Podcast – Episode 37 – Trading Inside A Corporation With Brian Canter
Allen: Okay. I assume that you are like I can’t tell from your Facebook page what you do for a living.
Bryan: I’m retired now. I was active duty military for 23 years. I retired in ’12, went to work for a defense contractor for a couple of years, John Hopkins Applied Physics Lab for a couple of years but I’ve been fully retired since ’14. I’m a butting author. I was over in Scotland for the last six months doing a research on fourth century picks in case for a novel that I’m preparing to write about that, so we’ll see.
I trade if you will pseudo full-time. Sometimes, I’m off. I’m not sitting in front of my computer every single day but I tend to swing trade mostly in the Future’s markets, so been doing that for about five or six years.
Allen: Okay. You’re in Tennessee, is that correct?
Bryan: No. My fulltime residence is Tennessee. Temporarily, I was in Santa Fe for about eight months or nine months then I went overseas to Scotland for six months. I’m back in Colorado for ski season. Hopefully, when we get a nice recession going here, I’m going to get a 40 foot diesel pusher and live on at an RV and live on the road for next little while.
Allen: You’re waiting for the recession huh?
Bryan: Yeah, luxury items like RVs go down in recession. Then as soon as it gets bad enough, the Fed will probably react the way they have over the last several years dropping through straights, so I’ll get a cheaper RV with a cheaper loan, right, right?
Allen: Right and then you can just refine it, so okay. Cool. You are retired, correct and most of your income is from trading?
Bryan: I have a retirement pension so that gives me a little bit of a cushion that most people probably don’t. Since I retired out of the military, I have that pension that meets my base requirements. I trade … Just starting a little bit more above and beyond that. I also have several projects, publishing projects, and some other things that I have built a little bit of financing for a movie, some things like that that I like to have extra money. Also charities, I noticed that for example you’re offering a little bit of a kick into the clef palate charity-
Allen: Right [inaudible 00:03:52].
Bryan: [inaudible 00:03:53] so things like that that I like to do alongside. It’s just nice to have four source of income that I can fund projects, I can fund charity, charitable giving and then supplement my own income with.
Allen: Okay. You’re swing trading Futures, right? That’s what you said?
Bryan: Yeah. I mostly work off of Sysml Data. I noticed actually in some of the archives like your oil trading on the Blank Check Trader. Back in the archives, you had talked to an organization called MRCI, Moore Research Center Incorporated. They publish seasonality data. I do a lot of my Future’s trading is seasonal moves. Things happen in cycles, corn, wheat, soy, all those things are harvested in about the same time every year around the globe so they established pretty good seasonal cycles.
I trade Futures off of those. I’ll typically hold a position for anywhere from say 10 days to a month and a half, two months, something like that.
Allen: Interesting. Do you do any options with that?
Bryan: The first Future’s options that I’ve traded was all under the Blank Check Program. That’s one of the things that attracted me to that. It was a neat thing to do. That’s for Future’s options. I do also do some options trading. I do occasionally, I’ll do some options day trading but then when I see a good set up, I usually like to swing trade those options too. I’m usually picking something that’s close to the money option with an expiration of say three months out or so but for equity options, stock options.
Allen: All right and how much equity do you need in your account to do the type of trading that you do?
Bryan: I’m trading with an account of around 50,000 or so. You can do it with less than that. The problem is, swing trading, sometimes the swings can get fairly significant, so you got to have an appetite for a little bit of downside. Most of the seasonal patterns have between an 80% and 90% probability of success but a lot of times they’re one to one risk rewards, so you might have a drawdown of couple thousand dollars before it turns up and sometimes obviously, it never turns up.
You just have to have an appetite for that swing and be able to deal with that emotionally as well as in your account. I wouldn’t want to do it with a $10,000 account. Twenty five is probably good for few positions then obviously, you have a larger account, you can hold more positions at one time.
Allen: Okay, cool. If you don’t mind sharing, what results do you get?
Bryan: Sometimes there’s good years, sometimes there’s bad years. This particular year-
Allen: I know that.
Bryan: Yeah, this particular year turned out not to be so good. In January, I was up about 25% just in the month of January off. At the time, I was running around $100,000 account. I was up $25,000 at the beginning of the year. Out of just failure to follow my own rules which as you know is debt and trading, right? I got a couple of … I had some positions in heating oil and crude that I was certain of. I held those positions when I shouldn’t have.
