TRADERS
SERVICES: ENTITIES FOR TRADERS

Quick Link: Entities. Start on this page first.

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On this page, we focus on entities for operating a trading business trading your own funds. If you want to trade other peoples' money, then visit our investment management section.

Use entities to avoid Obama-era tax hikes on upper-income individuals.
We explain it all here: "Post fiscal cliff planning for traders."

• We suggest a middle man S-corporation to receive a larger administration fee from the trading business entity to reduce the ObamaCare 3.8% Medicare tax on unearned income. Then pay a smaller administration fee to the owner's Schedule C — the original amount planned — to unlock the AGI deductions for health insurance and retirement plans.
  
  
• For high-income business traders, we suggest a C-corporation to own your trading business intellectual property (IP). Your trading business entity pays the corporation a royalty, shifting income from your individual tax return to a corporation tax return. This strategy avoids some of the Obama-era tax hikes on the top individual income tax brackets.

Business traders should consider an entity for 2013. Read our blog, "New entities effective Jan. 1, 2013 reap many tax benefits." Excerpts:

• It’s better to consolidate your entire 2013 trading business activity on an entity tax return. Otherwise you will have to file an individual tax return with trader tax status for the first part of the year and an entity tax return for the balance of the year. Why deal with trader tax compliance complexities on two separate tax returns, when you can do it on one? Also, entities don’t have to file that dreaded tax form 8949 for cost-basis reporting like individuals do.
  
  
• Entities help avoid wash sale losses at year-end. A new entity for Jan. 1 is your ticket out of wash sale loss deferrals and related problems. If you stop trading on your individual taxable accounts at year-end and continue trading in a new entity account on Jan. 1, you successfully break the chain on wash sales. You will be free to buy back the securities in your entity account without waiting 30 days, and it doesn’t matter if you elect Section 475 MTM in 2013 or not. This works because the entity and the individual are considered different taxpayers.
  
  
• Watch our recent webinars on entities:
  *Close out 2012 with smart year-end tax planning and start 2013 with a new entity
  *Last Chance to Form an Entity for Meaningful Tax Benefits in 2012
  *The Best Entities for Traders and Investment Management Businesses
  
  
• Watch our new videos produced by MoneyShow.com:
  
  • Trading Through A Separate Entity
    
  • Retirement Plans for Full-time Traders

If you're not sure you will qualify for trader tax status and you don't see the benefits of having an entity, wait to form one. You can trade an individual account and transition into an entity when you're ready.

Special entity strategies for traders
As pointed out in Green's 2012 Trader Tax Guide, there are many reasons to consider a pass-through entity, including: attracting less attention from the IRS on trader tax status (vs. a Schedule C); financially engineering AGI deductions including retirement plan and health insurance premiums; and having a “do over” on Section 475 MTM or electing Section 475 MTM within 75 days of entity inception.

Year-end AGI-deduction strategies and more
Setting up an entity before year-end is a great way to save tax money this year and next. You can pay yourself a fee or salary to create earned income as late as right before year-end, which unlocks a full year of AGI deductions for retirement-plan contributions and health-insurance premiums. Most traders save over $5,000 in net taxes with this strategy, with income tax savings being greater than SE tax costs on the related fee amount paid. Married couples often save over $17,000. Sole proprietor business traders don't have earned income from trading, so they can't take advantage of these AGI deductions on their trading business.

If you have an entity in place already, it's important to execute year-end transactions before Dec. 31. This includes paying fees or salaries, opening an individual 401(k) plan, reimbursing expenses and more. We covered year-end planning strategies in our 12/6/12 webinar.

If you have a new late-year entity, consider an emergency Section 475 MTM election. If you set up your new entity in Q4, your 75-day deadline for electing Section 475 MTM is just after year-end, so you can see how things finish out on the year first. You also break the chain on wash sales in your individual account by switching to an entity with Section 475 MTM.

Strategy for Q1 2013: A clean start
As you approach the April 15 tax deadline for 2012 tax returns and 2013 Section 475 MTM elections for existing individuals and partnerships, consider making this special Section 475 MTM election. The deadline for existing S-corps is March 15. Section 475 MTM is great for delivering business ordinary loss treatment, exempting traders from wash sale loss deferral rules and the puny $3,000 capital loss limitation.

New 2013 entities have 75 days from inception to elect Section 475 MTM under the "new taxpayer" exception. No matter what you decide to do individually by April 15, you can have a do over on Section 475 MTM in the entity for the balance of tax year 2013.

