Pros and Cons: LLC vs S-Corp

ha ha ha, who is this joker. I find it humorous that these people call themselves trader accountanting specialists. Remember a business is a businesses is a businesss. And daytrading is a business.

 

The only thing that is simple, is your understanding based on your limited theory. This is stupid. ALL income passes through and is subject to 14-15% self employment tax. Only what you can figure out as legal bennies gets any preference. And there is a lot less than meets the eye.

 

Thanks for the straight answer. But, being a lazy ass that I am, you got me on the hook for more questions (sorry, my brain doesn't function well on Sundays). Why should I form an LLC and then elect to be taxed as an "S" rather than form an "S" from the start?

 

YOU ARE 100% WRONG ON THIS.

http://www.powerhomebiz.com/vol136/structure.htm

In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings.

 

I have yet to plow deep enough to figure this out but from what you folks are saying I gather:

1. As an "S", the corporation don't owe Uncle Sam any corporate taxes but only the salary it doles out to its employees (ie. me the owner).

2. As an "LLC", the taxes are also passed on to the owner(s). I'm not too clear on this one.

3. As an LLC elected to be taxed as an "S", the coporation passes the taxes down to LLC, which in turn passes down to its owners. So is there a potential for double taxation? My head is spinning at this point.

 

A trader doesn’t have to form a separate legal entity, such as a partnership, corporation or limited liability company, to receive “business tax” breaks. If your trading activity rises to the level of business status, you are entitled to business tax breaks as a “sole proprietor” or “unincorporated entity.”

An unincorporated trader needs an entity only if he or she wants to have a retirement plan and/or deduct health insurance premiums.

Pass-through entities mean that your entity does not pay a tax; instead, gains, losses or expenses on the entity are passed through to your individual tax return to be taxed there. Pass-through entities file their own tax return and allocate income, gain, loss and expense to partners on a Form K-1.

 

No not at all!!!
You get several benefits from incorporating
1) Less self employment tax
2) Legal protection
3) Retirement plan

You can only deduct health insurance premiums w/ a C-Corp. You DO NOT want a c corp. So this doesn't matter.

 

Also here is something everyone should know, if they do not declare themself as a business, and are trading from a retail account.

The wash rule. If you bought stock on Dec, 20th and sell it for a loss Dec 31st, and buy it back w/ in 30 days. YOU CANNOT take this as a loss for the current tax year.

Now if you do a lot of trading, you can end up paying A LOT more in taxes that you owe.

It is possible your net could be $50,000, but you owe taxes on $200,000. Of course you'll be able to carry this forward

 

sole prop traders do not pay self employment taxes. no need for an entity for that. retirement plan is the only real benifit a trader needs an entity for.

 

If you are self-employed; why pay for personal income tax?

I use LLC to cover all my expenses(everything, including meals), and pay only corp tax, update minute every year, its ownership didn't change at all; only dates. LLC route is hassle for paper work; only took me about a week to sort out all paper work for a year and send it to my accountant to file for tax. total cost about $2000.