Those were the bulk of it. There were others obviously but I had a drawdown. Not only did I give back at 25K that I had earned but I did another 40K lost over the year. In the meantime, built that backup to so I think net on the year I’m going to probably have a drawdown somewhere around 20K or so. Not ideal but it just reinforces in your mind have a rule set, follow the rule set, religiously take the losses when they come and don’t have a strong opinion on the market. The market will often tell you that your strong opinion is incorrect.
Allen: Exactly, yeah, yeah. Yes, we’re most often, most often incorrect. Is there-
Bryan: By the way, I went back and did a double check. If I had followed my rules, if I had just stopped out and taken the losses when I should have, I’d be up a good 30K for the year right now.
Allen: Wow. Next year, there’s always next year, right?
Allen: Did you get caught up … They had the big oil drop and the jump in Nat. gas, did you get caught up in that?
Bryan: No. I didn’t. Quite honestly, I missed a shot at the Nat. gas that I should have taken. Another tool that I use in my toolbox is organization called Momentum Structural Analysis. They do technical analysis on momentum rather than just on price. They pegged … They said, “Hey, if that gas goes over this line in the sand, it’s going to be a jump because there’s a strong momentum base that it has built and that’s going to be a strong breakout.”
To be honest with you, I don’t trade Nat. gas that much because it’s hugely volatile and even when it has a nice pattern, a seasonal pattern or something like that, the swings on that can drag you up and down multiple thousands of dollars in a day. It just has a little bit more volatilities than I have an appetite for. If I had pegged that, if I had just taken the breakout, I knew about it, I knew where it was, I saw it happening and I didn’t take that breakout. If I had, that would have been a very, very lucrative trade.
No, I didn’t get lost in the downturn in the oil. I actually took my hits back at the end of January, of February when the market did that bottom at the beginning of February. I knew about that. I thought I was positioned well for that in the positions that I had because I expected the market to turn down. I just … Again, I was wrong. Things reacted differently than the way I expected them to. That’s where I took almost the whole majority of my losses.
Then since about April or May, I’ve been building backup from the … Now, I was a total of 65K of losses that I took, the 25 that I had made plus an additional 40.
Allen: Yeah. Did you take a break after that or did you just get back on the horse?
Bryan: Yeah, a little bit. I still stayed in it. I took a little bit of a break because I went to Scotland, I moved over to Scotland at the end of May. I was there from May through the end of October. I was a little bit more limited in what I was doing and also primarily because I was over there doing research for a novel. Again, I didn’t want to be tied to this sitting in front of the computer screen all day every day but I never didn’t have positions on. I just backed off a little bit and didn’t have quite as much on.
Allen: Okay. What’s your favorite seasonality play?
Bryan: I like the eggs right now, things like corn, soy, soybeans, soybean meals, soybean oil, orange juice, any of the agricultural kinds of products because now they’re not going to give you these big huge returns, right? You’re not going to get … Say one contract. You’re not going to get five or $10,000 off of one contract like you can in oil or maybe some of the metals, gold and then silver and some of the things like that, right?
Allen: Like currencies, yeah.
Bryan: Yeah but they’re much more predictable and they’re predictable in a way that’s not dependent upon politics generally speaking, that the trade war with China had a little bit of a hiccup in the soy market but quite honestly, it recovered its cycle pretty quickly after the news events. Those are very regular, very repeatable. Sometimes, you can even work spreads in the Future’s markets particularly in the eggs.
There are times when a March contract might be more advantageous to the primary holder of that … The commercial holder, the Futures are really there for the growers, right to have a hedge on the prices that they’re going to be able to charge for their agricultural products, right?
Bryan: They don’t take a big hit if they get a bad year of rain or something like that, right? Those are very regular patterns and they’re not dependent on things like politics. They’re not really even … Although they are tied to the dollar a little bit, they’re sensitive to the dollar move. They’re not dependent on the dollar move. If you use spreads even if the absolute direction of the move is not what you expected it to be, you’ll find for example a May contract is … At certain times, the year, at the end of the year in December, a May contract is going go up in price faster than a December or January contract.
If you buy one and sell the other in those spreads, you get a lot of very high reliability and not a lot of less downside risk.
Allen: Okay. Right now, we’re recording this in December. If I were to play it, I would go into what? Soybean meal or soybeans and just what, do what?
Bryan: Yeah, again, I pull that seasonality data, if you do subscribe to their service which by the way is not, quite honestly, it’s not very expensive for as trading services go in terms of the cost for those things, they will show you times where the seasonal patterns line up. They’ll give you things that aren’t necessarily recommended trades but they’re good places to look then you can apply your own good technical analysis skills to go, “Yeah, normally, that looks good but the co relations were very bad.”
