Best European Countries to Trade from

[Maverick2608]

How is this? If you trade futures in the US you get 60/40 treatment which comes out to roughly 23% assuming 15% capital gains rate and 35% top income rate. Let's be honest, most traders are not even in that top income rate which drops their overall rate into the teens.

Is that 30% in Sweden a flat rate starting on the first marginal dollar? Or does it start at some threshold?

Sorry, I do not know what the 60/40 treatment is.

My point of reference is a short-term trader trading long/short equities with an annual profit around USD 500.000. It is my understanding that short-term trading is taxed as ordinary income in the US. According to this calculator for NY that translates into a total effective tax rate of 38,9%.
https://smartasset.com/taxes/new-york-tax-calculator#w6ZAzGi9Gs

Add the cost of health care, education, etc.

Please correct me if I am wrong.

The Swedish 30% is a flat rate.

 

[speedo]

60/40 is taxation of 60 at long term cap rates and 40 at short term...rule 1258

 

[Maverick74]

Sorry, I do not know what the 60/40 treatment is.

My point of reference is a short-term trader trading long/short equities with an annual profit around USD 500.000. It is my understanding that short-term trading is taxed as ordinary income in the US. According to this calculator for NY that translates into a total effective tax rate of 38,9%.
https://smartasset.com/taxes/new-york-tax-calculator#w6ZAzGi9Gs

Add the cost of health care, education, etc.

Please correct me if I am wrong.

The Swedish 30% is a flat rate.

For anyone trading futures, options on futures, FX or bitcoin, they get the 60/40. For stocks they don't. Stock traders make up a VERY small portion of the US trading population for many reasons I won't go into here.

Regarding your 38.9% rate. So no. We have a progressive tax system in this country which scales at each marginal dollar. This means for example someone making 100k a year in short term income while they might be at the top rate of 35%. Their "effective" rate is closer to 15%. You can calculate this by taking the sum of total taxes from each tax bin and dividing it into total income. Even for someone making 500k a year, they effective rate will be less than 30%. For example, our VP, Mike Pence released his tax returns last year and showed income of around 126k. His effective tax rate was around 10%. That's FAR less than this 38.9 number you are quoting which btw was reduced during the latest tax reform package.

 

[Maverick74]

These are the 2018 bins for a single income filer with no deductions:

12% $9,525
22% $38,700
24% $82,500
32% $157,500
35% $200,000
37% $500,000

 

[Maverick2608]

For anyone trading futures, options on futures, FX or bitcoin, they get the 60/40. For stocks they don't. Stock traders make up a VERY small portion of the US trading population for many reasons I won't go into here.

Regarding your 38.9% rate. So no. We have a progressive tax system in this country which scales at each marginal dollar. This means for example someone making 100k a year in short term income while they might be at the top rate of 35%. Their "effective" rate is closer to 15%. You can calculate this by taking the sum of total taxes from each tax bin and dividing it into total income. Even for someone making 500k a year, they effective rate will be less than 30%. For example, our VP, Mike Pence released his tax returns last year and showed income of around 126k. His effective tax rate was around 10%. That's FAR less than this 38.9 number you are quoting which btw was reduced during the latest tax reform package.

Thank you for explaining how derivatives are taxed in the US.

As goes for my example I am of course aware of the progression. Using the link I provided above on USD 500.000 yields a total tax of USD 194,292 / 500.000 = 38.9%. According to the link this will increase to USD 197,158 under the Trump scheme.

"Stock traders make up a VERY small portion of the US trading population..." I am surprised if that is the case. I have no concrete data. If you have concrete date, please enlighten me.

 

[Maverick2608]

Just to be clear, I do not suggest any US traders relocate to Sweden (and I am aware that US citizens are taxed globally.)

But in a European context 30% is pretty good for active traders. As a point of reference, just across the border in Denmark, an active trader whose trading is considered a business, will be taxed at a marginal tax rate of 56%, which sets in already at USD 78,000.

 

[Maverick74]

Thank you for explaining how derivatives are taxed in the US.

As goes for my example I am of course aware of the progression. Using the link I provided above on USD 500.000 yields a total tax of USD 194,292 / 500.000 = 38.9%. According to the link this will increase to USD 197,158 under the Trump scheme.

"Stock traders make up a VERY small portion of the US trading population..." I am surprised if that is the case. I have no concrete data. If you have concrete date, please enlighten me.

A few things here. You are including both federal and state income taxes from the HIGHEST tax state in the country. Two, anyone making 500k a year, whether they be stocks or derivatives is going to have an LLC which allows them to cut their taxes substantially. I have no idea why you are singling out NY. I don't know a single independent trader that would live there as a trader. Working for a firm? Sure. But the cost of living alone makes it a deal breaker for most traders.

The reason we have much fewer stock traders is because your taxes are about 50% higher with stocks, your commissions are double on avg and the margin required to fund your trading is on avg 10 times the cost for derivatives! For small traders, we have the PDT rule which prohibits these small accounts from even any kind of active trading.

