And just to add to Don's last post, with tax deferred retirement plans, if you do withdraw money before the age of 59 1/2, you get hit with a 10% IRS penalty for early withdrawal.
Plans most attractive feature is the tax deferrment and current tax "deduction". What are the bad aspects of a corporation? That is what my accountant is ready to set up. It sounds great to me unless I am not fully understanding its features. Thanks again.
You will fall prey to another accountant who wants to file additional tax returns for you. You will be subjected to double taxaction, Self Employment tax (of FICA), FUTA, and all the rest of the nonsense. For several years now it has made no sense to set up either Sub-S or "C" Corporations for individuals. I started out my "life" in Public Accounting, and we have some of the best tax accountants and tax lawyers in the business. I have been through the ringer with accountants trying to run up bills. All this rhetoric about "deferred taxes" "defined benefit plans" "keough" and all the rest is just nonsense in this day and age. Again, this is offered as personal advice only, and if you would like to call one of my CPA's to verify my statements, feel free to call me.
I am NOT an accountant, (I'm only married to one ) but this is what I understand. What you say is key: "tax deferment". Anything you put in a Keough, regular IRA, etc. is "tax deferred" meaning that while you don't pay taxes on it now, but you will later. With an LLC that gives you your $$$ as non "earned income", you don't have to pay the self-employment tax. Period. Not now, not later. The down side is that your choice of retirement vehicles is limited to things like a Roth IRA or an annuity. I ran some calculations with very basic sample numbers and going the LLC route, the effect was to have a few thousand more on your bottom line now than if it was set up as earned income. At first, it seemed like a negative that a Keough, regular IRA, etc. was not available with non earned income, but after running some calculations, it actually worked out better. I suggest you run your own calculations with your income to see which works out better for you.
my accountant told me this: She could do a corp on my regular tax return and not charge me more for extra corp returns. i would pay a little fica on an amount equal to my keough contribution, but get writeoffs for my keough contribution and for the fica I paid. and it is a lot easier to writeoff expenses through a corp. Make sense or am I still coming out worse off that if i left it. I could open an annuity that just defers taxes but doesn't supply a current writeoff. She found that interesting. I did some digging and am wondering what you guys think. All the advice the first time around was great. Thanks again.
If your K-1 is done correctly (no SS tax) then forget the corp. No such thing as a "writeoff" in this regard...the tax is paid somewhere. Also, the corp has to pay taxes, and if take money from it, then you pay taxes plus fica plus the corp has to match fica. Open and shut case....IMO...(disclaimer here...not tax or legal advice from Bright Trading, just my opinion).
Don; Thanks for your help. No matter what anyone says you're a major positive for the industry. Aside from retirement vehicles, what are the pros and cons of sub S vs. LLC? Specifically can carry-over losses be written off 1-1 against future corp. or LLC profits, or limited to 3k? Also does an LLC protect participants from a trading debit at a non prop firm, i.e. a "normal" brokerage account?
The LLC is responsible for any excess losses over the initial capital as long as there were no rule violations involved.. There is rarely a reason for a Sub-s corp. when you are a member of an LLC. Since all the expenses can be applied to your K-1, and the income is "net-net" anyway, you're probably better off as an individual. The loss carry-forwards are a matter of the specific firm's accounting practices (they vary from firm to firm). If you lost $50K in 2001, and made $100K in 2002, you should only pay tax on $50K (if the firm is set up correctly, IMO). Thanks for the good words, I don't let the "silly things" that seem to give people a "thrill" bother me. Most of the people on the board are pretty normal, and the weird ones add some color at times.