They do that but then you can also get on because all the data is available, I’ll go in and I’ll find places within that seasonality data where it’s moving, very consistently moving a direction, right? Where your five year, your 15 and your 30 year patterns, all look about the same, they’re all going up together or all going down together, they don’t really diverge from one another. That gives a good idea that this is a real consistent place.
I have right now just as example, I’ve got a long on in March cotton, I’ve got a spread on in Euro dollars between the 2019 Euro dollars and the 2021 Euro dollars. That’s not a big mover but it’s a fun spread. I’ve got a short on in orange juice. I’ve got a spread on in gasoline. Between, I bought the … We’ll see, I’m trying to pull the records, with the February gas and sold the July gas contract, all just spread there. I’ve got a long on in sugar and a long in corn.
Allen: You play a lot of things.
Bryan: Yeah and then I’ve got a short in wheat and then a spread in wheat. I’m just straight short the March wheat, the March ’19 wheat. Then I’m also in the spread of by the July wheat and short, the March wheat.
Allen: Okay, interesting. Now, yeah, so I’m trying to figure out like if I’m not playing the Future’s, is there any way I could do this with ETFs?
Bryan: You can. My only caution to you is … Anything that’s not an Ag. product, you can. The indexes, you can do this index Future’s, you can do it, bonds. You could do this with like the TLT and bonds instead of going with either the 10 year treasuries or the 30 year treasuries. You can obviously do spice, [chicken cubes 00:18:13], any of those ETFs. My only caution to you is agricultural ETFs … Gold, you can do GLD, SLV for silver, et cetera but the agricultural ETFs, most of those ETFs are not stock place.
There’s no actual stock equity behind those. What they are is they’re ETFs that are built on the Future’s contracts. There’s almost always a little bit of a carry charge associated with Futures. If normally, if you look out the December corn right now is going to be at a more expensive price than the January corn or the March corn I mean because it takes into account storage fees and carry cost and also a little bit more uncertainty and things like that, right?
Depending on how those ETFs go … Even a crude oil ETF, I at one time tried like instead of playing it with a crude oil Futures, I tried to play it with oil ETF?
Allen: The USO?
Bryan: The USO and I found it really surprised me, it went down when I didn’t expected it to. I was playing a positive play. It went down where I didn’t expect it to. When it got back to the price that I had bought it at, it was worthless. They are going to roll in these Future’s contracts underneath that, right? That’s one of them on Future’s contract, they have been rolling them under there and they’ve been taking a little bit of loss every time they rolled it forward to the next month.
On the Future’s itself, if I had bought it at $30 a barrel and it went down and then came back up to $30 a barrel, the Future’s contract would be worth exactly zero, right? I wouldn’t have lost anything on that.
Allen: Right but with the USO, there’s that underlying cost and the service fees and whatever that they charge as well, so yeah, makes sense.
Bryan: Yeah and the normal cant angle that you have between front months contract and now back months contract.
Bryan: You just got to be careful but certainly if you’re in any of the stock things or the … Futures obviously are good way to play the currencies rather than playing directly in the Forex market, you can play them in the Future’s and you can get away with doing some of that, also in the ETFs and be just fine if you don’t want to leverage up with the Future’s.
Allen: Cool, sounds interesting. Yeah. I don’t, haven’t done much in Future’s in a long time. I used to did it a little bit in soybeans when I first got started but I took a bath on the Japanese Yen so I haven’t ever come back into Future’s really but-
Bryan: That’s one of the reasons by the way that I like things like agricultural products better than I like the currencies and things like that because all of those are really dependent on people’s decisions, right?
Bryan: Although there are cyclical patterns associated with those fiscal year endings and things like that that can have an influence on there, they can also be just political decisions since Central Bank decides to raise or lower its interest rates and that completely blows your play, right? It’s not something that you can just rely on the cyclical patterns for. I prefer to play things like the Ags. Corn’s going to be harvested the same time every single year.
It might be a good year or a bad year but we know when the harvest is going to happen, right? It’s a little bit more reliable cyclical patterns with the agricultural products.
Allen: Yeah and like the Yen is and the currencies are very volatile so you need more money to play each one, each contract and the moves are much larger than in corn or wheat or soybeans or anything like that.
Bryan: Yeah, yeah, absolutely.
Allen: Cool. Now, one of the things that made me want to talk to you was that you are doing something that a lot of carrier think about but I haven’t seen too many “I should pull the plug on” which is trading inside of a corporate entity, is that correct?
Bryan: Yeah, that’s correct.
