WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
CHECK OUR TRADES ON OUR FACEBOOK PAGE OR HERE.


Transforming my personal trading to a business

You probably have heard many times that we should treat our investing / trading as a business, right?

Hobbies cost money – businesses make money.

I always wanted to treat my trading as a business but never knew how exactly to do that, so I always referred to my investing as a hobby. Whenever anybody asked me “what are your hobbies” my answer always was: “I collect historical military stuff such as uniforms from WWII era, do re-enactment, collect movies, read books, camping, traveling, and investing in stocks.”

Well, not anymore.

If you follow my blog for some time you may have noticed that I was planning on starting business of trading. There are two reasons for trading as a business. One is psychological, the second is financial, more precisely the tax implication reason.

So what is the psychological aspect?

Running trading as a business requires a lot of discipline in order to make money. By separating trading from my personal accounts to a business gives me the right mental statue. Now I have a bigger responsibility in order to make money. The responsibility goes towards the right cash flow management. The business must make money. It is no longer a hobby or just saving money for a distant future as a traditional passive saving in 401k (for example) is.

In order to survive, I must strive to keep my cash flow positive and grow my business every day, week, month, and year.

The idea of trading as a business always inspired my entrepreneurial spirit in me and inspired me to always take my trading more than seriously. My dream of trading as a business is slowly becoming true.

Research in the past performed by Trader’s Accounting has shown that 75% – 90% of new traders fail within the first 16 – 24 months due to lack of discipline approach (treating their trading as a hobby), lack of resources, and bad tax treatment.

Only 10% – 25% of traders break through and continue successfully further. They start growing their accounts consistently over time.

Although I do not expect my business to provide me with money for a living due to a very small starting capital, I have an ambitious plan to reach that milestone in five years.

What is the financial aspect?

The second and important aspect of trading as a business is taxes. If you take a look at my income results at My Trades & Income page, I am poised to have $8,884.25 income ($7,825.55 from options and thus short term capital gain), see below:

Dividend & Options Income

If I have to add this income to my personal taxes as a short term capital gain, I will end up paying 25 – 30% more in taxes. As a business my taxation will be a lot more favorable under the 60/40 rule. Under the current law (which, by the way, Obama tried to repeal in 2011) a trader can treat 60% of his income from day-to-day trading of options, futures, and forex as a long term capital gain and 40% as a short term capital gain.

Also as a business, trader can deduct all of his losses and expenses which are not allowed for individual investors. Tax savings can be substantial and can easily reach 50% in average.

And the last?

Trading as a business can provide me with my dreamed financial freedom now. Not 20 or 30 years later, after I save enough for retirement.

Trading for a living can be exciting, dramatic, stressful, and fulfilling. It can ruin you or make you happy and free. It took me 8 years to get to this point of converting my personal accounts into business accounts. Eight years of learning, trials and errors, substantial losses, (yes I lost a lot of money) and finally last three years – a success.

If you want inspiration and think of getting yourself to this path, watch the following video below from a Wall Street Warriors, episode 1, Season 1. I recommend you watching all episodes. They are very interesting and inspiring.

 

 

What would it take for you to start trading as a business and would it be something you would want to pursue?

Happy Trading!
 
 





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