How to Start a Stock Trading Business and Claim Tax Deductions

Incorporate yourself as an official stock trading entity. In most states, this can be accomplished online through your state's Secretary of State website (see Resources). The process is quick and costs less than a hundred dollars in most areas. Creating an LLC is the easiest and least expensive option for most states.
Open a brokerage account in the name of your LLC. This is a critical distinction when claiming business tax deductions for stock trading. The IRS is more likely to accept your trading as a full-time operation if all the stock trades are transacted under an LLC account.
Transfer all funds to and from your brokerage account from a bank account registered by your LLC.
Pay for all services related to stock trading with your LLC's bank account. Never use the account for personal finances or living expenses.



Deduct your Internet service fees, as they are the lifeblood of most trading businesses. Without the Internet, you are not in business.
Deduct educational materials and books related to your trading strategies, as they are specific expenses incurred for the development of your business.
Report all income from capital gains on Schedule D, just as investors do.
Deduct the margin interest for your brokerage account on Schedule C with all of your other expenses.
Deduct home office expenses, including desks, computers, multiple computer monitors (if applicable) and other technology required for your work. These deductions only apply to full-time traders. Part-time investors do not qualify.

How to Choose a Stock Broker (10 Steps)

Build a list of potential brokers. Many names are part of the culture. Take Merrill Lynch and TD Ameritrade, two well known companies. One gives full service the other discount. Choose a name with a good history. Read the reviews for stock brokers at the consumersearch website.
Compare minimum cash needed to open an account. This varies from several hundred to several thousand dollars. Analyze your personal financial situation and how much money you have to put upfront.
Determine the type of investments you want to make. Stocks, mutual funds, bonds, options are some main choices. Look at your potential list to see which company offers the right investment vehicles.
Pick a full service broker. Their service costs more but for the most part leaves investment decisions with the broker. See the customer ratings before you apply. Merrill Lynch, Morgan Stanley and UBS are a few of the big names. See the annual full-service rankings at the smartmoney website.
Choose a discount broker. Make your own investment decisions with a discount online broker. Save money on commissions and fees. Look at the big names and compare, such as TD Ameritrade, E-Trade and Scottrade.
See how much each stock order costs. Online trades are less expensive. A broker assisted trade is much higher per transaction.
Check out additional fees. These range from inactivity fees to maintenance fees. Each stock broker will list their fees and all have websites containing this information.
Think about the services you want. Level II quotes, interactive charts, streaming news, check writing and research are good tools for the investor.
Look at local office locations. Make sure an office is reasonably near your home, more so with a full service broker.
Talk to your potential broker on the phone. Prepare questions in advance and get a feel for the person. Choose a firm that you can rely on and trust.