Time may be more valuable than money

When running a company, Business Insider says many business owners feel that they can save a great deal of money by doing all of their management functions themselves. However, that train of thought, the source says, overlooks the fact that the time spent doing those things might be put to better use.

Many sole proprietors, the source says "make the mistake of trying to do everything themselves in order to save every penny." BI says it's not possible for people to be the best at everything, so business owners should focus on their own strengths, in this case day trading, and work to overcome their own weaknesses and liabilities.

Day trading for a living may place a great deal of strain on a traders' accounting and bookkeeping skills, which may not be their strong suit. By outsourcing that responsibility, traders can spend less time worried about their accounting ledgers and tax deductions and more time watching the market for the next score.

In addition to freeing up a traders' time, Business Insider adds working with a reliable partner for other services may also result in better quality work than they could have done themselves. In order to get a feel for a firm's way of doing business, and see the quality of work they produce, it may be a good idea to give them a small project as a start, and then grow from there.

Following these steps can ensure day traders don't spend unnecessary time doing tasks they could easily remove from their daily workload. By doing so, they can ensure they spend their time on what matters most.

Professional tax prep reduces audit probability

An audit from the Internal Revenue Services is one hassle people day trading for a living likely want to avoid at all costs.

For sole proprietors filling out a Schedule C for their day trading taxes, Fox Business says the chances of an audit are much higher than they would be for people working off of a W-2. To reduce that risk, the source says people may want to have their taxes completed by a professional.

Fox Business says the IRS is more likely to audit self-reported tax forms simply because they don't feel most people have as much of a grasp of the tax code, regardless of whether or not they do. Returns prepared by professional accounting firms carry more credibility with the agency, and may be less likely to be singled out for an audit.

The source added that in the event of an audit, day traders should make sure they have documentation to back up all the tax deductions made during that year. Home office and auto expenses are two of the most closely scrutinized categories of deductions, it says.

The source added day traders who officially incorporate their company as a LLC or corporation may also be less likely to be audited by the IRS. However, because these changes could have significant impacts on other parts of the company, business owners should have a full discussion with an accounting firm and lawyer before deciding to make any changes to the structure of the company.

Programs aside, small business accounting still difficult

Despite the widespread availability of relatively easy-to-use accounting software programs, entrepreneurial experts tell the Christian Science Monitor those who decide to do day trading for a living may want to work with an independent accounting and management firm to help get them moving in the right direction.

The source says even though do-it-yourself software programs can be relatively easy to work with once they are figured out, there is still a distinct learning curve as business owners get used to them.

"Do-it-yourself accounting tools may provide some assistance, but the entrepreneur will incur a learning curve and have to invest time in these sites when he should be investing time in developing the business," Vic Alexander, chief manager of a CPA firm, told the source.

In addition, Alexander says an accountant can be a valuable partner, helping traders choose the best business formation for their purposes, and set them up with bankers, attorneys or insurance agents they need to speak with. In addition, they can also set up performance metrics to help day traders stay on task, and assist with retirement planning and other aspects of their business.

CPAs and other accounting firms will also be up-to-date on any recent regulatory changes that may affect the tax breaks or obligations which a small day trading company might be impacted by. Keeping up with those changes can take even more time away from traders when they could be focusing on other things.

IRS rolling out new tax technology

The Internal Revenue Service has rolled out a number of new technology innovations and other strategies, which may impose tighter reporting guidelines regarding capital gains taxes and other income categories.

While day trading companies will not have to abide by the somewhat controversial 1099 reporting requirements that were recently repealed, other changes will soon be in effect.

During a recent speech at the Johns Hopkins Carey Business School in Baltimore, IRS Commissioner Doug Shulman said the agency is beginning a new push toward greater information reporting. Some of those changes will work to cut down on unreported day trading taxes.

"We have some recent changes in the law that gave us new tools in our information reporting toolkit," Shulman said. "For example, IRS research exposed the huge scope of misreported capital gains and losses largely due to taxpayers not accurately reporting their securities' cost, or 'basis.'" He added brokers would be required to fill out addition basis data to allow clients to better fill out their tax returns.

In addition, the IRS is also working to roll out regulations and training requirements for tax preparers, so people will be able to rest assured they will be able to find a tax preparer or computer program that has effective accounting tips for those who do day trading for a living.

Shulman also added the IRS is nearly ready to roll out an upgraded version of its customer account database, which allows consumers to see any recent tax bills out payments made on an account. It should be ready by January 2012.

Another flash-crash warning in affect

Last May, the Dow Jones Industrial Average plummeted by nearly 1,000 points. Only 20 minutes later, however, the market rebounded and recovered most of its losses. The second-largest swing and largest-ever one-day decline is now known as the flash-crash.

While some experts have offered explanations as to how the market swung so widely on one day, none have come to an agreement regarding the occurrence. Many experts believe the crash was a result of high-frequency traders, hence the event earning the nickname the flash-crash. However, even if this was the doing of high-frequency traders, more questions still remain, such as the what these traders did to cause it and if these problems have been fixed.

Currently, high-frequency trading has been met with increased opposition and has slowed in general. Some experts, such as France's finance minister, Christine Lagarde, have moved to ban the practice altogether.

Using algorithms, high-frequency traders buy and sell stocks in rapid movements, earning and accumulating the small amount made in each transaction. Those against the practice argue it to be unstable. Now, instead, experts have proposed using fixed-income instruments in order to improve the market's transparency and governance within transactions.

However, as a recent eFinancial News article relays, doing so could present a potential chain reaction that could result in another flash-crash and rapid point swing. Approaching the market with extreme caution might be advised for the next several months as a result.

Day traders moving away from high-frequency, computer-driven strategies

During May 2010, the stock exchange experienced one of its fastest, and worst, crashes, when the Dow Jones Industry Average fell 600 points in less than 10 minutes. Referred as to the "flash crash," many experts believed this was a result of high-speed computers.

Now, a year later, many companies that had previously used these high-frequency day trading strategies have slowed their use, cognizant of last year's events. Now, the stock market has taken further hits, as trading volume and volatility levels have both plummeted. This fact also had deterred high-frequency traders from returning.

According to Will Mechem, a managing partner at a high-frequency trading firm, these previous rapid-trading strategies "have less to work with, so they don't participate, which creates less volume. This would seem to be a vicious cycle."

During the initial months of 2011, the trading volume on the New York Stock Exchange and NASDAQ Stock Market are down 15 percent year-over-year, with an average of 6.3 billion shares a day that has been declining each month. During April, the average fell to 5.8 billion shares - the lowest since May 2008.

This volume decline is also being attributed to fewer swings in stock prices, which were commonplace between 2008 and 2010. However, these fewer swings have deterred high-frequency traders from returning, as their strategies rely on building profits from the small discrepancies found between the buy and sell orders on a daily basis.

One company estimates that high-frequency traders made between 5 and 7.5 cents on the U.S. stock market, on average, per 100 trades in 2010, which is down from 10 to 15 cents in 2008.