---One thing that concerns me with forming an LLC to trade is you would have to deal with payroll tax. If you have a pass through entity you are an employee and any salary you draw would be subject to both sides of the payroll tax (over 14%) --- you don't have to. LLC are pass through by default. at year end you get your K1 and you enter numbers from K1 into your tax return. that's about it. you taxed at whatever bracket you are in(which might have some advantages,if you have 'family business' and some of the members are in lower tax brackets).
I guess it depends on your income from your other job. My CPA recommended setting up the LLC as a way to potentially reduce my tax liability from my regular job. The last three years I have ended up with a ~25K tax bill every year. We have very limited deductions due our income level and this might provide some relief. This will be my first year filing this way and there is a lot I don't know....will see how it goes...cant be any worse than paying in the max all year and then getting a nice bill from the IRS for 25K...ugh!!
what happens if you get sued (or similar) and everything you have is in your own name? I dont know about setting up an LLC specifically for trading is great but to protect yourself its a good idea
I can't see myself getting sued since I won't be doing anything with the public, but the fact that I can not capitalize data expenses as an individual is pushing me towards forming an LLC.
First off, I am a CPA (certified public asshole). So here is my advice................................................................................................................................................................................................................................................. Your Thank You's are more then welcome...
what rosy means is, if your account gets large and you accidently spill some industrial waste on your neighbor's lawn, he can only come after you for what you have in your personal account. If your trading account is in a LLC, it will be protected.
Your CPA is a generalist, right? No, it doesn't depend on your income from your other job. It's all about proving the documented time you spend engaged in and amount of trading activity in your trading *business* meets the IRS' definition of "full-time". You can not claim "trader status" if you cannot document that you engage in trading activities on a full-time basis - minimum of 1,500 hours per year, preferably 2,000 hours or more. Exclusively. As in working less than part-time at a *job* - at an income level far below what can be construed as "full-time" primary income for your particular demographics (yes, they know your age, marital status, family status, debt levels, occupation, industry, expected range of full-time income for your specific occupation, etc. All this information is provided yearly by you, your employers, your banks, your mortgage servicer, etc) No sane person can say they trade full-time while working 1,500-3,000 hours a year at a job (including commute time). The IRS is rightfully going to call bullshit. Especially if you're married with kids... On top of that, the IRS says your trading activity has to be significant. They do not define "significant", but figure you need to trade several round-turns per day. No buy and hold. No position trading a couple of times a week or month. Since you can't claim "trader status", you're now classified as an investor. You get eat your trading expenses (including margin interest unless it's over 10% of your AGI, at which point expect the IRS to be all over you). And you're limited to a maximum of $3K in investment/trading losses per year, with any amount above that carried over to future years. Regarding asset protection, you can make it simple or as complex as you want. LLCs, irrevocable/revocable trusts, umbrella insurance policies. You need to figure out what is best for your situation. Asset protection works on the concept of control without ownership. For it to work, you need to keep your nose clean (pay your taxes, do not get sued, do not get divorced - marital or biz partners) and not piss off your LLC managers or your trusts' beneficiaries and trustees. But take asset protection with a grain of salt. While one group of lawyers specializes in creating plans for mucho fees, another group gleefully specializes in tearing them apart. In the end, like everything else having to do with the legal system, only the lawyers win... Asset protection = present and future legal fees w/ nothing to show for it except a bunch of toothless paperwork subject to the whims of state legislators. I'm surprised nobody's filed malpractice complaints with the State Bars.
if you just want to write off your trading expenses, all you need to do is file as a professional trader, and file a sched C.
I would take my assets and dump them into a overseas trust if you are worried about getting sued/divorce, etc. A family who is a friend of ours recently went through a divorce. THe husband is a Judge, and the wife a Doctor....Apparently they could not find any shred of assets/cash in his name except his car and the 50% of the house which was paid off. Interestingly enough, the wife ended up paying him alimony. I don't know all of the details, this is just one fact that I know for sure. Consult a lawyer, CPA, preferably one based in the carribean who knows USA tax laws. Those guys are hired to hide money...