Hey traders, I was wondering if and how many people actually trade as an LLC ? I've been self-employed for 12 years, with my company set up as an LLC. Trading is a secondary deal right now, but as far as tax purposes go, would it be worthwhile to incorporate my trading? No, I haven't spoken to my accountant, but I'm sure he'd be delighted to do another corporate return for me. And no, I haven't spoken to an attorney, as I'm sure he'd be delighted to have me come by the office for an hour of "consulting". This is a trader forum, and thus I'd like to hear first hand from traders themselves, and then proceed. Thx.
The IRS is going to clamp down hard on individuals who file for trader tax status. Filing a Sch. C and taking losses is the trigger for an audit. Use an LLC as the entity to file for your trading business. The LLC will deliver a K-1 to you so the profits/loss will flow through to your individual return. The likelihood of triggering an audit will now be greatly reduced with the LLC. Always consult a qualified accountant who has experience in these matters. I recommend GreenTraderTax.
So if you have people that want to give you money to trade. What would be the best way to do it? I was thinking LLC will be a better way to do this......Any ideas.
Yea, avoiding IRS red flags is definitely a plus. My thinking with them is , if you get audited, they WILL find something, somewhere. Heck, I didn't even do my own weekly payroll deductions, tax deposits, etc. I just faxed or emailed the figures to accountant, and his staff would get me the correct figures. As far as more papework/hassle, that's not a prob. Like I said, I just get the deposits, statements, billing, etc together and give them to the accountant. He gets paid to make sense of my mess.
I had a "C" corporation for 27 years that I set up for my consulting business. When I stopped consulting to focus on trading, I re-analyzed the benefit of having a corporation. What I found was that over 10 years I was spending $2 for every $3 of savings. So I dissolved the corporation to simplify my life. I don't claim trader status, though I could easily qualify, and I do my own tax returns. I am wasting a few hundred dollars in lost writeoffs, and that makes accountants crazy. But my life is a lot simpler now, and I am focused on what matters most. If I ever change my mind about that, I will probably file a Schedule C or trade via a "C" corporation. I don't think the benefits of LLC, LP, or "S" corporation outweigh the disadvantages.
There's so much bs and misinformation surrounding trader taxation and formation. The only potential advantage and its really not an advantage in filling a llc is writing off your health ins and a retirement plan. The downside is you must pay the huge fica of over 15% which if you make 300k or more is a much greater penalty than filing as a invidual with a sch c and wirting off nobenefits. I think many of the notes on here in favor of a llc are people who are part time traders who would get caught filing as a trader on 1040 thinking a llc would give them cover. I've been filing as a 1040 trader since 1999 and have made as much as 10 bil of sales in a year and never had one problem. I've made 7 fig's several times and i've had a mtm loss of 500k and got my refund with no snags or questions. The key is i have no w-2 income and i trade huge so no questions.
This is a fact: The IRS is going to be more aggressive auditing individuals who claim trader tax status and less so on LLC's. This will mean more audits regardless if you meet all the requirements or not to qualify for TTS. The minimum guidelines now used are you trade 75% of the time the markets are open and make at least 500 round turns per year. Extra scrutiny will be given to those who trade futures, where the sale proceeds of each transacation are not reported by the broker on a 1099-B. You have increased the probability of having your return audited as an individual, period. If that doesn't bother you, then continue to do what you've done in the past.