[curtisj76]

Hi everyone, just joined today. My bio:

34, married with 3 children, ages 9, 6 and 2.

Worked in the financial industry for around 7 years and then decided to go back to school. Double majored in finance and accounting. Got a job right away at a firm and have worked there for 1.5 years. Only problem is that my family would have to move and nobody wants to. Also, I'm a HUGE family guy that enjoys spending time with my children. Decided to try and trade for a living. If we be careful with expenses my wife can support us, we just won't be able to spend very much. The bright side, no more busy tax seasons and commutes!!! Be able to hug my kids before they leave for school and tell them hi when they get home.

I've been investing since 1999 and my wife and I haven't missed a Roth payment ever. First mostly with mutual funds but now am all stocks. Have been doing really well the last few years. I'm only planning on investing stocks cuz that's all I know. I have a feeling many traders fail because they trade in an area that they really know nothing about. SCARY!

My plan is to start up an LLC to trade in. That way I can eliminate the wash rule, etc. I want this up and going by January. I believe it will be a multi-member LLC as the single will be disregarded come tax time. Need to talk to a lawyer.

Coming up with the capital is not a huge problem. My wife and I have worked hard and saved our whole marriage. I have around $200k if I really wanted it, however it's mostly all in Roth IRA's and in 1 Trad IRA. My Roth contributions have been about $80k so I'm gonna take out that. Minus the 10% penalty I'll net $72k. I'm also gonna take a loan from my insurance policy for $28k at 8%. This will give me $100k to start with.

My goal (if possible) is to take all my profits and pay the loan back ASAP. Which I guess would be to earn 28% for the year 2012. Actually a little higher to pay Uncle Sam. I thought if I could average $150-200 a day this would be possible. Doesn't seem much with a $100k account but I know it's a lot harder than that.

Plan on working roughly 230 days in 2012:

365 total days
(104) 52 weekends
(15) Holidays
(16) Vacation/sick days
230 trading days

My computer needs an upgrade or I guess used as a backup if I get a new one. I'd like to build one myself as I don't think it would be hard to figure out. Also would like around 3-4 monitors as working with only 1 is a pain. I'm not excited about dropping a couple grand on pc stuff but I guess it's a needed tool in my toolbox. I currently have DSL but have recently given the thought of switching to cable. Furthermore, maybe having both is the best option but dang that seems expensive.

ANYWAYS, I'll write some more later as the chances of someone reading this novel diminishes with each additional sentence. Thanks for reading and PLEASE, any advice/comments are welcomed.

Curtis

[gosu]

A lot of red flags in your post. It appears you have thought things through but on a superficial level at best.

After a quick read of your post, these are some questions I would consider.

Why form an LLC? I've been trading full-time for 13+ years and have heard all the arguments and still don't see how the additional compliance burden brings any benefits. If I were trading OPM, it would be different. At the end of your post you state your concern over spending a couple thousand for a decent computer and getting a backup internet connection. Yet you're willing to pay a lawyer for consultation and to set up an entity and have increased compliance costs. Makes no sense to me. The wash sale rule is a non-issue.

Do you have any experience trading successfully? You say you've been investing in your IRAs and have done well the past few years. Have you been trading your IRAs? You mention something about making $150 to $200 per day which implies you want to do intraday or short-term trading. What's your experience in this area?

Why $100,000 to start? You are going to get hit with a steep penalty on the early IRA withdrawal and on top of that go into debt for another 28K to fund your trading account. Either you have a lot of confidence in yourself or you are reckless. Since I don't know if you can trade or not, I can't say for certain which is the case. However, I can surmise from your comment about the difficulty of extracting $150 to $200 with a $100,000 account that you don't have much trading experience. Therefore, I am leaning toward reckless overconfidence on your part.

Post more details, especially about how you intend to extract $150 to $200 per day on a $100,000.

[curtisj76]

Thanks for the reply. Let's start with the LLC if you don't mind.

It is my understanding that it is better to be a “trader in securities” in the eyes of the IRS. However, it is also my understanding that it can be difficult to be considered this. I think I also read that you can't even qualify for this until you have a years worth of trading under your belt. The benefit is (not my words):

"Meeting "trader in securities" status allows you to treat your trading as a business and deduct all necessary and ordinary business expenses. What's more, you are able to elect the Mark to Market method of accounting. This method of accounting allows you to overcome the $3000 a year loss limitation and eliminates wash sales. In other words, you are able to dramatically slash your tax bill."

Setting up the LLC I can elect the mark-to-market right away eliminating the wash rule. I can then also deduct additional expenses on a schedule C. Then of course the LLC would go on to a 1065.

Why do you believe the wash rule is a non-issue?? Are you a stock trader? Just wondering as I think this doesn't apply to Forex.

I've been trading well, made around 40k in the month of November. I'd call it swing trading. The only problem with the IRA's is that I'm getting the occasional phone call from Scottrade due to me free riding. I've had very good success with stocks, but by a more traditional buy and hold approach. I like the idea of day trading and not holding any positions at night. I believe it will lesson some of my gains but at the same time reduce risk. By having a trading plan and STICKING to it my goal is to eliminate the large losses.

Why 100k? I figure the more I have the more conservative I can be. $200/day is a lot "easier" to get with 100k rather than 50k or less. 2/10ths of a percent is what I'm after. I'm not looking for huge gains, rather CONSISTENT smaller gains/losses. Must eliminate the large losses.

Trust me, the IRA penalty goes against every ounce in me, but with my recent Nov success, taking out 8k doesn't seem so bad. I'll take a 32k month. I'll never have another month like that most likely, at least not anytime soon.

Lastly, back to the $150-200 "goal". It's just that, a goal. I just want to be in the game 2 years from now. I actually thought I was being level minded, maybe not. I just know I've seen some crazy numbers thrown around. People that want to make way more than me with a 1/10 of the capital.

