Generally, no. No broker is going a single person to trade within a legal entity without you also PERSONALLY guaranteeing against loss. I had an S corp for years. Any time money was at risk, they made me also personally back/guarantee loans or losses. I am not sure, but I believe trading losses at a broker cannot be bankrupted away - I think I saw this a few years ago, but do not remember the source.
You can believe what you want but the actual statistics do not support your hypothesis. But to be fair there are hardly a significant number of individual professional traders in the country so any statistics canât be taken too seriously. Having a net loss on your Schedule C and actually using all your deductions and home office is a preprogrammed IRS audit flag. None of this means you will or wonât be audited, but setting up a structure eliminates the Schedule C loss audit flag.
some good info. here too: http://traderstatus.com/default.htm also check this out: http://www.traderstatus.com/board/
Legal entities are audited more than individuals. This is based on published results. Regardless of your belief to the contrary.
http://www.myirstaxrelief.com/blog/irs-audits/chances-of-being-audited/ What are the chances of being examined? A total of 1,391,581 individual income tax returns were audited during FY 2008 (Oct. 1, 2007 through Sept. 30, 2008) out of a total of 137.8 million individual returns that were filed in the previous year. This works out to 1.0% of all individual returns filed (about the same as the audit rate for the preceding year). Of the total number of returns audited, 503,755 (36.2%) were selected on the basis of an earned income tax credit (EITC) claim (down slightly from the 36.5% rate for FY 2007). Only 22.3% of the audits were conducted by revenue agents, tax compliance officers, and tax examiners; the bulk of the audits (about 77.7%) were correspondence audits. These percentages are about the same as they were in FY 2007. Following are the audit rates for individual nonbusiness returns that didnât claim the earned income tax credit: o For âselected nonbusiness returnsâ (includes returns without a Schedule C (nonfarm sole proprietorship), Schedule E (supplemental income and loss), Schedule F (profit or loss from farming), or Form 2106 (employee business expenses), 0.4% (same as for FY 2007). o For returns with Schedule E or Form 2106 (excludes returns with a Schedule C, nonfarm sole proprietorship, or Schedule F, profit or loss from farming), 1.3% (up from 1.2% for FY 2007). o For nonfarm business returns by size of total gross receipts: under $25,000, 1.2% (down from 1.3% for FY 2007); $25,000 under $100,000, 1.9% (down from 2% for FY 2007); $100,000 under $200,000, 3.8% (down from 6.2% for FY 2007); and $200,000 or more, 0.6% (down from 1.9% for FY 2007). The audit rates for entities were as follows: o Fiduciary (estate and trust income tax returns), 0.1% (the same as for FY 2007); o Corporations with less than $10 million of assets, 1.0% (up from 0.9% for FY 2007); o Corporations with $10 million or more of assets, 15.3% (down from 16.8% for FY 2007); o S corporations, 0.4% (down from 0.5% for FY 2007); o Partnerships, 0.4% (same as FY 2007); o Estate tax returns, 8.1% (up from 7.7% for FY 2007); and o Gift tax returns, 0.4% (down from 0.6% for FY 2007).
Wow, you really are a clueless tool. Business entities are audited more than individuals? Holy crap maybe next you will say the sky is blue and grass is green. This in no way supports your ridiculous assumption about traders. I will try to be clearer for your obviously limited intellect. Taxpayers who claim professional trader status from home are being targeted for audits far more than the average business. Regular individuals with standard taxes get audited infrequently, the average business gets audited more frequently, and for whatever reason the small number of professional home based traders are being targeted for more audits than the average non trading related businesses. You can reduce, not eliminate, the probability of being targeted as a home based trader by forming the correct entity for your individual situation. I have discussed this with three different CPAs, but please fell free to give the pretend professional traders on this site the benefit of your ludicrously inadequate knowledge.
This question is addressed to all the traders out there that are not incorporated in any way. Do you folks run into problems getting a mortgage or buying health isurance and other products because technically you are considered "unemployed" if you report all of your trading income as capital gains? I have been trading 1256 contracts on a full time basis since June of 2007. Each year I have made triple the amount of what I made as a manager in the retail industry. For tax purposes, I have filed all of my gains as capital gains being taxed 14.5% on the Federal level. And I did not have to pay any SSI or any other taxes. Which is great because I do not think there will be any Social Security or Medicaid 35 years from now when I am eligible. So to me, I see no reason to pay into it so others will get all of the benefits. But this is a discussion for another thread. I would like to apply for a mortgage now but many lenders are having a problem with my "trader" or "unemployed" status since I am not incorporated and I do not have a W-2 to prove that I have a stable "job". Has this happened to other traders out there? And if it did, how have you handled it? And please don't tell me to pay cash because I am fully aware that I can do that but why would I want to tie up half a million dollars that I can use to make 7%-10% on monthly? Any ideas or suggestions?
100% right. there is no tax benefits if you incorporate for trading anf trying to save a buck on taxes. there is "some" benefits, which never been mentioned here and that's why i can safely assume that majority have no clue what they are talking about...corp pays 15% tax on first 50K profit. that's the one..of course as long as you keep those profits in corporation.. btw- i have no idea wtf some of the posters mean by phrase -"it will reduce your self employed tax"? what? if you file, like TraderZones said, as unemployed you not paying any BS SS,medicare, self employed tax,local or whatever tax..only capital gains..
i have no problem to get an approval for 500K mortgage after showing my taxes for last two years..it took about 5 min max. even if on tax return i was unemployed..they suppose to check your ability to pay your debt on time..and if for last 10 years you never miss a single payment on your CC-who give a f* what you do for living..