EVOLUTION OF A TRADER

   1)      CLAIM TRADER STATUS 

              DEDUCT EXPENSES ON SCHEDULE C
              REPORT TRADING GAINS ON SCHEDULE D

     2)  ELECT SECTION 475 MARK-TO-MARKET

              DEDUCT EXPENSES ON SCHEDULE C
              REPORT TRADING GAINS ON FORM 4797

     3)    TRADE IN SINGLE MEMBER LLC

              DEDUCT EXPENSES ON SCHEDULE C
              REPORT TRADING GAINS ON FORM 4797
              SET UP 401(K) PLAN 

     4)    TRADE IN LLC,  LIMITED PARTNERSHIP  OR
            S. CORP.

              DEDUCT EXPENSES ON FORM 1065 OR1120S
              REPORT GAINS ON FORM 1065 OR 1120S
              TRADE OTHER PEOPLE’S MONEY
              SET UP PENSION PLAN
              PAY YOURSELF COMPENSATION
                 INCREASED LIABILITY & ASSET PROTECTION

      5)    CREATE C. CORP. AS MANAGEMENT COMPANY 

          RECEIVE MANAGEMENT FEE FROM TRADING ENTITY
              ALLOWS EMPLOYEE FRINGE BENEFITS
              MEDICAL REIMBURSEMENT PLANS
              INCREASED LIABILITY & ASSET PROTECTION   


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ENTITIES
TAX INFORMATION

Proper tax planning requires thorough analysis of an individual's complete financial and tax situation. While there are some general rules, effective tax planning is very specific and a unique plan should be tailored on an individual basis.

Taxpayers who wish to reap all the benefits of a Section 475 election may still do so by forming a new trading entity which can make the election by placing a statement with the required wording in its books and records within 2 months and 15 days of its inception.

Some ways to have both mark-to-market accounting benefits and capital gains rate advantages are:

• Elect MTM accounting in a new entity set up for trading activities and retain non-MTM securities identified as investment positions. This can be used as an effective planning tool in some cases to allow a taxpayer to utilize unused carry forward losses and have available the ability to have long term capital gains taxable at the preferential lowest capital gains rates
  
  
  
  
• Elect MTM accounting for your personal trading and set up an entity to trade assets that will utilize the advantages of favorable long term capital gains tax rates
  
  
  
• Elect MTM accounting for your trading account and segregate and identify other securities in a separate brokerage account which can have capital gains tax rate apply
  
  
  
• One spouse can be set up as a MTM trader while the other spouse with clearly segregated assets can be considered an investor