There is the importance of trading as a businessman, especially in a highly versatile world where the decision to make profit is by far better and more respectable than working a 5 to 9 jobs. The importance of trading has so many benefits and it is many of these benefits that we will be discussing in this article.
Day by day trading becomes more accessible which is as a result of the proliferation of online and discount brokerage firms. Thus, more people are participating in the stock market. However, as an individual or sole proprietor, traders cannot take advantage of some of the tax advantages and asset protection strategies that are available to companies.
Therefore, working as an independent trader can be a way for individuals to make extra income, or even possibly a full-time living. But like any business venture, the income generated from trading is taxable.
If you are successful as an independent day trader, it can create significant tax liabilities for you. Individuals that want to actively participate in the stock market have several options: they can trade as individuals or sole proprietors, qualify for trader status, or trade through a business entity.
In finance, a trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets. The main reasons that a properly researched trading strategy helps are its verifiability, quantifiability, consistency, and objectivity.
Importance of Trading as a Businessman
As earlier said, economies that trade more generally grow faster, are more productive, more innovative and have higher incomes. Additionally, trade usually benefits lower-income households by increasing competition in the market and helping to keep prices lower. However, the focus is more on the importance of trading as a businessman.
Access to More International Products and Services
Free trade gives both businesses and consumers more and better access to the products and services from another country or economic bloc – introducing new products, services and technologies, and benefiting consumers by keeping prices competitive.
Additionally, free trade helps to make it easier for businesses to enter an international market. This helps businesses to establish new customers and grow their business.
By lowering barriers to enter new markets, free trade allows for more opportunities for businesses to grow. And consumers benefit from increased competition and new products and services.
Form a Separate Corporate Entity
If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment is to create a separate corporate entity through which you will conduct your trading activities. By creating a limited liability company (LLC) or limited partnership, you can receive the same tax treatment as a qualified trader without having to qualify.11
This type of legal entity usually receives less scrutiny from the IRS. It’s unlikely that anyone would go through the trouble and expense of forming the entity unless they were committed to trading as a business venture.
It is extremely difficult for individuals to change an election, such as MTM, once it has been chosen. With the company, if there is an advantage to changing accounting methods or the legal structure, the entity can simply be dissolved and re-formed accordingly.
More Success Equals More Entities
For highly successful traders, some financial advisors may suggest forming a business structure that includes multiple entities, as a way of maximizing the tax and protection benefits afforded to the business.
Even though the actual structure is determined by an individual’s financial goals, this type of legal business structure usually includes a C corporation, which exists to be the general partner or managing member of several limited liability companies.
In this way, extra income can be transferred to the corporate entity (usually up to 30% of revenue) through a contracted management fee in order to take advantage of additional tax strategies available.
Others Are:
- Increased revenues
- Larger customer base
- Boosted resilience to seasonal changes in demand
