Solo LLC vs Individual on Earnings

Discussion in 'Taxes and Accounting' started by RedSun, Mar 26, 2013.

  1. RedSun


    Hi, I understand most of the differences of solo LLC over no LLC. My question here is on the LLC earning.

    If I make $$ from my LLC, say $50k (after expenses) from trading futures (only). Does this earning go to my top line as wage/earning?

    I really like it to be considered as capital gain instead of regular earning. If I do not have LLC, the gain/loss from straddle (futures) go to my capital gain.

    I can use some of the capital gains to offset some of my capital loss carried forward from last year. But I really hate more earnings.

    Please let me know. I think LLC earning is considered wage/earning, which is not good for me.
  2. In the eyes of IRS, by default(which is not the only option), a single member LLC is considered a "disregarded entity". That means it is treated the same as a sole proprietorship. Like a sole proprietorship, an LLC is a pass-through entity, however the LLC will issue a year-end K1 statement with all income, credits, gains, and losses maintaining their original characteristics on your individual tax return.

    You are missing the bigger and better picture however. If done correctly, an entity (including single member LLC) can provide you with "earned income". Remember ALL trading gains are "unearned" income. Earned income is required in order to unlock several benefits and deductions such as health insurance, retirement accounts, and home office deduction to name a few. Not too mention you are no longer chained to the restrictive limitations of Schedule A (itemized deductions), or the $3000 max annual loss deduction imposed on sole proprietorships (and default treatment single member LLCs).

    Trade On!
  3. RedSun


    I'm not sure if this is correct.

    If you run your money like a fund, all gain/loss and expenses go onto the Schedule C. Since you trade full time and trading gain is your only income, then I think the net gain of your LLC should be considered as your business income, not a capital gain. That amount goes to the 1040 as business income.

    I'm not sure if you can pass through the capital gain/loss from your LLC to your 1040.

    This is how you can have a business loss (you lose on your own capital) greater than 3,000 to offset some of your regular income (spouse's wage, etc).
  4. Only trading gains UP TO AMOUNT OF EXPENSES can be reported on an individuals Schedule C. And that is in the case of business trader only. An indivdual can not offset normal business income or expense with trading gains or losses.
  5. RedSun


    Then how do you report the reset of capital gain (trading profit)? in schedule C?

    I do not think your can separate the capital gain (trading profit) separately and report it in Schedule D.
  6. If you are a business trader (do you know what that is and how to determine?) your trading gains and losses are reported on Schedule D. You can then transfer an amount of trading GAINS, UP TO THE AMOUNT OF EXPENSES ONLY that are listed on Schedule C, as OTHER INCOME. This effectively zeros out Schedule C net profit with earned income, and has no effect on the actual taxes you will pay. The strategy is not documented by the IRS, and you should include footnotes with your tax return. GreentraderTax is the source of this strategy.
  7. RedSun


    I get it. So it is a strategy, and you'll have to explain this to IRS. I do not know if this is legal. Here you mix the two together: personal investment and your trading business.

    To me, personal investments go to your schedule D.

    Your business trading goes to schedule C.

    This is not straight pass-through since you can only write off expenses if you run a business.

    But thank for the creative idea. I just do not know if you can do that.
  8. No offense, but I trust Robert Green more than your opinion!

    I personally consult with Green each tax year. I used this strategy as a non-entity business trader for 2 years. Since then I moved to trading through an entity and I still consult with Green at least once a year. Never had an audit.

    Trade On!
  9. RedSun


    I only stated what I think. It is great to hear some great idea. I may talk to other accountant to see this makes and works.

    As for me, I can still engineer the tax situation what way I want.

    For the LLC, if I lose $, then I can write the entire amount off against my regular income. I hope I do not have to use this much.

    If I make $ on the LLC capital, I can control the trading profit to the amount I want, to cover all expenses, like home office, IRA, and insurance if you spend. Also, I want to make a small amount profit to bring it to my Schedule C.

    After I reach the amount of income I desire, I can return the trading capital back to my own personal account and stopped trading the LLC capital. Then all the capital gain (or loss) will enter Schedule D.

    This should recorded as return of LLC capital.

    I have this idea after I heard what you said. With my way, LLC and personal investment/trading are totally separate. There is little work, just a return of capital. I can contribute the capital again next year and start trading the LLC money again.
  10. ofthomas


    +1.... that is the main reason for trading under LLC, when not a member under a prop account that is.... you can fund the things you can not otherwise...

    OP, you should have a free consult with ... they are better suited than any of us to give you the kind of advice you seek... but tiddlywinks is very much correct, I say that as someone that has a trading LLC as well and funds and write offs lots of different stuff things to it...

    #10     Mar 26, 2013