The paperwork is not the edge.

LLCs, trader tax status, mark-to-market, S-corps, and how accounts actually get structured. This is the stuff people pay a lawyer $400 an hour to explain once. None of it makes a losing strategy win. Some of it changes what a winning one keeps. Not advice. Not a lawyer. Just the map.

not advice · US rules · talk to a pro

The one-sentence version

Entities are boxes. The IRS mostly ignores the box and taxes what's inside it. The box starts mattering only when you qualify as a business (trader tax status), elect special accounting (475(f)), or need to route salary and benefits (S-corp). Everything else sold to you about "LLC tax magic" is noise.

// 02 // 02 · the LLC myth

An LLC does not lower your trading taxes.

The most common question and the most oversold product. A single-member LLC is a disregarded entity: the IRS pretends it doesn't exist. Same 1040, same rates, same short-term treatment from the Tax lesson, same everything. You paid a state filing fee to change nothing about your tax bill.

What an LLC actually does: it's a container. It can hold a brokerage account, sign contracts, and later elect to be taxed as an S-corp or partnership — that election is where tax structure starts, not the LLC itself. And the famous liability shield? For a pure trader it protects less than you think: nobody is suing you for your own trading losses, and the debts most traders have (margin) are personally guaranteed anyway.

Takeaway: form an LLC when a structure needs a container (S-corp election, a partner, a business bank account) — not because someone on YouTube said the word "write-off."

// 03 // 03 · trader tax status

Trader tax status. The real prize.

The IRS sorts you into investor or trader, and the gap is enormous. Investors get almost no deductions: the data feed, the extra monitor, the courses — mostly not deductible. A trader running a trading business deducts them like any business does.

Here's the part nobody tells you: TTS is not an election. There's no form. It's a facts-and-circumstances status the IRS and tax courts judge from how you actually trade. The rough markers that have held up in court, treat them as directional, not thresholds:

The TTS self-check

Rough markers from case law, via tax pros who specialize in traders. Check what's true for you.

Volume: roughly 700+ round-trip trades a year (a few per day, most days)

Frequency: you trade close to 4 days a week, most weeks, without long dead gaps

Holding period: average hold measured in hours or days, not months (courts like < ~31 days)

Time: several hours a day on the process — trading, research, journaling, systems

Intent + scale: you're trading to capture short-term swings as a living, with real capital, not parking savings

0 / 5 — Check the boxes that describe your last 12 months.

the lessonWhat TTS actually unlocks (and what it doesn't)

Unlocks: business expense deductions — data, platforms, hardware, home office, education taken after the business exists, margin interest without itemizing gymnastics.
Unlocks: eligibility to elect section 475(f) mark-to-market (next section) — the genuinely big lever.
Does NOT change: your gains' character by itself. TTS alone doesn't turn short-term gains into anything cheaper.
Does NOT trigger: self-employment tax on trading gains. Trading gains aren't earned income either way — which also means no retirement contributions from them without the S-corp move below.
The trap: claim TTS with a part-time record and lose an audit — the deductions unwind with penalties. If your checklist above is 2/5, you're an investor. That's fine. Most people are.

// 04 // 04 · section 475(f) · mark-to-market

475(f): the election that kills wash sales.

Once you genuinely have TTS, you can elect section 475(f) mark-to-market accounting for your trading. Everything becomes ordinary income and loss, marked to market at year end. Three things change, two of them huge:

Wash sales stop existing for the elected trading account. The 30-day tripwire from the tax lesson — gone. For an active short-term trader this alone can be worth the paperwork.
The $3,000 loss cap stops existing. A bad year becomes an ordinary loss you can actually use, instead of $3K a year dribbled out for a decade.
Open positions get taxed on December 31 at market, realized or not. You give up any shot at long-term rates on trading positions — for a premium seller whose whole book is short-term anyway, you're giving up almost nothing.

The two sharp edges

Deadlines are brutal: for an existing individual trader the election generally must be filed by the original due date of the prior year's return (mid-April) to count for the current year — miss it and you wait a year (a new entity gets a fresh window, one honest reason entities exist). And it's sticky: revoking takes IRS consent. Segregate your long-term investments in a separate account BEFORE electing, or they get dragged into ordinary treatment too. This is exactly the decision you pay a trader-specialist CPA to walk through.

