Benefits Abound For Active Traders Who Incorporate
By Robert Stammers AAA |
With the proliferation of online anddiscount brokerage, people are trading the stock market in ever increasing numbers. However, as an individual or sole proprietor, traders cannot take advantage of the myriad of tax advantages and asset protection strategies available to companies. Trading the market can be a gainful way to make extra income, or even possibly a full-time living. Like any business, the income generated from trading is taxable and can create significant tax liabilities for the successful trader. (For more on this, read ourBrokers and Online Trading Tutorial.)
In deciding on what structure to trade through, individuals can trade as individuals orsole proprietors, qualify for trader status, or trade through a business entity. For the active trader, creating a legal trading business will often provide the best tax treatment and asset protection.
Tax Issues
According to the IRS, "trading" is not a business activity. In fact, all income from trading is considered unearned, orpassive, income. The presumption is that individuals are investors and that any trading activities are done for long-term capital accumulation and not for payingcurrent liabilities. For this reason, unless an individual can qualify for trader status, he or she will be treated as any other tax filing individual. (For seven guidelines to help you keep more of your money in your pocket, readTax Tips For The Individual Investor.)
http://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp
By Robert Stammers AAA |
With the proliferation of online anddiscount brokerage, people are trading the stock market in ever increasing numbers. However, as an individual or sole proprietor, traders cannot take advantage of the myriad of tax advantages and asset protection strategies available to companies. Trading the market can be a gainful way to make extra income, or even possibly a full-time living. Like any business, the income generated from trading is taxable and can create significant tax liabilities for the successful trader. (For more on this, read ourBrokers and Online Trading Tutorial.)
In deciding on what structure to trade through, individuals can trade as individuals orsole proprietors, qualify for trader status, or trade through a business entity. For the active trader, creating a legal trading business will often provide the best tax treatment and asset protection.
Tax Issues
According to the IRS, "trading" is not a business activity. In fact, all income from trading is considered unearned, orpassive, income. The presumption is that individuals are investors and that any trading activities are done for long-term capital accumulation and not for payingcurrent liabilities. For this reason, unless an individual can qualify for trader status, he or she will be treated as any other tax filing individual. (For seven guidelines to help you keep more of your money in your pocket, readTax Tips For The Individual Investor.)
http://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp