Fax Mark Individual with airSlate SignNow

Fax mark individual

what's up guys so one of my favorite things about being a cpa or a virtual cpa is i get to work with traders all across the u.s and one of the most common questions i get is can i save by trading within an llc or a limited liability company so the short answer is yes so i'm going to be addressing this topic throughout this video so keep it locked [Music] so if you're new to the channel i wanted to welcome you so for those of you that don't know me my name is brian rivera and i serve many many many hats so i'm an entrepreneur i run my own tax business trader tax cpa i'm also a brand new homeschool teacher so my kids are performing virtual school now so i get to do that as well i'm also an active day trader so i trade the financial markets uh just like some of my clients do and i'm also an active member of the army reserves where i currently serve as a rank of major and been doing that for about 14 years now so i'm getting pretty close to uh hitting that 20-year mark alright so part of the reason why i'm pretty knowledgeable on this topic is well one is trading is is one of my passions and it's also something that i've helped hundreds of clients across the u.s uh navigate and that is the complex tax code in figuring out ways that you can save from a tax perspective now i know a lot of times you will run across things on the internet where it's somebody's opinion or it is somebody's uh thought that you could do something a certain way but a lot of times they will disclose a disclaimer and say hey i am not a professional go seek advice well thankfully this video you are getting it straight from the horse's mouth i am a cpa and i specialize uh in day trader taxes so my goal is always the same for all of our clients and that is one pay your fair share of taxes and two see if we can save some money and putting it back in your pocket everybody wants to um strategically leverage the tax code so that way they can minimize the bill that they have to pay uh to uncle sam so if you're in a similar position to many of our clients i'm gonna give you guys the lowdown of one of the simple strategies we use to help save from a tax perspective using an llc type structure so a particular client comes to mind where you know he's a florida based trader and he's spent a couple years maybe the first four or five years experienced a ton of losses and so as he progressed into markets he slowly scaled that strategy to where you know he would kind of rip off um a a few profitable years to where he was able to kind of soak up some of his previous losses then what happened was you know year one it was you know he would rip you know forty fifty thousand the next year was a hundred thousand and then now he's all the way up to about half a million dollars so the thing i love about trading is that once you find an edge and you find what works for you and you scale it the earnings power or the roof is unlimited and it and it's awesome to see guys who who who where it takes time to get to that point and that's kind of where we came into play to see what we can do to help this guy and the cool thing about having a sound tax strategy is that it's fluid right so what happens in year one is not necessarily the same that what happens in year three four and five and so that's why it's extremely important to always nurture the relationship you have with your cpa with your client so that way you can adjust fire as things happen you know in a given tax year so you know like we're in the middle of covet 19 and a lot of people have experienced a lot of things that have been traumatic um you know to their personal finances so it's always important to to have a fluid tax strategy all right so the first thing we did is we got him incorporated so we followed an llc in his home state which happened to be florida right so what the llc does is it legitimizes your trading business and it helps reduce audit exposure so if you look at the stats typically a business or the audit rates around businesses are a lot lower than that of a of an individual and so if you're in a situation where you have maybe a job or you have a business and you have multiple things going on in your tax situation a lot of times it makes sense to segregate your businesses like i know me for an example i have a cpa firm my spouse has a law firm i have a trading business everything is in separate llcs so that way everything is is one it's separate of our individual returns and two the businesses are separate of each other which reduces audit risk and also um legal liability so the other thing the entity does is it allows for a late mark to market election so if you want to become a mark to market trader it's a two-step process to where basically there's there's a there's an election statement and then there's also a form 31-15 well when you create a brand new taxpayer you can actually elect after the date and so in my client situation once he used up all of his capital losses we then created the entity to elect mark to market going forward and what mark to market does is it actually protects you right so if you have a year where you have a massive loss or a big loss you want to be able to recognize that loss in that year on your tax return so the next thing that we did was we actually changed this the tax status of his llc so an llc can be taxed three different ways it can be taxed as a as a single member llc which is a sole proprietorship it can be taxed as a partnership and it can be taxed as an s corporation so what we did was we changed his status to an s corporation because the s corporation does a couple things right so by