Allen: Now before we go on, I want to put in the disclaimer that we are not accountants or lawyers or anything like, and we’re not giving anybody financial advice or accounting advice or tax advice or anything like that. This is just something that I wanted to talk to Bryan about to share his experiences in this. Bryan, why did you decide to go that route?
Bryan: Yeah, I was already trading with a group. They introduced me to … I went to an asset protection seminar that was conducted by a corporation or a company called Anderson Business Advisers. It was funny because their real focus at that point in time was just on primarily on asset protection and or being able to create better tax situations and things like that. What I wasn’t really aware of and I became acutely aware of this after the fact was that if you have cash in a brokerage account that you’re trading in your own personal name, if you ran into the back of somebody in a car and there’s a million dollar lawsuit filed, and you have $300,000 liability protection on your insurance, the first thing they’re going to do-
If the person comes to a lawyer, the lawyer is going to seat down and do an asset search on you. If you’ve got no money, they’re going to sue for the amount that’s in the liability package in the insurance, right because that’s what they think they can probably get. If you got a ton of cash seating out there, it is completely vulnerable. I started it primarily as an asset protection thing but the way my entity structures are put in place, it also gives me the ability to take deductions for costs associated with my business, tax deductions that I would not be able to do as a private trader.
Most people are classified just as private traders or if you will amateur traders. If you want to get the designation as a professional trader, it’s a little bit more shaky with the IRS and it gets a lot more scrutiny. My particular entity structure is set up … I actually have two, my trading account and all my cash assets are in a limited partnership. That is very … It’s segmented, right? Everything in that limited partnership is not mine. It belongs to the limited partnership.
I am a passive partner if you will and that I’m called a limited partner. The general partner is actually a C corporation that is also my C corporation.
Allen: You own this that you’re a 100% shareholder?
Bryan: I am a 100% shareholder of the C corp and then I’m a partner with the C corp in the limited partnership.
Bryan: What that does is number on, it puts all of my assets that could be at risk, all my cash, my liquid assets, so my brokerage account, my savings accounts, all of those things are in the limited partnership. Then the general partner for that limited partnership is the C corp. Now the C corp is also the manager of my trading activities. I’m able to take the tax right offs in the C corp and keep all of the assets in the limited partnership.
One of the advantages by the way that that does give is an enmity. If I ran … Literally about a month after I set this structure in place, I did back end somebody. We were seating at a red light and it turned green, I have a clutch, standard transmission car so I started to roll forward and the car in front of me did not. I just bumped the back bumper that the lady got out of the car, came back and looked at me and goes, “Look at the car.”
I realized there wasn’t any damage and all of a sudden said, “My neck, my neck.” They ended up suing. Now, it turned out that was actually at all covered by my insurance but it just highlighted to me the fact that had that been a real accident where somebody really had gotten hurt, they could have come after all of my assets. First of all, if they did a search on my assets, they would find I have a couple of grand in the checking account and that’s all because everything else I own is in another entity.
It doesn’t show up under my name in an asset search. Even if it did, they could only sue me. They can’t sue the limited partnership and they can’t sue the C corp.
Bryan: As long I am not doing something illegal and negligent, right? They can’t do that. There’s a barrier there. Those assets are protected. Then the C corp gives me the opportunity to take off. For example the subscription fees that I pay to you for like Check Trader and the Option Genius that I’m doing with you, those are fully deductible to me under my C corp. They would not be deductible if I was a private trader, I couldn’t take those costs away from the income that I generate.
Allen: Right. You also mentioned a couple other services like the momentum one and the seasonality one, so all of those, whatever you’re paying and your commissions too, right will probably be deductible.
Allen: They’re given to the C corp. The profits, any trading profits, they flow into the C corp as well?
Bryan: There’s two ways that the C corp makes money. I will say you need to be profitable for this to be worthwhile or you need a lot of cash that otherwise would be at risk, right? If you have a $10,000 account and you’re really not profitable then there’s some costs associated with it, they would just make it not worth it. If you have $120,000, $150,000 laying around or more then that’s something you would want to protect. The cost to do that is essentially just like an insurance cost or anything like that.
Then if you’re profitable then the deductions will more than pay for any cost that you have associated with setting up and maintaining the entities. I apologize, you had asked the question and I went down a rabbit hole.
Allen: It was the profits. Do the profits flow into the C corp?
Bryan: Yeah, that’s correct. The general partner is like 1/10th partner and I’m 90% partner. The profits that are on limited partnership, the partnership by the way, it has to file a tax return but it doesn’t claim any profits. The profits all flow through to the partners.
