Because the corporate tax rate is 35% while the new individual capital gains rate is at 39.6% + an additional 3.8% Obamacare tax. This would have the short term capital gains rate 43.4%, as occam has pointed out. So, you would have incentive to keep your assets in the corporation and save the 4.6%+3.8%.
The top corporate tax rate was the same as the top income tax/short-term capital gains rate for the past decade, now income tax rates are higher, and the incoming obamacare tax is only going to increase the margin of difference.
3.8-4.6% savings now... When it comes time to distribute the funds after winding up the Corp, then you're going to get hit with current year taxes for the corp + long-term cap gains... And I'm pretty sure long-term cap gains > 4.6%.... Unless you aggressively move it into retirement accounts while the corp is active. That way, you can grow it while avoiding the corp tax and delaying the personal tax... Another idea is to distribute some as salary and some as dividends as time progresses. Problem you run into there is the IRS not being specific as to what is the "normal" salary for any particular industry. So if the salary is low (like the $15-20K you mentioned), and dividends high (over $15-20K), expect a challenge. The IRS is probably going to say that you should declare $xxK or $xxxK as salary, and a smaller percentage as dividends (less than 100% of salary), especially if you actively manage the corporation... That's usually a test you'll have to overcome and challenge in tax court. The odds of success are probably remote. At this point, you need to talk to an acct and/or tax atty. There are a couple of vendors on this site who are CPAs who specialize in the trading industry. Pay the money. The advice you get is worth more than any of our responses... And if you are achieving big returns on a regular basis, it's time to look into a Big 10 CPA firm, and see if the magic they wrought is greater than the taxes...
I'm not suggesting you will want to live lavishly but most who can earn real returns decide to live well. You can't possibly plan to live on less than $100,000 a year for very long if you are in a big city or say $75,000 in less expensive areas. The edge here, if there is one, is pretty modest,
Oh, come on now folks, go easy on him, let him think its all right. In this economy people need work... ...even lawyers and CPA's. -Nich
Your largest expenses, such as automobile (company car), housing expenses (home office), etc. will be through the corp, not personal expenses.
Do you realize that non-us citizens who use blocker corporations to make investments in the US pay the corporate rate of 35% capital gains tax on their earnings? Why should a US-based trader have to pay 4.6-8.4% more in income for no reason other than being 'blessed' to live in the US? Specifically residing in the US shouldn't matter that much anymore, especially with modern co-location services, etc.
International Investors in the U.S already have similar corporate shell arrangements to what I have described: http://en.wikipedia.org/wiki/Blocker_corporation Are you saying that the system should be set-up whereby foreign investors pay less in capital gains taxes on US investments than actual US Citizens?