Anyways, I think that's everything. If necessary, slap me into the real world. I really appreciate any thoughts/suggestions.

[JTurner77]

Welcome. I wish you the best in your trading.

[SIUYA]

as i know nothing about IRAS etc not being American.....maybe I am missing something....but if it has tax implications why touch it all
Why not get a little bit of extra margin via the broker at a much cheaper rate if required?

[gosu]

Originally Posted by curtisj76 »

Thanks for the reply. Let's start with the LLC if you don't mind.

It is my understanding that it is better to be a “trader in securities” in the eyes of the IRS. However, it is also my understanding that it can be difficult to be considered this. I think I also read that you can't even qualify for this until you have a years worth of trading under your belt. The benefit is (not my words):

"Meeting "trader in securities" status allows you to treat your trading as a business and deduct all necessary and ordinary business expenses. What's more, you are able to elect the Mark to Market method of accounting. This method of accounting allows you to overcome the $3000 a year loss limitation and eliminates wash sales. In other words, you are able to dramatically slash your tax bill."

Setting up the LLC I can elect the mark-to-market right away eliminating the wash rule. I can then also deduct additional expenses on a schedule C. Then of course the LLC would go on to a 1065.

Why do you believe the wash rule is a non-issue?? Are you a stock trader? Just wondering as I think this doesn't apply to Forex.

I've been trading well, made around 40k in the month of November. I'd call it swing trading. The only problem with the IRA's is that I'm getting the occasional phone call from Scottrade due to me free riding. I've had very good success with stocks, but by a more traditional buy and hold approach. I like the idea of day trading and not holding any positions at night. I believe it will lesson some of my gains but at the same time reduce risk. By having a trading plan and STICKING to it my goal is to eliminate the large losses.

Why 100k? I figure the more I have the more conservative I can be. $200/day is a lot "easier" to get with 100k rather than 50k or less. 2/10ths of a percent is what I'm after. I'm not looking for huge gains, rather CONSISTENT smaller gains/losses. Must eliminate the large losses.

Trust me, the IRA penalty goes against every ounce in me, but with my recent Nov success, taking out 8k doesn't seem so bad. I'll take a 32k month. I'll never have another month like that most likely, at least not anytime soon.

Lastly, back to the $150-200 "goal". It's just that, a goal. I just want to be in the game 2 years from now. I actually thought I was being level minded, maybe not. I just know I've seen some crazy numbers thrown around. People that want to make way more than me with a 1/10 of the capital.

Anyways, I think that's everything. If necessary, slap me into the real world. I really appreciate any thoughts/suggestions.

Read your reply and just a quick response:

Regarding, trading through an entity, trader tax status, mark-to-market:

First, you already know you don't need an entity for trader tax status. In your case, you are contemplating a partnership (you mention 1065), which will be problematic if your wife is a partner because the test will be applied at the entity level and she's getting a W-2 from her employer.

Second, the actual benefits of trader tax status is overblown, at least in my case. The primary benefit is expenses are deducted on Schedule C rather than as deductions on Schedule A subject to 2% of AGI. Personally I don't deduct anything that is of mixed use - personal/trading - and that includes the home office deduction, utilities, etc. Hardware I expense under section 179 and I've been going over 5 years between replacement. This year my expenses on Schedule C are under $1200. Commissions dwarf every other cost and they are not counted as expenses but are accounted for as an adjustment to the sale price or cost basis, so trader tax status is irrelevant there.

Third, for me, electing mark-to-market to treat gains and losses as ordinary rather than capital is a blunder because it would take away the benefit of 60/40 long-term capital gains treatment for section 1256 contracts. I trade index futures only. Obviously, if you contemplate large losses from trading AND you have other income to offset, then the election might make sense. Just consider that the election for all practical purposes is irrevocable.

Fourth, the wash sale rule doesn't apply to index futures, but even with stocks it applies to losses and just a deferral of losses in the form of a basis adjustment on your tax return at the end of the year. For me, trading comes first, taxes come last. I never let tax considerations affect my trading decisions, which is why I said it was a non-issue.


Regarding making $150 to $200 per day on $100,000:

Intraday trading is a different game than what you've been playing. Why go into debt for 28K just because you believe you'll have an easier time picking up $150 to $200 per day on $100,000 versus $72,000? The reality is that is a very modest goal if you know how to extract and can be done with $25,000. If you don't know how to do it, you won't be able to do it with $200,000.

Since your cost of capital is very high, you might consider putting just a small amount at risk in an account and maximizing leverage. For a retail account, to avoid the PDT rule, that would be $25,000. If you look beyond strict retail trading and into pseudo-retail firms that offer greater leverage than 4-1, the starting capital may even be smaller.

Best of luck.

[phantom]

Hi Curtis,

Jesse Livermore once said that it is easier to make a million dollars when you know how to trade than it is to make one hundred dollars when you don't know how to trade...

My suggestion to you? Get a 30 day simulation account and trade for a couple of weeks just to see if you can make any headway to profits BEFORE you launch your financial plan or say no to your job offer.


Luv,
Phantom

[curtisj76]

Originally Posted by SIUYA »

as i know nothing about IRAS etc not being American.....maybe I am missing something....but if it has tax implications why touch it all
Why not get a little bit of extra margin via the broker at a much cheaper rate if required?

Can't have margin in IRA's. Can't trade very often or I'll keep getting my hand slapped. That's why I've been swing trading. That's why I wanted to set up a non-qualified margin account. I was up around 1.4k on a trade last week but I didn't sell it cuz I would have gotten another dang phone call. If it would have been in my trading account I would have sold in a second. Now the 1.4k is gone. DANG IT