KENNETH lEE
Trade Inspiration Not Despiration . Member Since Nov 2008
1,842 Posts
It is that time of year again. When make new and renew old goals for ourselves. Why we do this during this time of year only is strange . Winter is probablly one of the hardest times for people to get more excrises because of weather and finances are in a shambles do to the holidays and the spreading of cheer. So that all amkes ou8r new yeas=rs resolutions harder if not impossible.
So lets see if we can make a effort to improve our chances of reaching a goal or two this year and not have them just be dreams.
My last position in the private sector was managing a location of a large national company. Every year we were requiered to put together a forecast. Which was a itemized set of goals for the following year. This forecast was derived from a line item report called a General Ledger. This report was monthlly as well as yearlly. It was a snapshot of all exspenses and profits for every month broken down into every single item wiether it be a Bill or a customers invoice (In our case a increase in equity or a withdrawl).
I know during that 1/3 of one trimester in highschool when they taught us how to spend money by writing a check. There was a minor notation about making a budget which of course not having any money we didn’t listen too. But let us assume we want to be fulltime traders making our income from this thing called Forex. The sooner we start treating the accounting postion of trading as the business it is the better off we will be. Some are lucky they all ready have a company big or small and realize the importance of precise financial paper work. Anything in the finacial world wiether you want a loan or taxes or to proof your poor even. Requires you to prove on paper why your just telling people.
In the U.S. we actually fill out or taxes based on our own assumptions yes we have paperwork to back up our claim. But the IRS ( Internal Revenue Service) Doesn’t start to input that data or verify anything for 3 years after we file our tax returns. Which if we wanted too could let us right ourselves a loan if we wanted . But the penalities and interest are not favorable.
So back to the task at hand. So we have the goal to be successfull and we are to a point we take out some money from time to time. Then it all goes to crap for one reason or other. We could actually end up oweing taxes on money we made and spent after we lose all our equity and quit trading. That would be the worst case scenario. So if your taking withdrawls remmeber you will owe taxes on that money at some point. The only reason not if you take out the same amount you put in and lost all you put in . Then it would be a draw no loss no gain. But if you make 10,000 and your equity is equal too or greater you owe taxes on 10,000 and any other equity over your deposits. I know this is basic but to get hit with a large tax bill when you least can afford it desreves a reminder.
The accountants would tell you to place your estimated taxes into a seperate account and draw some interest on it before you have to pay. If you are a very discplined person that is great advice if your not. Maybe every time you take a draw from your account send 1/3 of that draw to the IRS. as a prepayment. One item of importance is to do a prelimanry tax aduit before it is due. We have almot 4 months to do this yet must wait to the last moment. Just log on to anyone of many free internet services and fillout the forms and this will give you a good idea where you stand and what you possiblly owe. You then have 4 months to make this money or lay some aside.
Enough on that just be aware and have some plan to deal with it. The main focus here is that we all should make some sort of forecast for the up coming year. The more detailed the better as our trading progresses the more important these records will become. So if you start now it will make simpler… So start seperating your bills . A good starting point would maybe one of the accounting software like quickbooks or something. If your real lazy if you pay all your bills on one credit card then pay it in FULL every month they can seperated it for you. But you should have at the least the following details.
- Housing
a Mortgage
b Taxes
c Insurance
d Rent ( Yes you can have a mortgage and rent)Think Redneck Hilton
Double Wide.
e Condo or maintence fees
2 Utilities
a electric
b water
c sewer
d trash
e Phone
3 Trading exspenses.
a Internet ( may be portion of phone)
b Secondary internet. ( 3 G card Cable internet)
c Phone Either seperate line or portion of house line.
d Computer expsenses.( Printer ink , printer paper , UPS)
e office supplies ( paper. enevelopes, pens postits. everything)
f office equiptment ( phones, fax machine ,copier,answer machine)
g office rent (Portion of housing exspenses. If home office)
h travel exspenses. To seminaries are to check on ivestments
a plane tickets
b hotel
c meals
d entertainment of other traders or possible clients or mentors
any dealings with anyone that has to do with your business.
accountants lawyers landlords sedcrateries, maintence people
can be wrote off as a bussiness exspense. But you have to have
backup paperwork. Start making it a habbit to keep restraunt and
gas reciepts and write small notes on the back.
i gifts may fall under entertainmant but are tax detuctable.
j company car
a payment
b insurance
c Fuel ( keep reciepts or Credit card statement of gas card)
d Detailing / maintenance
e Toll charges
k health insurance
a Eye care
b dental
c health
l Retirement funds
a 401 k
b ira’s
m Contract payments onetime services of relatives possiblly.
I think you get the picture a lot of these details may not apply right a way but once you start making real money in forex you will need to talk to someone about starting a company to allow you to write of against your tax bill a good portion. I worked for a guy once to everyone in the office 5 people to lunch everyday and wrote it off. The important thing is a paper trail especially if you use cash. IF you use a credit card try and use the same one for the same things are better yet make one the company card. anything that might be a bussinees exspense should be charged on that card. Then if you lose your reciept you have a backup.
You will be able to write off so many of your daily living exspenses. Then the best way to get cash is as a paycheck to yourself. But if you start tracking all your cost in this way you may see where money is just leaking out of your life and then you can stop that flow. Plus you can make a real plan based on real facts. I want to have a extra 200 to spend a month on entertainmnet. Maybe just moving things around you can. Plus once you start keeping track of items this way. You will be able at a glance see how your doing.
A Review monthlly and adjustments quarterlly will help to keep you focused. And you can see where your slipping. One item I didn’t metion was captial exspenditures. This would include any major chages in your budget like a new offece or new car some of those types of purchases can be deducted over years.
The we may want to diversify which would reguire divisions of your main company to protect your personal assets. This why you will normally have one company that has a few LLC under it. The LLC (Limited Liablity Companies ) carry the risk and can be closed if needed protecting the major company. You see it all the time in major corporations debt gets to high in one part it goes under opening tomorrow under a different name. Regardless what people think that is still not a good thing. better to run profitable companies . But this can also protect you from liabilty caused by lawsuits., and if peole start to know you have money beware. They might start stepping in front of your car. Why we drive a company car . LOL
So start seperating your exspense a number code on a excel spread sheet is fine. Then file in seperate folders. That way when you do talk to a accountant or lawyer about starting that new trading and investment firm . You will be ahead of the game.
Sorry I know I got a bit of track. But hope this will get you to thinking about the future. Plan now that way it is a smooth transition. And don’t wait till the last minute. If you have years of losses as a bussiness they are also treated differentlly. But would be better to take against profits.
Happy New Year Ken
