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 Open a Stock Market Account

Select an online stock broker. It is important to compare stock commissions, other fees and the services the broker provides through their website. Changing brokers can cost $100 or more, so this is an important step. The Smart Money broker 2009 Broker survey is linked below. The top three rated brokers in the survey were E-Trade, Fidelity and Charles Schwab.
Apply online for an account with the selected stock broker. The online application process will take about 10 minutes and you will receive instant approval and an account number. Stock brokers are required to collect employment information to comply with Securities and Exchange Commission rules.
Fund your brokerage account. Money can be sent to a stock broker account by wire transfer, electronic ACH transfer or by sending a check. Wire transfer is the fastest but has fees on both ends. It takes three to four days to set up an ACH transfer. Once set up, ACH is an easy way to move money in and out of your stock account.
Familiarize yourself with the broker's stock order screen and place trades for the stocks you want to own. Stock purchases are done by designating the number of shares. A market order will be filled at the current price. If you want to buy or sell at a specific price, use a limit order.

How to Obtain a Stock Certificate (3 Steps)

Ask your broker to get the stock certificate on your behalf. This is the easiest way to get a stock certificate. No matter what type of broker you have an account with--online broker or full-service broker--you can request a physical stock certificate at an additional fee. Check with your broker for details about the process as well as the fee you will have to pay.
Contact the company in which you own shares directly. If you purchased the shares directly from the company, then you can contact them for a physical stock certificate. If you cannot locate or contact the company directly, you may visit its state of incorporation for information.
Order the stock certificate through a transfer agent. Most companies that issue shares to the public have a transfer agent to handle the company's securities. You can find the name of the company's transfer agent in the company's annual report. You can visit the U.S. Securities and Exchange Commission to get the annual report of any company listed on the stock exchange.

How to Get a Seat on the Stock Exchange

First, you must wait for a seat to become available. There are a limited number of seats on stock exchanges. In order to obtain a seat, one has to become available due to the death, insolvency or decision to sell by an existing member.
Next, you must obtain the votes necessary from other members of the exchange. These votes are required to become a member of the exchange. There is a strict review process required by people who wish to purchase a seat on a stock exchange. Once they have passed this review, they must abide by a code of ethics and compliance. Seat owners are continuously monitored by the stock exchange itself—and by government regulators. Regulators include FINRA which is a self-regulatory organization, and the Securities and Exchange Commission, which is a federal watchdog agency for the securities industry.
Stock exchange seats must be purchased. The price of a seat on the New York Stock Exchange can be as little as $4,000 and as much as $4,000,000. The price of seats is set by supply and demand and the price tends to fluctuate with the state of the economy. When the economy is booming, seats will sell for more. When the economy is slow, they will sell for less.
In addition to paying for the seat itself, the purchaser must also pay an initiation fee.