Bryan: It’s just a reporting mechanism to the IRS and it’s a pretty simple thing but yeah, so 90% of the profits flow to me, 10% flow to the C corp as personal income regardless of whether we actually take distributions from a partnership or not. The other way that the C corp makes money is it’s the manager of the trading activities. I’ve got a management agreement between the limited partnership and the C corp.
The limited partnership pays a management fee to the C corp. The C corp can make money that way through management fees. Then again, all of these expenses that the goal is to have enough expenses to cover all of the management fees so that you actually would come out with a net, net even. Again, you get to deduct things. Travel, if you held a seminar sometime and I wanted to come to that seminar, the travel to a certain extent and that the law has just changed on this but things like that the meals and entertainment and things like that associated with those events, a lot of that is still deductible.
I can have a meeting in my own house with myself and go through the … Conduct the business that I would be conducting for those businesses and I can actually take a portion. I can charge my business-
Allen: You can charge a rent, yeah. You can charge a rent to the business.
Bryan: That’s just for meetings like you don’t want to get into a situation where you do the whole [Malthus 00:32:31] thing and stuff like that but phone bills, computer costs, you have to have a computer to trade, right? You really have to have a phone to be able to monitor it.
Allen: Your internet.
Bryan: Internet cost, exactly. All of those things are very legitimate expenses that you can, that the C corp can be responsible for those expenses, so it’s something that you probably would have paid for anyway. In this case, you’ve transferred that expense to the C corp and the C corp gets to deduct it off of any of the income that it makes.
Allen: Do you want to have the C corp making any money or no?
Bryan: You really only want to have it making enough money to cover its costs.
Allen: Right, okay.
Bryan: You can tailor the agreement between the limited partnership and the C corp. You can tailor that agreement. There’s other things that you can do that I’m not doing with the C corp right now. This is just my own personal choice because of how I’m set up but you can have the C corp set up a pension program. It can be a defined benefits program and you can contribute some of the earnings of the C corp to that pension plan for you.
Now, the only way for that to work is you either have to be an officer or an employee of the company. A lot of the folks, a lot of times I talk to people that are instructors or teachers in the trading community. I say, “If you can make all this money trading, why are you teaching?” A very common answer is, “If I’m just trading, all of my income is technically passive income, it’s not earned income so I can’t contribute anything to an IRA or anything like that for retirement.”
Your corporation, you could actually either hire yourself and pay yourself a salary. In which case, you’d have earned income that you can contribute to an IRA. Or within this C corp, you can set up a defined benefit pension program where you’re contributing to the pension program for yourself. You can do that just as an officer of the company. You don’t necessarily even have to have the earned income.
It gives you a lot of flexibility of ways that you can do that both retirement planning, getting tax savings off of deductible expenses, and then also reducing your taxable income by having it contributed to a pretax retirement income benefit program.
Allen: Yeah, I mean I think once you get into the corporate structure of it, there’re so many benefits that are way better than just doing it on your own but what struck me was like obviously somebody’s saying, “Listen to this.” They’re like, “Okay, that sounds great but how much does it cost to set up? How much does it cost to maintain?” Like, “Do I have a big enough account to actually make it worth my while?”
I was under the assumption that if you’re dealing with maybe 200,000 or 250,000 and up then this would make sense to you but I was surprised you’re doing it with a $50,000 account.
Bryan: When I say that, that’s my trading account, I’ve got some investment money that’s in there too but still, all total … I also got some real estate that I hold within the limited partnership and or the C corp, right? Also, yeah, probably about $150,000 in assets that are inside of the entity structure. Certainly that’s enough that I would want to have the asset protection aspects playing with it. With a smaller account, it can be instead of going the way that I have it set up there, you can set up an LLC. Don’t do the limited partnership, don’t do the C corp, you can set up an LLC that is taxed as a C corp.
When you’re doing that, again in all of these cases, I would recommend you don’t necessarily need to go with the Anderson Business Advisers certainly but I would go, I would make sure that you work through a lawyer who understands what you’re trying to do and setting those thing up. You get any lawyer to file an LLC for you. In some cases, you can even do it on your own but you really need to make sure that it’s structured correctly.
LLCs can be set up … They are not individually recognized by the IRS. The IRS does not recognize an LLC. Your LLC, you have to say, “I want this to be either disregarded entity or I want it to be taxed as a partnership or I want it to be taxed as a C corp or taxed as an S corp.” How that’s set up can have significant impact on what you’re able to deduct and how with all that stuff. You really need to work with somebody that knows how to set it up for the purpose that you’re trying to do.