// 05 // 05 · the s-corp move

The S-corp move: manufacturing a salary.

Trading gains aren't earned income, so a solo trader — even a great one — normally can't contribute to a solo 401(k) or deduct health insurance the way business owners do. The workaround serious TTS traders use: an LLC taxed as an S-corp that runs the trading, pays you a salary, and that salary unlocks the benefits.

What it buys: retirement contributions (solo 401k: employee deferral + employer profit share), health insurance premium deduction, cleaner expense separation.
What it costs: payroll processing, an extra tax return, state fees, and payroll taxes on the salary you create. Real money and real admin.
The honest math: the benefits usually beat the costs somewhere around $50-100K of consistent annual trading profit. Below that, the structure eats its own advantage. Above it, it compounds.

Takeaway: the sequence is earnings first, structure second. Nobody trades better because payroll exists. Get profitable, then buy the structure the profits justify.

// 06 // 06 · account structure

How the accounts actually get arranged.

Account	What it's for	The catch
Individual taxable	The default. All the rules from the tax lesson apply	Every gain is a taxable line, no shelter
IRA / Roth	Long-term compounding, tax-deferred or tax-free	No TTS, limited margin, and losses washed INTO an IRA are gone forever
Entity account	The S-corp/LLC route above; broker opens it in the entity's name	More paperwork at the broker, and it only helps if the structure was worth having
Separate long-term account	Segregating investments before a 475(f) election	Segregate BEFORE, not after — commingled positions get dragged in
Crypto self-custody	Your on-chain activity; the chain is the ledger	No broker tracks it for you, and moving coins between YOUR wallets isn't taxable but you must be able to prove they're yours

The rule that protects every structure

Don't commingle. The fastest way to lose an entity's liability protection is running personal spending through the business account — courts call it piercing the veil, and it turns the box back into paper. One entity, one bank account, one brokerage account, clean lines. Boring is the whole point.

// 07 // 07 · what doesn't hold up

The snake oil shelf.

Structure advice is a product, and the products that sell best are the ones that promise magic. What actually happens with each:

"Wyoming/Delaware LLC = no state taxes." Income tax follows you, the resident, not the box's mailing address. A Texas trader already pays no state income tax; a California trader with a Wyoming LLC still owes California — plus California's $800/yr franchise tax for the privilege of the out-of-state box.
"Anonymous LLC." Your broker and your bank KYC you regardless. Anonymity claims age badly; plan on none.
"Put the trading in a trust and pay no tax." The trusts a normal person sets up are grantor trusts — tax-transparent. The IRS looks straight through them to you. Trusts are estate-planning tools, not tax cheats.
"Offshore it." US citizens are taxed on worldwide income, and the reporting regime for foreign accounts (FBAR, FATCA) carries some of the ugliest penalties in the code. The setups that survive scrutiny cost more than they save at any scale you or I trade at.
"An LLC makes everything a write-off." Deductions come from TTS (a business), not from the box. An investor with an LLC deducts what an investor deducts: almost nothing.

Takeaway: if a structure's pitch is a tax rate the tax lesson says doesn't exist, the structure is the product and you are the exit liquidity.

// 08 // 08 · when to pay the professional

When to actually pay for this.

Your TTS self-check hits 4-5 of 5 and you want the deductions — a trader-specialist CPA confirms the status before you claim it.
You're considering 475(f) — the deadline and the segregation rules are one-shot decisions. Worth one paid hour, every time.
Consistent profit clears ~$50K/yr — that's when the S-corp math starts working; have someone run YOUR numbers.
A partner, investor, or family money enters — the moment more than one person's money is in the account, the paperwork stops being optional. Trading someone else's money can also cross into adviser-registration territory; that's a lawyer question, not a CPA one.
Anything offshore, anything with a trust, anything "anonymous" — if you're tempted, that's precisely when you need the professional most.

What this page is

A map, so the paid hour is spent on decisions instead of definitions. It is general US education, not legal advice, not tax advice, and it doesn't know your state or your facts. This is exactly the stuff you verify with a licensed professional once — which is the whole reason this page exists free.

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