I'm looking at the advantages of trading as an LLC. I'm a very profitable trader. That is very positive with interest income, long and short income. I've done a moc tax return. I've found that I am coming up with a Passive Activity Losses that seems will never get deducted from my tax bill. My trades consist of 1256 trades, and I wouldn't want to give up that tax advantage. Though I would like to be able to write off things like Franchise taxes, my internet expenses, and a partner meeting that is held in Hawaii. Is this possible?
a more important question to answere before you get to that question is if you file as a trader or investor. i personally don't feel there is ANY advantage to entities to do trading except liability but for every account you open under an entity, you will most likely personally guarantee. the "C" corp would be the worst entity to use but all the others are going to end up on your personal return anyway.
I've been to a 3 day seminar for traders by a group lawyers that specialize in asset protection and tax strategies. You want to start a corporation and have your corporation be the general partner in your LLC. "Stock Traders In the last couple of decades, millions of Americans have taken over their own trading accounts and begun trading their own portfolios. The stock market has proven to be a remarkable business opportunity for both large institutions and the individual trader. Because of this, a battle has been taking place over the last several years between the IRS and individual traders. The Problem: As you learn to make more money from the stock market, you will have to face the possibility that somebody will want to take it from you. If you have liquid assets such as stocks and bonds, you should have them protected and out of the reach of potential creditors. This is where a plan comes in and can be invaluable. Our American judicial system makes it very easy for someone to file a lawsuit and put your assets in jeopardy. With a simple plan, you can remove assets from your personal realm and protect them. In addition to the tax benefits that a plan offers, you will also be isolating your assets and removing them from the reach of potential creditors. Most of us understand that businesses receive preferential treatment under the Internal Revenue Code. Therefore, the IRS wants to classify individuals who are trading as a business as investors instead of traders. By simply accepting this classification, individuals lose the tremendous tax advantages that go along with being considered a business. The Internal Revenue Code has yet to address when an individual who trades in his or her own account becomes a business. However, rather than walk onto the battleground with the IRS, at Anderson Business Advisors, we choose to utilize the Internal Revenue Code to our clients' advantage and get traders not only tremendous tax benefits, but also liability protection, phenomenal retirement benefits, and integration of the business plan into an effective retirement plan for the owners. Most casual traders do not understand the benefits of Trading As A Business. As a result, they fail to maximize their profits. For the serious trader, an ideal way to acquire the tax status of a business is to structure your trading activities through the use of business entities. We have found that the use of corporation and a limited partnership is a good way to establish your Trading as a Business. We call this "entity structuring." By formally arranging business entities to do the work, you gain the two-fold benefit of structuring: asset protection and tax planning. Furthermore, business entities are also an effective tool for estate planning and they open the door to retirement plans that are not available to individuals. How it works: Limited partnerships have two types of partners: limited partners, who are investors and have no management authority over partnership affairs; and general partners, who control the activities of the partnership. The brokerage account is held inside the limited partnership (a family limited partnership is nothing more than a limited partnership owned by a family). The limited partnership is managed by its general partner, which is typically the corporation. The individual trader, and potentially his family members, would be the limited partners. The corporation would pay for expenses of trading and seek reimbursement from the limited partnership. The corporation could also charge a management fee to the limited partnership to split monies between the individuals and the corporation. The corporation would also be entitled to a small percentage (usually 1%) of the profits earned in the limited partnership. The end result is that you are generating a tremendous amount of legimate business deductions by virtue of using the corporation as the management company. In the end, you have a great deal of control over what income actually flows onto your individual tax return. The monies you receive as a limited partner remain unearned and not subject to self-employment tax and can be either long-term or short-term. Additonal Benefits But there are other benefits as well. First of all, the brokerage account is no longer held in your individual name. You are protecting the money from your potential creditors. Furthermore, because stock trading is considered interstate business, you can choose a jurisdiction in which to house your business that has business friendly laws and no corporate income taxes. Typically, we recommend that trading businesses be set up in Nevada. Nevada is the ideal venue for your trading business because it offers business owners total privacy in the most favorable climate in the country for closely held corporations. Anderson Business Advisors has worked with thousands of traders all across the United States. Because we have worked extensively with stock traders, we have a unique perspective on how best to maximize both the profit of the business as well as generate the greatest benefits for the owners of the business, our clients. If you are like many of our new clients, you may find that operating a business actually saves you money because it converts existing expenses into business deductions." http://www.alglaw.com/stockinvestors.htm They have video series, books, seminars and offer consultation if you are interested.
Af far as personal guarantee goes, I've opened up an account at Oanda for my LLC. That didn't become an issue. Also, trading as an LLC with multiple investors, makes those investors feel much more secure, since the LLC provides a firewall between them, and the investing activity as far as liability goes. Investors generally like limiting their risks, and the LLC is perfect for that without causing a double tax.
In an LLC you can only take passive losses to the extent of passive gains and if you are profitable trader, they will offset leaving you with a lower passive gain LLC is where its at, your computer, internet connection, office space (even an office in your house, take office sq ft/total house sq ft and multiply to depreciation (house), car, electrcity. The advantages of an LLC are many and the gain over just being an individual trader is the write-offs Good Luck
you obviosuly don't knwo the trading laws. as a trader status tax retunr i can write all off on sch jsut like a llc. the only difference between the 2 is possibly many feel the chances of getitng audited in an llc is less than individual and one can do a retirment plan from having an llc and writeoff there health ins but you msut pay fica versus no fica for an individual trader as its passive income
if i file as an individual "trader status" I can write off everything you can write off. there was one good point made about an entity. if you have more than one indivual, then yes very important for the entity.
For those of you with an LLC, should you file a C Corporation as well to maintain that LLC? Is it viable as long as you trade >300 trades a year?