I recently talked with an accountant and a lawyer about my taxes and was told I should be using an LLC to trade. First off, I trade full time as a career (my only job) and I only trade futures contracts, about 2000 rt's a year, I also currently trade from my home, and am going to purchase new equipment in the near future. Below are the reasons I was given as to why it is advantageous, I would like to know if those of you who are career traders formed an LLC, a Corporation, or a cross between the two, and if it as helpful as stated below. 1. The IRS is less likely to audit if you trade from a formal entity. 2. Deductions (home office, utilities, Cable, computer, monitors, TV used to view Bloomberg in office). 3. When you pay yourself with an LLC you pay no taxes on payroll. 4. Asset protection 5. Flow through tax structure. 6. Carryover of previous years loss 7. Education, travel, anything related to business can be deducted up to a point. Any help is greatly appreciated by anyone who has done this, any businesses in the NYC area that help traders with this that you know of please share.
These are the issues I can comment on from personal experience: 1. If you trade regularly and have nothing to hide, you have no fear of the IRS. An LLC provides no protection. 2. You can deduct anything as a trader that you can deduct with an LLC. 3. When you file as a trader, your income is not considered earned income. So you pay no self employment tax or social security. This is a huge savings. Not true if you pay yourself a salary from an LLC. Your taxes may well be higher. If you are making serious income (congratulations), you may be able to cook up a good retirement program with an LLC. Other than that, IMO, you are better off just filing as a trader and not getting involved in a corp structure. Also consider that a CPA and a lawyer, if you are their client, are of course going to want you to do an LLC. Duh. How do you think they pay their rent?
lindq is 100% correct. all his pts are right. i'd fire your cpa and find a real trader cpa who knows the laws.
I 3rd the above. READ THIS THREAD, especially what Bob111 said about filing as "unemployed" and filing a schedule D. It sounds much better for your situation: http://elitetrader.com/vb/showthread.php?s=&threadid=104040
This site has an interesting structure. LLC with C corp as a member as the base structure. I am considering consulting them myself to see if this would save money in my situation. http://tradersaccounting.com/product.php?productid=16173&cat=250&page=1
A) This sounds like a structure designed to raise $$$ for the company that published it. B) The "some people file in Nevada to save state income taxes" smells. You must pay state income taxes in the state you live in. C) Having an LLC and C corp will be a big pain of paperwork, quarterly reporting and annual tax preparation.