If you are talking about a U.S. corporation, get a good accountant. Any good local CPA will be a wizard at this. You don't need to go to a fancy office with a staff of 20 and pay fancy prices. Just get someone who has been doing this for years. When you incorporate, things get complicated. For example, do the stocks you put into your business become part of the business? If not, are you a services business? How do you pay yourself? Where do you store the profits? Do those become part of the business? If you withdraw the profits from the business and give them to yourself, does that count as being paid? If so, does that mean that money is taxed at a normal wage-earner rate? When you make a profit, are you paying the tax or the corporation? If the corporation is paying the capital gains tax, does that mean the capital (i.e.) the shares are now part of the corporation? It gets tricky. It's not worth messing around with. The laws change all the time. The accountant is up-to-date with the laws because they do this stuff all day long and know what to pay attention to. So I would say work with a professional. If an athlete can make $20 million kicking a football, an accountant can make a professional wage working every day to help people do things correctly. Accountants are some of the best money well spent on the planet. I would do this: 1) Find an accountant you like and whose fees you find affordable. 2) Talk to the accountant and have them tell you what type of corporation you should set up (if any). They know how each corporation works because they do corporation financials all the time. 3) Once you know which business structure to set up, go to a local licensed attorney and have him/her write the proper paperwork. It's a one-time cost, and you want to get it right. 4) Then bring the corporate structure paperwork to your accountant. Your accountant will know exactly what's going on. From that point forward, you don't need the attorney. You work with the accountant.
Looks like pass through entities (s corps included) are getting the short end of the stick in this tax proposal. Might have to start a c-corp group here and be in 20 BODs
Recently opened a c-corp for trading options. My reason was that you pay less in corporate tax (15%) for first 50K income. For long term, c-corp can retain earning upto 250k for business expansion. I really do not care for home office deduction.
If you pay 15% Corp taxes then 15% in dividend taxes when you eventually return the money to yourself, you end up paying 30%. You need to be making more than $233,350 in AGI if filing jointly for this to save you any money, you pay more in taxes if your AGI is less than that because you'd only be paying the 28% ordinary income rate on any short term gains absent incorporation. And of course once your Corp makes over $50k you move to the 25% Corp rate then rapidly into the mid 30s corporate rate so your total tax bill is much higher than if you hadn't incorporated no matter your AGI. So overall only a benefit to a small subset of people and then only if they aren't terribly successful at trading.
Completely agree Sig. I had to look into this as my options trading income rose significantly this year. Set up a c-corp to do some income splitting and at least save some on taxes. My plan is not to make over 50 K in c-corp. You can retain earning up to 250 k in c-corp without worrying about div. I will try to get some salary and a lot of retirement contribution at year end to keep corp earning below 50 K, no tax for corp except basic employment tax. This, I do not think will happen over next 1-2year. Let me know if there is something wrong. Open to suggestion.