default trading income is not earned it's capital and so to unlock some more benefits you have to create earned income and the s corporation is the only entity that does that now how you do that is you pay yourself a base salary now once you pay your bait yourself a base salary you get to unlock what's called the solo 401k contributions and what happens is you can contribute up to 57 000 of trading profits in a given tax year to that plan and because you're a day trader you can continue trading that income tax-free which is a it's a it's almost a double bonus one is you're not paying tax on a portion of your earnings and number two is you're now exploiting tax-free growth and then you're building up your nest egg when it when it comes time to retire all right so the other thing that we did was we took advantage of the self-employed health insurance contributions so the other caveat is um it's very similar to the the solo 401k plan is you have to pay yourself a base salary through the s corporation so to deduct your self-employed health insurance premiums and the cost of health insurance you actually have to do the same thing as you do with the pre-tax plan right so for anyone who is an entrepreneur or self-employed knows that the cost of health insurance when you're not covered by an employer is pretty significant and so as a day trader that is also something that you want to take advantage of the other thing we did was we made sure we optimized his business tax deductions by looking at his spending habits and things that we could capture from a business perspective so what i'm going to do is i'm actually going to link a blog post below to our website to where we outline probably the top 20 to 25 business deductions that active day traders takes let me know in the comment section below if there's any any any deductions that you guys are taking that you potentially have a question about or you want to see if other people are also taking advantage of that all right so now that we've assembled all the pieces to this particular client's um situation you know we created the llc we we elected s-corp we took advantage of pre-tax contributions we took advantage of health insurance premiums and we also took advantage of all the business deductions he was incurring as an active day traders you know things such as the home office deduction all right so once we assembled all the pieces to this particular person's tax strategy we incorporated him we got the s corp election we took advantage of the mark to market election we paid the base salary to make sure that we maxed out the uh solo 401k contributions took advantage of the self-employment health insurance and we also maximized the deductions he was taking as a day trader prior to this tax solution or this tax plan he was looking at roughly a tax liability of about seventy six thousand dollars on about three hundred thousand of uh trading related income so that's an awesome year so once we assembled all the pieces together we actually were able to reduce his tax exposure to about fifty six thousand dollars just using a few of the strategies that we employ for a lot of our day trading clients now if you take a step back could you imagine just how much money my client could have been missing out on if he did not have a sound tax plan it's almost like a a good trade right imagine if one of your trading buddies was like hey man i just turned three thousand dollars into twenty thousand dollars you would say man that was an absolutely sick trade i mean that that's a that's a that's a huge win in terms of percentage gains right it's the same thing from a tax perspective except for what we are doing is we are putting the tax savings back into your pocket i think it's a win-win trade every single time and you know that's why it's always important to maintain that relationship with your cpa or your accounting firm all right guys so i want to make sure i make myself very clear in that the entity structure is an amazing tool for traders to leverage the tax code now i'm going to say this also is that it is not a one-size-fits-all approach every single trader's faxing circumstances are different so what works for one trader in california may not be the same thing for a trader who is in texas so that's why i always recommend to reach out for a consultation you can consult with our firm i'll leave a link below or make sure that you are working with a cpa firm that specializes in day traders day traders have some of the most complex tax situations out of all the different pers professions in the world so just make sure that you are working with somebody who is specialized in this area do not recommend going at this alone so the other thing i want you to remember is that entities are a great tool for traders who maybe you're part-time to where you qualify for trader status but you have another source of income like a w-2 or maybe you're a trader like me who has another business but also meets the criteria to qualify as a trader so the entities are very good for people who you know may have multiple sources of income and what it does is it consolidates your trading activity to a separate return and you'll just get a k1 that goes on the individual tax return all right fam so i want to thank you for your undivided attention i hope you learned something and i hope that you can see how an llc could potentially save you some money come tax time so if you enjoy the content that we're putting out for the trading community feel free to give us a like give it a subscribe and give it a share and we'll continue to put out content that can benefit traders um when it comes to tax time have a good one