CORPORATIONS

                                                                                



In my earlier eBooks I discussed various topics pertinent to you as a trader. I’ve intentionally omitted the discussion about corporations until this eBook as it is a more advanced topic. For some of you reading this section (i.e. if you are already a business person) then you’ll find this rather straight forward and “common sense”, however for some others this will be a very valuable tip. I will only discuss the topic of having a corporation to do your trading within only briefly for three reasons. (1) I am not qualified to offer you accounting, or legal advice (so for legal reasons that is my disclaimer), especially since (2) I have no idea where you live, and each country and sub-territory (State, Province, etc.) has different laws. (3) I just want to introduce this subject and encourage you to consult with a competent accountant and/or lawyer in your jurisdiction. You can open a trading account in your own personal name, but as I like to say, “just because you can do something doesn’t mean you should do that something”. If you are new to Forex, trading a mini account or with just a small amount then perhaps you should just trade within a personal account, but if you are trading larger amounts (as little as $5,000 but for sure anything over $20,000) then it might be advantageous to you to open a corporation through which you trade. There are many reasons why trading within a corporation is usually the best

choice, but I’ll simply restrict myself to discussing two main topics; taxes and asset protection. Most countries have a significant gap between the rates they tax individuals for personal income and how much they tax corporations for gains. If you plan to retain the profits you make trading within your corporation (rather than withdraw most of it for personal living expenses) then you can save substantially on taxes, and what you’ve saved on taxes can be compounded into even more profits. You can even reinvest your profits into other nonForex types of investments (i.e. Mutual Funds or whatever else) and continue enjoying the tax advantages with your investments. Furthermore your corporation can pay for some nice things for you, such as medical/life insurance, buying you a new computer (for trading purposes ;P ), computer software, office supplies & equipment, telephone, Internet, cell phone, percentage of your rent/mortgage (since your office is in your home), investment related books & magazines (you can even write off what you paid for my eBooks), seminars & training, travels to exotic destinations like Hawaii (to investigate “investment opportunities” ;P ), and even some possible fringe benefits (you the employee/president need to be pampered from time to time – maybe a nice Mercedes for a “job well done”, leased for tax deductibility). All these things (and more) that you would normally pay for out of your own pockets (AFTER tax) can be paid for through your corporation (BEFORE tax). For this reason alone you want to have a corporation to handle your legitimate expenses, as it adds up to HUGE TAX SAVINGS!!! How do you get money into the company initially? You simply lend the money to your company. Your company will be indebted to you and so when you remove that equal amount of money then you don’t have to pay tax on it (since presumably you’ve already paid taxes on that amount in the past). When you choose to personally withdraw funds (for living expenses, or for some nice toy) then you will have to pay full personal income taxes. That’s ok. Try to pay yourself as little as needed to avoid the big taxes, and try to figure out how much of your personal expenditures can (legitimately) be purchased through your corporation. I have heard (though I don’t do this myself – yet – but I intend to learn more about this) that you can somehow use a corporation within a self-directed Retirement Savings Plan, which the Government allows you to grow taxfree. Go talk with a financial planner to see how you might be able to set this

up. I don’t know about you but the idea of allowing profits to compound untaxed sounds very appealing to me. I believe (though I’m less certain about this) that even if you have to pay a small penalty for withdrawing funds (before you actually legally retire) that it is still worth doing overall. When you go to form a corporation (which usually costs just a few hundred dollars in many places) then investigate WHERE to form your company. You don’t have to register it in the State/Province where you live or even in your home country (i.e. I’m Canadian but have corps in the US which for us Canadians the high US taxes is still lower than our insane rates – all done legally of course). Different places have different rules and corporate tax rates. Pick the location that will give you the best corporate tax rates for what you are doing. A word of caution to you… There is a difference between strategic tax planning and tax evasion, which your home country will frown heavily upon you for (such us charging you a big fine and throwing you into jail). Unless you seriously know what you are doing (or have lots of money to pay smart lawyers to do it for you) then stay away from “Off-Shore” corporations. Do everything you can to legally pay as little taxes as possible, but be sure to pay what you “need” to; this way you can sleep peacefully at night without dreaming of having to escape your country. You can do a lot of preliminary research on the Internet to learn about advantageous places to form your corporation (i.e. if you are an American then consider a Nevada corporation which is better than Delaware for corporate taxes, but talk to a smart accountant for their advice). Spend some time thinking about this important decision rather than just impulsively getting a corporation anywhere from anyone. Big tip: Seriously talk with an accountant (or possibly an appropriate lawyer if you have some serious capital) to find out what is the best choice for you. The few bucks that you pay them for their time is fully tax deductible, but more importantly it might save you from making a costly mistake. Furthermore get into the habit of talking with your accountant a lot to learn how you can save every possible nickel & dime on your taxes (what you pay your accountant is money well spent). Here is another reason to have a corporation (as if the above tax reasons weren’t enough to convince you by now). Asset protection!!! Basically (true in most places), if someone tries to sue you personally for whatever stupid reason then they can’t touch your assets that are within your

corporation. Furthermore, if your corporation were to lose money or fall into some bad luck then the creditors or whoever sues your corporation can’t sue you personally (unless you did something blatantly wrong, such as doing something illegal). Basically with a corporation you can sleep peacefully at night not worrying that someone will be able to take away your family home. Let me enlighten you with a pretty nifty concept. Unfortunately we live in a rather litigious society (people try to get rich by suing over stupid things). There are two ways to avoid getting sued. (1) Own nothing (so that people won’t even bother trying to squeeze blood from a stone), and (2) Do nothing (if you didn’t “do” anything then how can someone sue you?). If you “do something” (i.e. if you do Real Estate investing then tenants can sue you for something ridiculous, or someone can slip on your icy driveway) then you should have two companies. Simply have an LLC company that “does everything but doesn’t own anything”, which dumps money into your INC. that “does nothing but owns everything”. This paragraph alone provides you with a HUGE TIP that alone, in my opinion, is worth more than what you’ve paid for all my eBooks. Talk it over with your accountant and/or lawyer to get you set up properly if you think this might be a good idea for you to do. Folks, there is a lot more I could say about corporations but for the scope of this eBook I think you have enough information to start you off with. Go do your homework researching what is the best option for you and get one started ASAP!