Day Trader Makes $1.2M and pays $0 In Tax using Limited Margin IRA
As a successful and consistently profitable trader one of the biggest blows to your account is going to be taxes! One of the best tax strategies (without exiting the US) is trading in a limited margin IRA! Limited margin means you can use unsettled cash proceeds in your IRA to trade stocks and options actively without worrying about cash account trading restrictions or potential good faith violations!
**Note You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA (anything above your contributions). **
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Time Stamps
0:00 Introduction
0:47 Barriers to Entry
1:23 How’d He Do It?
3:05 Margin Trading
4:21 Limited Margin Defined
5:05 What Is Not Allowed
5:36 Who Can Use A Limited Margin Account?
6:00 Other Considerations
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DISCLAIMER: I am not a financial adviser but fortunately I am a CPA :). These videos are for educational and entertainment purposes only and should not be taken as “individualized” tax advice. Should you need tax solutions I highly recommend consulting with a professional or our CPA Firm. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.
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In recent news, a day trader has made a whopping $1.2 million in profits and managed to pay $0 in taxes. This may sound too good to be true, but it is all thanks to a financial strategy called the Limited Margin IRA.
A Limited Margin IRA is a type of individual retirement account that allows the account holder to trade stocks and other securities on margin, which means they can borrow money from the brokerage firm to make trades. This strategy is particularly effective for day traders because they can leverage their account balance to make more trades and potentially earn higher profits.
But how exactly does this result in paying zero taxes? Well, since the profits are being earned in a retirement account, they are not subject to immediate taxation. Instead, taxes are deferred until the money is withdrawn from the account, typically after the account holder reaches retirement age.
Additionally, if the trader is able to keep their profits within the IRA and reinvest them, they may be able to continue generating returns without ever having to pay taxes on those profits. This can be a major advantage for those looking to grow their wealth over the long term.
However, it is important to note that there are limitations and risks associated with using a Limited Margin IRA. For one, there are strict contribution limits each year, so the account holder may not be able to invest as much money as they would like. Additionally, trading on margin can be risky and can result in significant losses if the market doesn’t go in the trader’s favor.
Overall, a Limited Margin IRA can be a useful tool for day traders looking to grow their wealth and minimize their tax burden. But as with any investment strategy, it’s important to do your research and weigh the potential risks and rewards before making any decisions.
Can you do this through a self directed roth LLC?
I thought that capt gaines in roth ira are tax free?
Thank you for the information!
I am a newly profitable day trader, and I set up an LLC but the bank wouldn't give me a checking account. Im super interested in learning from you how to move my business forward.
I HAVE QUESTIONS!!: I'm researching laws and regulations around creating an LLC as a day trader and qualifying for trader status on my taxes (I use cash accounts, no margin). I'm married; is there any way to open an LLC as a trader, with my spouse as a member of the LLC, without affecting all the great deduction benefits of having trader status and protection from wash sales? Also, I'm aware that including my spouse on an LLC would turn it into a multi-member LLC, thus taking away its title as a "disregarded entity" (and going from a 1099-b to a 1065 and a K-1 from each of us when filing taxes); would that affect the method in which I'm supposed to pay myself from my trading profits? Or better yet: Can I even add my wife to an LLC with trader status on it???? Is that possible? I just want her to benefit from the business side of the world too.
The actual trick is to find a day trading method that actually works consistently for an IRA acct.
New subscriber here
Thanks for what you do
hey Brian,
can you be a active day trader and elect m2m when meeting all the criteria but trading in options vs stocks? can you be a full time options trader only and elect m2m?
Great Video! Would you happen to know any qualified CPAs working out of Canada (Toronto Specificallyy) that specializes in day trading tax reporting/preparation. I started options trading last year with interactive and feel in over my head regarding my tax filing. Appreciate the help ahead of time!
So the questions you answered you can find in all the other wash sale videos. How about we get just a bit deeper. For day traders, lets say you buy an option 5 times with in 7 days all for profit, and then the 6th time you finally have a loss. I get that I can’t buy for 30 days, but according to the rule I’m not allowed to have bought in the previous 30 days also. What does that mean??? So in that above scenario does that make it now 53 days until I could buy that stock again? And lets say you bought a different stock 1 time and sold if for a loss. You buy it again a week later and make a profit that also covers the new cost basis, can i now trade that stock without worry about the wash sale or am I still under the 30 day rule? Seems like there’s sooooooooo much going on with this rule, hoping someone can questions like these, because NO ONE IS!
I hope you come back with a video soon… Ive been binging your videos and your channel is criminally underrated!
Hello Mr. Rivera and thank you for the great videos. I sent you a message via FB and it replied to send an email. I did, twice, and it came back as undelivered. How can I connect with you?
Brian… I want to trade out of my ROTH IRA but I am not sure of the "earned income" requirement for contributions into the account. Do profits from trading futures contracts violate the earned income rule?
Brian excellent video as usual. Can a trader that just acquired MTM with previous years filing carry back losses to the years before that MTM request filing, can't find an answer to this question, please help.
Would love a video helping people that trade with ftmo or any funded company
Hey just watched your video and I am wondering if you do taxes for individuals like myself ? thanks
hi Brian, can i get your thoughts on this… i have a large trading loss 2021 and i would qualify as mark to market but just thinking my income will rise over the coming years should i take the loss all in 2021 or not elect mark to market and rollover 3000 each year coming? thanks
Do you have any foreign clients trading U.S. based securities? I live in Japan and I trade with U.S. broker, but since I am living here, Japan taxes me roughly 20% as my income is seen as capital gains. I also have to file my U.S. taxes. What can I do to avoid being double taxed?
That's firrreee!
Hi Brian, do most CPAs know about all these trader tax benefits or should traders reach out to CPAs who specifically specialize in trading?