance to do what it's intended to do, which is to take care of these people. And again, if you want to throw some extra money in the kitty, you certainly can, but it's not going to be something where they can just pin their ears back and take everything you own, put you into bankruptcy. This is something where it's going to give you a great liability protection and somebody might say well, but what happens if something happens inside the entity? And I would say if somebody slips on a share certificate, you mean cause this is a non-risk activity. There's no liability for doing your investments in your trading. Don't put real estate in here cause real estate can cause the liability that takes it. You always keep your real estate out here.

So if anything happens inside, like if somebody slips down the stairs, they're limited to just that piece of real estate. So from an asset protection standpoint, I call this outside liability. If you're doing something, here's you, maybe one of your kids get into an accident and they're coming after your assets, they can't just take it. And that allows us again to settle these things for a lot less. So that's it. I just gave you the way to structure a trading business.

And I'll just, again, boil it down. If you don't want to have to deal with schedule A and the loss of the miscellaneous out of my deductions, you still want to be able to take deductions for the ordinary necessary expenses associated with your business activity, you want to be able to do that, you have really two choices. You're either filing as a trader, which I would not recommend or you're setting up a structure, which I would. That's it, makes it easy peasy. And there's lots of other benefits out of that. From a legacy standpoint, they don't die.

From a tax standpoint, you get lots of other bells and whistles when you start using a management company and there's other things that are legitimate business expenses that I can take advantage of. And you're allowed to structure your affairs any way that's in your best interest, there's nothing wrong with this. It's absolutely 100% legal.

The courts have already decided that. I get asset protection and I even get some business planning, a lot of other little tricks of the trade in there that we could do. But you're knocking all four major issues out as opposed to playing Russian roulette with the IRS, by staying over on that side. This is Toby Mathis. If you like this type of information, if you find this useful or if you know anybody who's out there who's doing trading, number one, subscribe and like.

That lets us know that we're doing things right. Put in comments if you need clarity on a point that I made and I can do additional videos, or if you want me to do a video on something else, please give some ideas for us. I love to hear from you guys as to what you're looking for.

And lastly but not least, if you know of anybody that could benefit from this information, please do share it. There's so much bad information out there. We've been doing this for 25 years. We've had great results. There are once in a while on occasional audit and we've won every single one.

Clients have won every single one because we cross our Ts and dot our eyes and when we create a structure, you're actually doing something a lot of folks don't do, which is creating separation between you and your business activities and you're treating it as a separate entity, which believe it or not courts really like and the IRS respects. So good luck to you. If you need anything else, by all means, look at our YouTube channel, check out our website.

2022-02-25 23:12

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