setting up an entity

Discussion in 'Professional Trading' started by Boomer, Oct 20, 2003.

  1. Yeah, seems like we're the only people up this time of the day. How is it with the markets over there? Does anybody actually trade Australian markets, like SPI, and what is it like? Any good? I mean they'd just be opening this time of the day wouldn't they? Any action? Good scalping? Trends?

    You are of course right here. I wonder about US tax, and how much we'd have to pay them under these circumstances. You possibly can't be avoiding all Australian tax and then live here in Australia (just from a logical point of view), and it might bring complications either way, not to name the mentioned setup costs. And then the question would you want to give all your money to the US government?

    Either way, from what I know I think that once you're making good money in America, there's a hell of a lot of tax breaks and loopholes for rich people. Rich people in the US live like god in France, because that's the way the Republicans have continuously set up the system, to take from one and give to the other. Given you're in the US tax system though I'd say.

    In Australia it's kind of similar, but not nearly as extreme. There are hardly loopholes, and you can get taxed boat-loads. But then, you know, 30% corporate tax is pretty nice.

    It would be interesting to find out more about this. Thanks for the link.

    Scientist.
     
    #11     Nov 15, 2003
  2. I knew this thread would soon get flooded with junk which the later posts confirm. In answer your question, there are good reasons for an individual trader to create an entity.

    One is that you get earned income and can offset healthcare and insurance expenses which you can't do just by declaring trader status.

    The second is that you get fund a mini 401K because you have earned income. The contribuion limits are very high for this type of plan and its a really good deal.

    The third reason is you'll be able to max out Social Security which you won't get with just trader status. I know SS does not have a good return, but I wouldn't skip it.

    http://www.greencompany.com/Traders/TraderRetirement.shtml
     
    #12     Nov 15, 2003
  3. Puffy,

    Unfortunately, if you do it that way, you'll wind up paying self employment tax, a hefty 15% up to some limit (around $70k I believe). You'd need a lot of deductions and health expense to cover an extra 15%.
     
    #13     Nov 15, 2003
  4. m22au

    m22au

    Bundle,

    Can you describe the self employment tax in more detail?

    Who does it apply to - the company or the individual?

    Under what circumstances?

    Thanks in advance


     
    #14     Nov 15, 2003
  5. m22,

    In the case of an individual filing a a schedule c, the company is the same thing as the individual. (Even if you are an LLC or a subchapter S corp, those are essential pass throughs just to protect your assets, no tax advantage)

    It is my understanding (after much study and discussion with a tax attourney) that if you just file a shed C to deduct direct trading expenses that you're not responsible for self employment tax. If you do anything (like creating an entity) to convert the trading gains into earned income, then you're liable for the self employ tax.

    And if you try to get real fancy, incorporate, and have the corporation hire you; then the corporation is responsible for fica and medicare to the tune of roughly 7.5% and you personally match this (just like with a regular job).

    The only way that I can figure out around this, legally, is if you reside outside the US, are an employee of a foreign corporation which you control, then you can claim an exemption of $70,000 from your total income. This gets hairy and a bit gray. And you MUST really reside outside the US. And there's all kinds of other ramifications of doing this.

    To my way of thinking, the best way to pay minimum taxes is to: live in the nicest home you ever plan to and mortgage it to the hilt (thus benefiting from interest deduction) and keep your capital for trading. Then, whatever you do for fun or hobby, turn that into a legitamate business to deduct the major expenses for your toys. In the end, this is easier, safer, and more fun.
     
    #15     Nov 15, 2003
  6. m22au

    m22au

    Bundle,

    Thanks for the detailed reply.

    Not sure if you read my previous posts, but I am interested in setting up some type of US corporation (not yet sure of the type such as S corp, LLC etc.) because the Federal tax on US corporations is less than the marginal tax on Aussie individual incomes above $62,500.

    Can you explain the difference between trading gains and earned income? And why would one want to convert the former to the latter?

     
    #16     Nov 16, 2003
  7. Some great words indeed.

    I would say that the best way to figure it out is by getting some serious advice by some people who seriously know their stuff around this. Get somebody who's really familiar with taxation, business and entities, preferably a professional in the field.
    It could save you a lot of hassles and a lot of money later on in the progress.

    Just think about the task of becoming a semi-pro day trader. How long does it take? Well, how long does it take to become really good at tax law and loopholes? Do you think a little bit of reading and research is going to get you the best picture and solution? I doubt it! That's why you need specialists.

    Don't forget there are always loopholes. The tax system isn't that simple. There are many things you can do to legally pay little tax. Like me putting two businesses, jewellery design / manufacture / retail and a trading business basically under one entity. By the coincidence of application, almost everything in my life is tax-deductible. Beautiful. I can relocate money into gold, platinum, precious gems and then tax-deduct/defer some things as business expenses.

    There are many things you can do to 100% legally exploit the tax system. The trick is to always stay 100% clean and legal.
    Once you break the law, you're in the tax file and will be hawked over for the rest of your life.

    Be smart about it, and many previously hidden doors will open.

    Scientist.
     
    #17     Nov 16, 2003
  8. Has anyone used Green? Would you recommend them?

    Their site looks great, but before signing them up I'd like to get a few positive references.
     
    #18     Nov 16, 2003
  9. GreenTrader Tax is great, they set up "entities" for our traders regularly and Robert is nothing but a gentleman to deal with. He also has helped me personally ...I was going to mention him in this thread anyway......

    rttrader1 -
     
    #19     Nov 16, 2003
  10. Thanks RT...do you use their accounting software?
     
    #20     Nov 16, 2003