You could get away with just an LLC. It would give you some aspects of asset protection and also give you the ability to deduct some expenses but it would probably need to be an LLC set up as taxed as a C corp.
Allen: Okay. Not as an S corp.
Bryan: No, S corps used to be really not good entities for this purpose. The recent tax changes made them a little bit more favorable but the choice between the two, C corp out does the S corp hands down for the purposes that that you would need for trading and that investment management things.
Allen: Okay, all right but the taxes on a C corp are higher than on an S corp, right because your S corp, they do it at your personal base, personal bracket?
Bryan: Yeah. By the way, the recent law just reduced the tax burden on C corps, right? That was a good thing. It is but if you run it correctly, again, I don’t really want my C corp to make a lot of money. I want my C corp to make enough money to cover the expenses that it has which may include contributions to define benefit program or something like that, right? All of these, my travel expenses, my subscription expenses, all of those things, I want it to be able to cover those expenses but I don’t want it to make a lot of money.
Bryan: I as thus far in five years of having a C corp, my C corp has never paid tax because it never made enough money over and above the expenses that it had to pay taxes.
Allen: I’m glad you said that. In order to do that, do you change the management agreement every year?
Bryan: Yeah, certainly the management agreement should be reviewed every year. You can adjust that that appropriately, right?
Allen: Yeah depending on how much [crosstalk 00:40:08].
Bryan: You could make it [crosstalk 00:40:08] $10,000 a month but if you make it $10,000 a month then you’d have to have $10,000 a month of expenses to cover, to make that worthwhile having.
Allen: Right, right. Then of course like you said, you need to have a meeting like a board meeting or a partner meeting. You said you’d do it at your house but you could actually do that anywhere. You could do it on the slopes, you could do it in Hawaii, you could do it anywhere and that part of that is deductible as well.
Bryan: That’s correct. If you have a legitimate business purpose for doing something someplace and then there has to be a certain amount of work done compared to this business time versus personal time. You can’t take a 10 day vacation in Hawaii and spend one day, four hours of one day doing a little bit of business stuff. Depending on how you set it up for travel days and in relation to weekends and things like that, you could certainly decide that you wanted to go to Hawaii to have your board meeting.
While you’re in Hawaii doing your board meeting, you might want to look at some potential, look at and document some potential real estate that you might be interested in buying. If your screen time in front of the computer doing trading, those can count as business days as long as you’re engaged in business activities and particularly if you’re having any meetings with other people that would be business associated, you can do that.
Then if you do it over a weekend, the weekend days don’t count. I think the requirement is actually four hours of business, constituted business day and you get travel days for free. You could very easily do a weeklong vacation in Hawaii legally and legitimately, conduct a certain amount of business on three to four of those days, have three days, the weekend and some travel days that are completely discretionary for you.
The other days do approximately four hours’ worth of business related work to call those business days and have a business trip to Hawaii.
Allen: Right. Again, I got to make sure that we tell everybody, remind them that we’re not accountants here and the rules do change all the time. Make sure you talk to your accountant before you do anything and try to do anything. What is the yearly expense on this?
Bryan: Yeah. Part of that depends on where you set it up because different states are different. My particular, both my C corp and my limited partnership, originally I formed those in Nevada because Nevada’s a very good state for both protecting privacy and a really clean veil between the corporate and the private things for suing and all that stuff. About two years after I started it there, they raised some of their fees.
For me, it was advantageous to move it to Wyoming. Again, you can pick states that have no or low income tax, state income tax to deal with. You would have to have a registered agent in whatever state that happens to be in. Then you need to have an address and things like that in that state. You don’t necessarily have to have it where you physically reside. California is a really bad place to have business with.
They just have a lot of … They have high fees, right? You’d see that it cost a lot. For me, to set it up, you’d look at somewhere between $400 and $800 to set this up. That will include your state fees plus the lawyers are going to charge you something to set it up, so $400 to $800 to set one up. Then in Wyoming for me, for both of my entities, it’s about … I have to double check exactly but it’s about 250 or so for the renewal fees every year for the state, so not really burdensome from-
Allen: No. It’s not. Not at all and the only thing you have to do is a tax return at the end of the year, right?
Bryan: Yes. In my case, I do a tax filing for the limited partnership and then I do tax return for the C corp and then of course by my own personal … I personally like to use Anderson to do all of that because not only do they help me set it up and they understand what I was trying to accomplish, they find deductions a lot of times that I wouldn’t. I’ve actually got other entities as well. I’ve done some real estate holdings and real estate flips.
