Entity for traders

Discussion in 'Professional Trading' started by yxy, Feb 7, 2007.

  1. minmike


    I'm starting an S corp. I think that takes care of the double taxation.
    #11     Feb 9, 2007
  2. lwlee


    I have a S corp for consulting. Was ready to trade with it and had my IB institution account approved but decided that the extra SE tax would be too burdensome. Since I only trade futures, doing Corp would only add to the tax burden.

    But it's my first year so I will need to re-evaluate in the future and decide whether Corp's other benefit ie health insurance, might balance the equation.
    #12     Feb 9, 2007
  3. minmike


    All I do is trade futures so I don't hink I could avoid teh self employment tax. But health insurance deduction would be a big plus. How does teh tax defferment work? If I don't take the money out for x amount of time do I ever have to pay taxes on it? thanks
    #13     Feb 9, 2007
  4. stylark3


    My understanding of the double taxation rules for the C-Corp
    is that only the remain revenue earned by the C-Corp in a
    given year will be taxed. So, if the Corp earns $100000
    but it pays out $90,000 in salary then it is only responsible
    for pay taxes on $10,000.

    Does not the same situation apply for dividend payouts?
    Is this not consider a Corp expense or am I wrong about
    this? i.e. Corp earns $100000, dividends of $90000 are paid
    out. Is the Corp responsible for paying taxes on $10,000 or $100000?

    #14     Feb 9, 2007
  5. lwlee


    As an S corp, you must pay a salary hence the SE tax. Futures are taxed at an effective 23% rate if you file as a sole propietor. If you put your proceeds through the corporate wringer, it should come out to a higher rate.

    If someone who has done this already and has a real world example, please post your experience.
    #15     Feb 9, 2007
  6. mtwokay


    Here's something to consider to help minimize and/or avoid double taxation issues with a corporation:

    1. C corp: Contract yourself out to the corporation. All income passes through the corporation directly to you. This will limit corporate taxes but you're still responsible for personal income tax.

    2. S corp: Pay yourself using officer draws. This may raise flags, although many of our highly esteemed elected officials do this all the time.

    There are other benefits to the above but I won't go into them here. It’s always critical that you have a good CPA with gonads, one that knows the law and how do deal with the IRS should you be audited.
    #16     Feb 9, 2007
  7. The one risk you run is if the IRS audits you and you are paying yourself a huge salary in order to take the deduction against income. SO if your sole shareholder Corp makes $100,000 a year and you give out all of it in salary to yourself the IRS can come after you. You might not get caught but if you do... ouch.

    Dividends are not a deduction. A dividend is issued after tax and thus the double taxation. so if you earn $100,000 you pay tax on $100,000 and the issue a $90,000 dividend and then pay personal income tax on the $90,000.

    #17     Feb 9, 2007
  8. You guys must think the IRS is stupid and they know nothing about tax avoidance. You can get in trouble for any scheme that appears to be an avoidance of the double taxation of C-corps if you are getting the cash flow. Do not be silly and take the chance.

    Look at it from their point of view. You are the sole shareholder of a C-corp and you contract with yourself as a contractor????? Yeah that looks perfectly normal and does not raise any conflict of interests issues as well as tax avoidance issues.

    C'mon lol......The IRS is gonna get theirs so do not play that game.

    #18     Feb 9, 2007
  9. Gonads. lol. I have a friend who used one of these guys who claimed to be an ex irs agent and claimed he knew the tricks. She has an in home mlm business. He set her us as a family corp and set up a scheme where their business would rent their home office from themselves. The irs caught it and flagged it. The audit went on for a year and the bill was 18000. The hassle factor was priceless.
    Moral of the story is dont raise too many red flags because the irs almost always wins.
    #19     Feb 9, 2007
  10. mtwokay


    Agree optioncoach, just play it safe with the IRS.

    I've seen both contracting and officer draws pass the IRS test but remember pigs get slaughtered.
    #20     Feb 9, 2007