The Trader’s Tax Cut

Editor’s Note: This report was created alongside our friends at accounting firm Prime Corporate Services. We at Monument Traders Alliance are proud affiliates of theirs, and we’ve partnered with them to offer FREE tax consultation for our members (click here to schedule yours for free).  We may also be compensated if you sign up for any of the additional premium tax services that they provide.

Everybody knows about President Donald Trump’s tax cuts. The Tax Cuts and Jobs Act was one of his biggest legislative wins during his first term in office. But that’s far from the only way to lower your taxes in this country…

In the words of former Supreme Court Justice Sandra Day O’Connor in United States v. Carlton (1994)…

Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

There you have it, right from the Supreme Court. Provided you do it legally, you have every right to get your taxes as low as possible. And taxes from options trading can get rather high, with long-term capital tax rates at 60% and short-term rates at 40%.

But there’s one particular trick you’ve likely never heard of that will help you keep your taxes from options trading as low as possible. We call it the Trader’s Tax Cut. Keep reading to learn all about what it is and how it works…

How Does It Work?

Simply put, the Trader’s Tax Cut involves you going corporate, literally. To do it, you need to create an LLC, or Limited Liability Company, for yourself. Now, we are not tax or corporate consultants, so we can’t help you do that directly.

Sounds complicated, right?

Well… it really ISN’T.

In fact, we at Monument Traders Alliance have partnered with top accounting firm Prime Corporate Services to offer a FREE 45-minute brokerage account and tax status consultation for our members.

Prime Corporate Services will even set up your LLC for free, minus your state’s registration fees.

For example, Arizona and Mississippi are among the cheapest states to form an LLC in. Both ask for a $50 filing fee, and there are no recurring fees after that.

Meanwhile, Massachusetts and California are among the most expensive, with Massachusetts requiring a $500 filing fee and an additional $500 every year and California demanding a $70 filing fee plus $800 every year and an extra $20 every two years on top of that.

The way you’ll have to go about filing to create an LLC varies a bit from state to state, just like the fees. You’ll want to reach out to a company specializing in helping people create LLCs, like Prime Corporate Services, to ensure you cross your t’s and dot your i’s.

Now on to how the Trader’s Tax Cut works once you have established an LLC…

Give the Devil His Due… (And Not One Cent More)

The Trader’s Tax Cut is based on the concept of writing your business expenses off your taxes as deductions per Section 162 of the IRS tax code. Any business can do this, from your local coffee shop to Amazon. And if you have an LLC, you can too.

Section 162 was applied in Richmond Television Corp v. United States, which went before the 4th Circuit Court of Appeals in 1964 and was decided in 1965.

It held that a taxpayer engages in a trade or business only when that trade or business has “begun to function as a going concern and performed those activities for which it was organized.” Here “going concern” means being profitable to the point of operating into the indefinite future.

That’s great, but what if a business isn’t profitable yet? Most startups don’t turn a profit for years after they’re founded.

Sections 183 and 212 of the IRS code answer that rather clearly, and it’s all based on the intent of generating profit. Under Section 183, expenses related to activities not engaged in for profit (like hobbies) do not qualify for a deduction. After all, it would be pretty silly if someone could write off their model train sets on the tax bill for their hardware store.

Under Section 212, expenses related to the production of income are able to be deducted off one’s income. So if the hardware store owner with the trains has yet to turn a profit on his business, he can write off certain costs associated with his business. And what he can write off is clarified under Section 195 and 709.

Section 195 allows for an unprofitable business to write off its startup costs as deductions. That includes things like…

• Analysis of potential markets, facilities, products, labor, supply, etc.
• Advertisements announcing the business opening
• Costs of training or research services (just like what you get from Monument Traders Alliance)
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers
• Consulting and professional fees
• Software and subscription purchases.

Section 709 allows for an unprofitable business to write off its organizational costs. Those include things like…

• Cost of organizational meetings
• Costs related to temporary directors
• State incorporation fees
• Legal costs related to setting up a corporation or partnership
• Accounting and tax fees related to the company’s establishment.

Now on to how you can put all this legal mumbo jumbo to use.

The IRS designates three statuses related to trading activities: investor, active trader, and dealer. Typically, individuals start as an investor when they begin trading securities. Most people will never qualify for dealer status. It requires additional licenses, education, and often the ability to trade securities on behalf of clients.

However, the pursuit of an active trader status can be achieved, as it essentially involves pursuing the status of an active trader in the sense of being a “self-employed trader.”

Now, the current tax laws severely limit deductions for investors. So the use of an entity like an LLC to perform trading activities can demonstrate the pursuit of active trader status.

It’s important to note that the actual achievement of active trader status is not required when determining the pursuit of active trader status or profits from investment activities. The profit motive alone, established through your spending activities and LLC creation, is enough to use Section 195 and Section 709 as they pertain to business building expenditures.

For instance, some of the typical activities used by a self-employed trader or someone in pursuit of that status can be treated as startup and organization expenses on their tax return, like…

• Hiring experienced professionals to expand their investment business
• Hiring consultants to aid them in developing their business
• Hiring accountants to provide tax planning or tax compliance services
• Creating an entity (like an LLC) for one’s business
• Spending a considerable amount of money for the business
• Creating a team of professionals to aid in business areas one isn’t familiar with
• Hiring professionals at an organization like Prime Corporate Services to provide tax consulting, accounting, and finance services
• Performing necessary reviews of their efforts and making changes where necessary.

In order for any of those or other expenses to qualify as deductible under Section 195, they must meet two requirements.

First, the expenditure must be paid or incurred in connection with the following:

• Investigating the creation or acquisition of an active trade or business
• Creating an active trade or business
• Any activity engaged in for profit and for the production of income before the day the active trade or business begins, in anticipation of that activity becoming an active trade or business.

Second, the expenditure must be one that would have been allowable as a deduction in the tax year paid or incurred if it were paid or incurred in connection with the operation of an existing active trade or business in the same field.

Keep more profits in YOUR account

You have every right to keep your taxes as low as you’re legally allowed. The highest court in the land affirmed that right 31 years ago. So you should employ every available strategy to make sure you render unto Caesar only that which is Caesar’s and keep the majority of your hard-earned money for yourself.

Forming an LLC and writing off your subscriptions (like the one you have from Monument Traders Alliance) is one of the best strategies to do just that.

The letter of the law and decisions made in the courtroom are in agreement on your ability to do that.

And that’s about all there is to it. It might sound complicated and involved, but it’s nowhere near as bad as you might think. And it’s downright straightforward if you have the right people working for you.

We’ve put in the legwork and partnered with Prime Corporate Services to make this process easy for all of our VIP members here at Monument Traders Alliance.

Take advantage of this free offering so that you don’t need to pay more in taxes than you need to!