I have a publishing company that right now isn’t actively publishing but I’m setting it up so that it can meet an LLC. Then I’ve had some other rental property that was in an LLC as well. Because it was fairly complicated, they knew what they were doing for that. That’s what they specialize in is helping small business people who otherwise wouldn’t know all of this stuff to do that. The downside is they can be … They’re more expensive than if you just go to a lawyer you choose in your hometown to help you set it up.
There’s nothing wrong with that, whatsoever. They’re more expensive than that but they understand the whole process a lot better. They could do your accounting for you. I choose to do that personally because it’s not really all that complicated. I just send them in my accounting but I do have them do my tax work, just I’m more comfortable with that. I always did my own personal taxes before I started the business stuff but once I got into the business stuff, I was more comfortable making sure all of the blocks were checked by having them do it. I’ve been very satisfied with again having a professional do those things for me.
Allen: Right, right. What are they called again? Anderson Business Consultants?
Bryan: Anderson Business Advisers, yeah they’re out of Las Vegas.
Allen: Okay. We’ll have a link to that in the show notes but so normally when you’re trading and when you’re dealing with your taxes, it gets a lot more complicated than just if you’re a W9 or something like that. How do you … You do that yourself?
Bryan: I do. When I say I do the accounting, they’re going to send you … Your brokerage is going to send you the forms at the end of the year. I don’t keep track of all that. I allow them to send me the forms. Now if I needed to, I can pull out of my platform, I can pull every single trade that I ever made out of my platform and it has a cost basis and the gains that I have on it. The good thing about Future’s, another good thing about Future’s is it’s not all … A portion of it is taxed as long term capital gains and another portion is short term capital gains.
Allen: Right, so at 60/40. I think it’s called 1256, right rule 1256?
Bryan: Yeah, exactly.
Allen: Tax code, yeah. Sixty percent of it is long-term gains and 40% is short term.
Bryan: Yeah. I don’t do all of that. I allow the tax preparers to do that for me based on the statements and stuff like that. When I say I do my own accounting, I keep track of all of my business expenses that I have again, my telephone bill, my internet service provider bill-
Allen: Okay, so like the book keeping.
Bryan: Book keeping, yeah. All of those things, I keep track of those and then I send those into the tax preparer at the end of the year and he includes all of those things in the tax file.
Allen: Okay, sweet, cool. You have a very nice setup and seems that you’re very happy with it. The main reason you did it originally was the asset protection, right? Then you also get the tax breaks which you normally don’t get otherwise. If you had to do it again, would you do this again?
Bryan: Yeah, I would. Legitimately, I could say, “Should I keep it this year?” because, I could close it down. By the way, that’s one advantage also of a C corp. Say your C corp runs losses, those losses actually are based on loans from me to the C corp. If say the C corp owed me 25,000, it actually does owe me several thousand dollars right now because I took some courses with an organization, trading organization, trading, training organization that cost me $35,000, right?
The C corp actually owes me that money because I loaned the money to the C corp to send me to that training. If I were to dissolve the C corp today and S corp for example or a sole proprietorship, has to be profitable within five years, a C corp can hold a loss on its books indefinitely and then if it does dissolve then I’ll actually even be able to recoup a lot of those losses personally because some of those are based on loans that I made to the C corp.
The ideal is that you make enough money and then eventually pay yourself back and that thing but that 35K tuition is not something that I would have ever been able to deduct personally as amateur trader, right?
Bryan: That’s right.
Allen: Exactly. How about losses themselves? Normally if you’re doing this in your own and you have losses, you can deduct up to like what, $3,000 a year and then you just have to wait every year to deduct 3,000. Can you deduct all of your losses doing it this way?
Bryan: Yeah. That’s the same. Actually in this case, the partnership is the one that takes the loss.
Bryan: It’s a passive activity. In that case, the passive activity, loss limitations are still in place. You only get to be able to deduct those losses. Again, separate things, brokerage fees, cost of all these other things, phone bill, internet bill, travel expenses, all of those things are things that I can deduct that I would not be able to otherwise.
Allen: Right, okay. Yeah, we have talked about a lot of complicated issues. I appreciate your candor and your honesty and your openness to share everything. I think a lot of people are going to get a lot out of this particular conversation. Bryan is not an attorney or an accountant. He is just an individual investor just like us. He’s come forward and he was gracious enough to say, “Yeah. I know about this stuff. I’ve done it. I’ll share information that I know.”
I wanted to get his take on it because he’s actually been through it. He’s not here as an accountant trying to sell you his services to try to set it up. He’s actually on our side so to speak. I hope this helps a lot of people. I’ve learned that you don’t really need that much because we all need asset protection like Bryan said. Most of us have other assets, we have our homes, our cars and all that stuff. Those are protected to some degree.