For example, if you have a large trading loss year-to-date 2013, elect Section 475 MTM by April 15 (March 15 for S-corps) or within 75 days of the formation to lock in a business ordinary loss with Section 475 MTM. If you have material capital loss carryovers to use up, you can generate capital gains in a new "do over" entity by skipping MTM going forward.

Conversely, if you have year-to-date capital gains as of April 15 and you want to apply them against a material capital loss carryover, then skip the MTM election and consider a do over in a new entity for the rest of 2013. Consult with Robert Green, CPA about all these strategies.

More entity benefits
* Entities are needed now more than before to defend trader tax status because the IRS is turning up the heat on trader tax status (see our blog article on this topic).
* Retirement plans: Our strategies are customized for GreenTrader tax benefit strategies. They offer special features such as plan loans and the ability to trade forex and futures at many leading brokers and invest in hedge funds. Learn more here. A Mini 401(k) (otherwise known as an Individual 401k) retirement plan — the preferred plan for business traders — needs to be established (but not funded) before year-end.
*Some retail business trader entities morph into an incubator fund, which can have a historical performance record to attract other investors. During the incubator fund phase, you can't take compensation of any kind, but you can share expenses with your close friends and family investors in the fund. Click here to learn more about incubator funds.

We specialize in entity formations for traders in all parts of the country. Start with a consultation to find out if an entity is right for you.

Look before you leap. Don't rush into an entity if you don't need one.

Consult with us before forming one. Either way, we will save you money. If you proceed with an entity, you can upgrade to our entity formation service (the best-priced service around), and if you don't, you save formation and annual filing costs.

Robert A. Green, CPA and CEO of GreenTraderTax, will consult with you on whether or not you need an entity, the pluses and minuses, the costs and benefits and which type of entity is best. The consultation also covers your trader tax status issues, mark-to-market accounting and much more.

Ready for help? Click here.

Before jumping into an entity, find out all the costs and benefits first. Make sure the benefits far outweigh the costs.

Following are the entity formation costs you can expect to pay with our firm. We are proud to say our prices are significantly less than our competition.

Our full entity formation price is very competitive. Through our alliance partner for online filings, you pay state filing fees, currently ranging from $70 (Oregon) to $505 (Illinois). Click on the BizFilings link below to see their state price chart. BizFilings charges $97 for their excellent basic service, plus $60 additional for their expedited service (we suggest this). Partnerships aren't filled by state, so you save the BFI costs and state filing fees. Everything you need is included in our fee, so click here to learn more about the details.

In addition to these entity formation costs, you should have other annual costs related to your entity if it's an LLC or S-Corp; generally there are none for general partnerships.

Tax return preparation fees: All entities other than single-member LLCs (with disregarded entity status) must file a separate income tax return each year. That separate tax return is the goal of our strategies. Most of our entity formation clients also use our tax preparation service. Most traders form entities to take advantage of AGI deductions like retirement plans and health insurance deductions. There are many nuances and complexities to executing these strategies right. Click here to learn more.

Annual state costs: Many states have annual report fees, minimum franchise taxes or user fees for LLCs and S-corps. Most states don't have annual charges, taxes or fees for general partnerships. The idea is that you can use the state court systems for LLCs and S-corps but not general partnerships (GP). You save on these costs with a GP. Traders don't need liability protection or the court system since they don't have customers. Therefore, a GP is a good low-cost solution for many traders. We'll advise you of all these costs during your consultation. We also list these costs for some states in Green's 2013 Trader Tax Guide.

Benefits can far outweigh costs: If an entity can save you thousands of dollars, then it's worth the costs. You can then upgrade to our full entity formation service.

If not, save on the costs of having an entity, including the original formation costs and annual reports, taxes and/or fees each year, which also vary by state. For many traders, having an entity is a wise move, but which type of entity, in which state and how to structure and use it is very important. After the initial consultation, traders can upgrade to our entity formation service so it doesn't cost extra. Plus, we usually complete our entity formations within three days time, so you can be up and running in your business ASAP. Click here when you're ready for your consultation to discuss entities, trader tax and more, or to get started with our full entity formation service.

Ready for help? Click here.


We have the lowest priced and best entity services around.

20%-off promotion from April 25 - May 10, 2013

Robert A. Green CPA handles the tax advice, helps with the entity formation process and handles several key start-up issues. Our outside attorneys at Rimon Law Group handle legal services, including legal agreements (general partnership or LLC operating agreement, corporate documents and resolutions).

Start with a 30-minute consultation with Robert A. Green, CPA.



