I was wondering if anyone could help explain the tax rate for active traders who live in California. In particular, I would be interested in knowing how much a trader would pay in taxes as their trading would be considered short term and would be subject to short-term capital gains. My understanding is that the traders gains would be taxed as ordinary income + medicare tax(only 39% bracket) + State tax. That pretty much amounts to 38%+ once you reach the 25% bracket, which I fall into. So are there any(legal) ways to help remediate that high of a rate? Would owning property in a "No capital gains state" help? Is there something I am missing? This just seems cruel for a trader whose sole occupation is swing/day trading in CA. I realize at some point I need to speak with an accountant, but I am just angry I happen to be living in California.
You tempt the beast known as the Franchise Tax Board if you pull that crap. Look up "nexus". If you live in CA, or are a resident for 6 months + 1 day in any calendar year, your nexus is CA and your worldwide income is subject to CA taxes. No matter where you *think* you are doing business. No matter if the money never enters CA. You are a CA resident subject to CA taxes. FTB is very, very aggressive. Where it might take the IRS 4-8 years to figure shit out, the FTB will come after you within months. Want to minimize taxes? Best solution is to move. That is the only viable solution. The FTB has already shot down every other *solution* you'll find floating around the 'Net. Shell corps. Multiple jurisdiction LLCs. Consultant LLCs billing the CA corporation/LLC for services, etc. Try it, and you'll find out you're Bambi to FTB's Godzilla. Bye, Bye, Bambi Move to Vegas - Nevada doesn't have a state income tax. You're close enough for a 1-1.5 hour flight to anywhere in CA. For only $100 on Southwest... Other states w/o personal income taxes - Alaska, Washington, Texas, Wyoming, Florida, South Dakota. States that only tax Dividends and Interest - Tennessee and New Hampshire. Just beware the no/low-tax states make up for it with higher property and sales taxes, among other things...
Moving is not easy to do especially if you have family, other business interests, etc. If you're a full time trader set up company and deduct as much as you can from earnings (home office, family employee salaries, healthcare, retirement, business meals expense, company car, charity, etc) Also, some trading vehicles like futures have a favorable tax treatment if you would consider trading them (60% long term, 40% short term income).