If you have other investments like real estate or really anything, I talked to a friend of mine recently. I’ve been thinking about it just for the asset protection part of it, Bryan. I was going to go to the attorney in there. They charged $1,500 just to set up the basic asset protection plan because I know I had a friend who died without a will, him and his wife. They both died at the same time. Didn’t have a will, it took over a year to get everything out of probe even though they had no assets.
Whatever they did have was wasted and the kids didn’t get anything. You go to somebody like this and not only will they make you a will but they’ll make it in a point where you have control over what you have, nobody else can sue you for it. You have some … Like you said with the … I don’t want to get into … I don’t know if you’re married or not but there’s that component of it as well. If there’s a divorce or if the kids do something, the kids get in trouble, the kids get into a car accident, it can come back onto the parents and what not. All this stuff is very, very crucial and important. I appreciate you taking the time to come and talk with us.
Bryan: My pleasure and I appreciate you having me on. Again just like you said, I have no stake in this. I’m not getting anything even if you went to Anderson Business Advisers, I wouldn’t get anything out of it. This is just my own personal experience. I think you asked a question a minute ago, “Would I do it again?” My answer is yes. I would do it both for the asset protection purposes because liquid assets are the hardest to protect of all, right, cash and brokerage things, stocks, equities, that stuff, very liquid assets.
I would do it for the asset protection purposes. I would also do it for the business purposes of making it a professional trading business, making those deductible expenses legal and legitimate. I’ve been very happy with the service.
Allen: Yeah. You mentioned doing it as a business. We teach everybody that you got to treat it as a business, not as a hobby because then you’ll actually take it a lot more seriously. You’ve actually gone to the next step and actually made it an entire business. What I thought was really cool was that you have this structure but it’s not only benefiting your trading, it’s benefiting you and other instances as well. The trading is taking advantage of this protection plan that you already set up.
When I first approached you about this, I was thinking about, “Hey, I’m going to set up, found a trading company or whatever and just run my trading accounts through this,” but you can do a lot more instead of just your trading accounts.
Bryan: Yeah, absolutely. Like I said actually, my C corp has a second line of business in publishing so when I was researching the novel that I was doing over in Scotland for the last six months, a large portion of those expenses were all deductible as because I’ve got an author agreement with myself. The corporation has-
Allen: You do a lot of self-dealing there, buddy.
Bryan: Yeah. Again, I double checked this with the legal guys, “Am I doing something?” I really don’t want to do anything that’s immoral either. I want to both be legal and I really want to be doing things that are morally correct. All of these things are specifically set up in our US code to encourage small businesses. Everything that I’m doing here is not only legal but it’s also very, considered very legitimate within our legal code.
Allen: Yeah, it is. It is. That’s how the riches of the rich, they can afford the army of accountants to find all of the loop holes. That’s why they pay some … I don’t know, that would get in the political but there are people making a lot of money who pay very little in taxes. They do it legally. I feel that if you can, that’s your duty to yourself as well just to … Because part of the tax and what I mean I don’t know how many thousands of pages are in the actual tax code but like as very, very small percentage of it actually tells you how much tax to pay.
Then the rest of it is how not to pay that tax, so it’s really interesting. Yeah, I know that paying less on tax and protecting assets … For me, it’s a really fascinating and I love talking about it but I appreciate you coming on. We’ll have the links to the show notes. Is there anything else that you wanted to share or leave our audience with?
Bryan: Nope. I do want to thank you. I appreciate the services that you offer. I was very happy when I signed up both for Blank Check Trader and for Options Guru. Both of those services have been-
Allen: Genius, Option Genius.
Bryan: Option Genius … I’m sorry. What did I say? Guru?
Allen: Yeah, the funny thing about that Option Genius thing is like I never looked at myself as a genius when I started it. It was just we were looking at different domain names, websites names that were available. This is the one that we came up with. It was like we get … It was either Option Genius or Option General. I was like, “Nah. I don’t really like the general one so I’ll do it with the genius.”
Bryan: It works out. Both of those services have been paying for themselves with the trades that we make and the education that you provide, so I appreciate that.
Allen: Great. That’s always wonderful to hear. Cool, great, thank you so much. All right, folks, Bryan is on Facebook if you want to reach out to him. Thank you very much.
Bryan: All right, have a great day.
Allen: You too.
Moore Research Center – mrci.com
Momentum Structural Analysis –olivermsa.com
Anderson Business Advisors – andersonadvisors.com
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