After a consultation, upgrade to our entity formation service below.
Click here to see what's included.

Green NFH, LLC: Trader Entity Formation Service – Upgrade Retainer & Minimum Price. (Upgrade after a 30 minute consultation). Comes with download of our engagement letter. For simple LLCs, general partnerships and S-Corps, the fee should not be more than this minimum fee/retainer. If we go beyond basic formation services through extra consultations, the additional time will be charged at our standard hourly rates. *Requires separate purchase of outside legal time below. Total cost is $316 Green NFH + $225 Rimon Law Group = $541. There are additional costs for the online incorporator and state filing fees for LLCs and corporations. $316* Promotional Price (Regular Price is $395) Green NFH, LLC store Start with Green NFH, LLC. You can add the legal paperwork part afterward.

For online filings, we use Business Filings Incorporated (BFI). They do excellent work!

Our GreenTraderTax entity formation retainer includes much of what you need. Robert A. Green, CPA helps you decide if you need an entity and if so which one is best for you. Our competitors sell cookie cutter entities to all who call on them, whether you need an entity or not. We design the right entity around your special tax needs (considering family, other work and state issues) and execute it fast. Our outside attorneys prepare and review all the paperwork.

Our service is just what you need. Yes, you can form your own entity at your state Web site or ask your local attorney to handle it all (probably at higher cost than our very competitive fee). But the most important issue is not simply forming an entity — it's forming an entity that's properly structured to take advantage of all the complex and nuanced trader tax strategies. We consult with you on these trader tax strategies, design the best entity and tax plan and then help you execute it with our customized entity formation service and annual tax preparation service (to collect those tax benefits). Overall, we save you a lot of money!

Our retainer fee includes:

We lay out our scope of engagement, terms and conditions in an engagement letter, which also empowers us to communicate client information to the outside attorney engaged separately by the client (see above).
Consultation with Robert A. Green CPA to discuss:

• which entity structure is best for your facts and circumstances, to maximize trader tax benefits;
• how to use that structure correctly while maintaining minimal costs in the entity;
• qualification for trader tax status in the entity;
• tax treatment elections for securities (Section 475), futures (Section 1256) and forex (Section 988) in the entity;
• how best to handle general ledger accounting and trade accounting;
• how to handle startup costs (Section 195) and organization costs (Section 248);
• how to handle pre-business education costs;
• which type of retirement plan is best for you, how to handle retirement plan rollovers or Roth conversions, and how to utilize retirement plans in the most tax efficient manner, using your entity to generate the earned income needed for retirement plan contributions;
• how to handle compensation to the owner (administration fees or payroll);
• how to avoid Nasdaq professional data feed fees on an entity trading account;
• how the entity interacts with your individual tax return (contributions, distributions, expenses, elections, accounting, home office and more).

Online formation of LLCs or corporations with the outside incorporator BizFilings (see above). General partnerships do not have an online formation.
Preparation of a master memo to the client, outside attorney and our CPAs to be assigned for tax preparation.

Our outside attorneys help with the entity name, give guidance on state and local filings and prepare the entity legal paperwork, resolutions and elections:

Attorney searches some state and local databases that are easily available online, to see if the name chosen is already on file. If it is, the attorney will suggest a new name.
Tax ID Numbers: The attorney files the online application with the IRS and state for your tax identification numbers (EIN). These are needed for filing income tax returns later on (you can't e-file without it).
LLCs and corporations are formed with a state filing, whereas general partnerships and sole proprietorships are not, since the latter are not limited liability companies.
While general partnerships are not obligated to file with a state, most states require them to file fictitious business name certificates with their local county clerk. It generally costs under $25. For filing the fictitious name or DBA, we can utilize BizFilings or the outside attorney.
Preparation of resolutions to open trading account, mark-to-market elections and other related resolutions.
Preparation of entity paperwork including (simple and standardized) LLC Operating Agreement, partnership agreements or corporate bylaws for S- and C-corporations. These are basic and customized for traders. Our outside attorneys can customize them further and coordinate planning with your local legal counsel (for example, with trust involvement).
S-corporation election paperwork including federal and state if required.
The outside attorney uploads the entire work product to the ShareFile at Green NFH, LLC and we advise the client to download it.

Disclaimer: Our outside attorneys or BizFilings advise clients throughout the U.S. and some issues vary by state, county, city and town jurisdiction. Consider getting local attorney advice for compliance when appropriate. There are other issues to consider like local property taxes, too.

Check out our entity accounting services too.

If you have any questions about entities, please email us at info@greencompany.com or call us.