June 16, 2010 - By Michelle Boyer, CPA

I just started a trading business, is it necessary for me to go through the hassle of keeping financial records and statements? I haven’t even made money trading yet…

The first year of most businesses, including day trading, result in a loss – more expenses than income. With the learning curve of beginning to treat your trading activity as a business to all the initial costs required to start your new business endeavor, making a profit the first year is difficult. At first glance, it would seem the last thing you would want to do is add to the stress and the loss by going through the trouble of setting up your accounting books and records.

While adding to a loss only seems to be adding sting to the bite, you will be saving tax dollars for a better day when your trading business begins to earn a profit. Whether your trading under a corporation, partnership, or the less desirable sole proprietorship, taking all of your legal business expenses can save you money in the long run, even if you have don’t have a tax liability in the current year. The IRS allows individuals (which include partnerships) and corporations to carry over to the next year a business net operating loss. Therefore, the trading business loss incurred in the current year could offset the trading income you earn in the next year. Can't beat that when it comes to saving tax dollars!

Do it Right the First Time! Bookkeeping is the Only Bullet Proof Defense a Trading Business Has Against the IRS.

Let’s not forget the added benefit of doing it right the first time. If you have time to do it again, you have time to do it right the first time. Keeping track of all business expenses can more easily be accomplished as it is happening instead of trying to go back a year later and remembering what you did. More time is spent going back through a year’s worth of records to try and reconstruct what was spent than by taking a few minutes each week to keep up on the task. Creating good bookkeeping skills from the beginning will make bookkeeping in the future a lot easier.

It Helps Knowing What Trading Expenses Are Deductible

The last hurdle is knowing what expenses are actually deductible. For those who prefer the “do-it-yourself” approach, IRS publications and Bookkeeping Software are a great resource. Some recommended tax publications that will get you started are:

Not a “Do-it-Yourself” Person? Or Prefer Focusing on What Matters Most to You, Like Successful Trading?

As a business owner, you have more important things to do with your time than the monthly anguish of maintaining a set of financial records. At Boyer Tax Services, our goal is to provide our clients with a hassle-free solution to all of their bookkeeping needs. Having Boyer Tax Services provide this service for you allows you to integrate tax and business planning which helps you identify areas of opportunity and risk. Not only can we help you organize your records and make sure you have the proper substantiation, our professionals can make recommendations regarding any expenses you may have missed. To read more about our comprehensive bookkeeping service for day trading businesses, go to our Bookkeeping Portal.

About Michelle Boyer, CPA

After working as a Revenue Agent for the Internal Revenue Service, Michelle Boyer, CPA moved to the private tax sector taking with her valuable insider knowledge of IRS procedures. After spending years practicing in the area of trader taxation, Michelle witnessed a vast amount of misconceptions about day trading rules and traders accounting regulation. This inspired her to develop a team of hand-selected, experienced, trader tax professionals. Together, her team has created one of the largest resources where traders can come for accurate and legal tax reduction strategies and advice.