So we know that the top tax rate on individuals has increased from 35% to 39.6% in the top bracket, but the corporate income tax remains at 35%. Is it possible to establish a shell corporation, and say have your personal residence as the 'home office', and purchase your automobile (company car), and technological equipment, etc. as business expenses at 35% with your actual salary in personal income being next to nothing?
Let's say your trading entity earns $1,000,000 per annum. You pay the 35%, end up with 650k, and then pay yourself 15-20k for personal expenses like food, clothing, etc. (Is this even required or can you pay yourself less like under ~10k, and put more personal expenses on the company account?) I'm not suggesting that you should buy exotic sports cars and categorize them as company cars, by the way, but even executive saloon cars/coupes such as those from bmw or mercedes should be o.k.
When it comes to "company cars", skip the S class and buy an SUV over 6000 lb. Talk to an accountant.
profits of 1mil, 250k for home office, company car, family member employees, you own salary---you are left with 750k....now you pay 35% on 750k, now you are left with 487,500. Now the question is that can you touch that existing 487.5k without getting tabbed for taxes again?
Nope. And then there are the burdens for being a corporation. Payroll issues (having a payroll administrator). Accounting, legal structures, corporate structures, etc. Being a C-corp or an S-corp isn't a trivial process (like forming an LLC or even a pass-through partnership).
You can elect to have the LLC taxed as a corporation, if you were to do so, the 35% rate would be kept for short-term capital gains vs 39.6% for individuals. So, it's more about how much in theory you would be able to get by with having in the corporation (and thus saving the 4.6%), but if all your main assets are in the corp, then you shouldn't need to pay much to yourself individually except for some personal expenses (as mentioned for food and clothing). You can easily make a pay-slip for 15-20k (your 'individual' salary, for example) in quickbooks.
My understanding and I'm not an accountant is that an LLC has no tax consequence. So you can have an LLC that's a c corp or a sole proprietorship or a partnership. Those legal structures are what determine your tax rate and being a c corp or an s corp isn't that trivial. It can be done but its a commitment. Not to mention there are all sorts of filing fees for corporations, etc. Most c-corps that are owned by individuals are going to s-corp because of the double taxation issues.
LLCs, by default, are pass-through entities, however, you can elect them to be taxed as corporations if you file Form 8832 with the IRS and file the corporate income tax forms. Then, you get the corporate tax rate of 35% vs 39.6%, and in theory you can keep all your trading profits and expenses in the corp to save yourself the 4.6%, no?
You prob know more than me. Can you get the money out without any consequence? Most c corp owners are going s corp, if they can, to avoid the double taxiation.
You will be double-taxed if you choose the election, the question is how much of the money you can keep in your corp to use it as a cover for yourself without having issues, i.e. you can have the corp pay for housing, automobile, technology etc. expenses and save 4.6% of your income. So for most expenses, you would be using your company card instead of your personal card, for example.