Can I trade a corporation's money?

This is a question for the ET tax/accounting experts. I own a couple of companies (S-Corps). Can these companies have me trade a certain amount of capital for them? For example:

I deposit $50K in my futures account.
My company matches the $50K, and signs a contract with me to split profit/loss 50/50 at the end of the year.

Would this be legal? Just curious.

Thanks,

-Fast

 

Yes.

 

metooxx, do you have some more info on exactly how it works out? Should I PM you on this?

-Fast

 

If you want.

There is nothing wrong with exactly how you proposed it ...

 

I’m always concerned in questions like this that I may not fully understand the facts. I will assume that you are a 100% owner of the S corporations.

My first comment is that you are going to be taxed on all gains/losses that occur in any account that is open under your SSN. This is true regardless of what kind of side agreement you have with your S corp. So if you put $50k in a futures account under your SSN and the S corp puts another $50k in, whatever gain/loss that occurs in that account is going to get taxed to you personally, since you are the owner. There would be a different answer if the account were owned by a LLC that could then allocate the gain/loss between you and the other owner(s), but as long as you own the account in your personal name, the gain/loss is yours to have, to hold, to cherish, and to pay taxes on.

My second thought is that the logic of this whole arrangement escapes me. If you are a 100% owner of the S corporation, then its profits/losses are going to flow through to you on a K-1 anyway. So I don’t see what has been accomplished by the proposed arrangement.

So if there is a tax advantage in this arrangement, I don’t see it. Which leads me back to my first comment . . . maybe I don’t understand all the facts.

 

Joe, maybe there isn't any and I'm just spinning my wheels for no reason.

I'm actually 50% owner in the Corp. My reasoning to do this was so I wouldn't have to pay taxes on the $50K that the corporation provides. I mean, I could just write myself a check for $50K from my corp's account, but then I pay tax on the $50K regardless of trading performance. Whereas, if the company invests the $50K with me; I return the $50K plus the P/L to the corp. at the end of the year; and I only get taxed on the gains. Could I actually expense the profit I hand over to the corp so I only get taxed on the profits I get to keep?

Like I said, this may just be a stupid idea, but I wanted to be sure it was a stupid idea so I posted it here for your critique.

-Fast

 

Except you own 75% of the P/L ...

 

It sounds to me like what you really want to do is form a new partnership (LLC) between yourself and the S corporation. Then each of you contribute whatever you are going to contribute into the LLC, and take ownership percentages in that proportion.

Then you will accomplish what I think you are trying to do. Your portion of the gain/loss will get taxed to you on your K-1; the S corporation's portion will get taxed to it on its K-1.

This seems to me to be a simpler way to do what you are trying to do.

 

Thanks Joe. I think that is what I'm looking for. Now, when I create this LLC, is there a limit to how many companies or individuals can invest in it, or the amount of capital than can be invested? I have no licenses. Also, is there a deadline date by when this LLC should be created to take advantage of this in 2004?

Thanks,

-Fast

 

I'm not a securities law expert, so I'm not the best guy to tell you where the lines are drawn between activities that do require a SEC license vs. those activities that do not.

So I'm going to invite other participants on this Forum to chime in with their securities law expertise. Remember, the opinions offered on this Forum are worth what you are paying for such opinions.