You have to understand something. While 30% for Sweden is very competitive and attractive to other countries in Europe (although I think Italy is far less still on capital gains), it's still VERY VERY high. Being an independent trader is VERY risky. Almost stupid to be honest. But for those that do it, they really need two things to survive long term. One, pay as little tax as possible. And two, be able to write off 100% of your losses and carry them forward. And we ALL have losses despite what you hear from all the billionaires that post here, and there are billions of them apparently.

 

[Maverick2608]

A few things here. You are including both federal and state income taxes from the HIGHEST tax state in the country. Two, anyone making 500k a year, whether they be stocks or derivatives is going to have an LLC which allows them to cut their taxes substantially. I have no idea why you are singling out NY. I don't know a single independent trader that would live there as a trader. Working for a firm? Sure. But the cost of living alone makes it a deal breaker for most traders.

The reason we have much fewer stock traders is because your taxes are about 50% higher with stocks, your commissions are double on avg and the margin required to fund your trading is on avg 10 times the cost for derivatives! For small traders, we have the PDT rule which prohibits these small accounts from even any kind of active trading.

You have to understand something. While 30% for Sweden is very competitive and attractive to other countries in Europe (although I think Italy is far less still on capital gains), it's still VERY VERY high. Being an independent trader is VERY risky. Almost stupid to be honest. But for those that do it, they really need two things to survive long term. One, pay as little tax as possible. And two, be able to write off 100% of your losses and carry them forward. And we ALL have losses despite what you hear from all the billionaires that post here, and there are billions of them apparently.

Those are all valid points.

I do not know the US tax system well enough to estimate the effective tax rate of an LLC setup, but I’ll take your word for it. What do you think the effective tax rate is all included of an LLC setup assuming USD 500.000 income – ballpark figure?

When I use the calculator for California I end up higher at UDS 203,205 (USD 211,766 after Trump). But yes, I’m sure there are many states with lower state tax rates.

To make a fair comparison, I guess you would have to add health care insurance and college/university to your tax rate.

I’m not in any way arguing in favor of Scandinavian socialism. Quite the opposite. Other tax rates are horrendously high in Scandinavia. I’m simply pointing out that for an active trader, Sweden is somewhat of an exception that compares rather favorably with most European comparisons.

 

[Maverick74]

Those are all valid points.

I do not know the US tax system well enough to estimate the effective tax rate of an LLC setup, but I’ll take your word for it. What do you think the effective tax rate is all included of an LLC setup assuming USD 500.000 income – ballpark figure?

When I use the calculator for California I end up higher at UDS 203,205 (USD 211,766 after Trump). But yes, I’m sure there are many states with lower state tax rates.

To make a fair comparison, I guess you would have to add health care insurance and college/university to your tax rate.

I’m not in any way arguing in favor of Scandinavian socialism. Quite the opposite. Other tax rates are horrendously high in Scandinavia. I’m simply pointing out that for an active trader, Sweden is somewhat of an exception that compares rather favorably with most European comparisons.

I live in TX. I along with 7 other US states pay ZERO state income taxes. I would guess the most popular state for trading tax wise is FL which is also a zero tax state. The real benefit of the LLC is not the actual tax rate which is lowered through deductions, but the ability to carry forward losses. For example, you have a 500k account in Sweden. You lose half of it. Tough break. Year two you make 250k. You will pay 75k in taxes on the clawback. Here, with an LLC, you lose 250k on your 500k account. You clawback the next year with a 250k profit, you pay ZERO in taxes! I cannot imagine a trader not having this.

I do agree with you that Sweden is better than most countries in Europe. But I think places like Switzerland, Andorra, Gibraltar, etc are much better deals. In my humble opinion, if you are going to live in Sweden and trade, do it for a firm. Get the paycheck and the stability. Paying 30% with the risk you are taking is very dangerous. And FYI, I pay about 4k a year for a pretty nice health insurance plan. It does not make up for the difference in taxes. As for college, again that really depends on the person. I guess one could argue if you are going to throw your life into trading, don't even bother going to college. Problem solved.

Again, the social benefits of Scandinavian countries just don't add up for traders. They do add up for regular workers though and I agree they should be taken into account if say one was considering being a school teacher in Stockholm vs say Dallas, TX. Of course that's not really a choice people make but for the sake of argument.

 

[Maverick2608]

In Sweden you can only take advantage of the "investeringssparekonto" (ISK) through banks/brokers offering specific ISK accounts.

In the Dutch version with 1.2% taxation, can you choose any broker - e.g. Interactive Brokers - or are you only allowed to pursue the "box 3" taxation scheme through specific accounts offered by approved banks/brokers?

In the Dutch version, are you allowed to short stocks?

Thank you.

I think I found the answer to this one myself. It seems the tax is simply applied to your global net asset value at the beginning of the year. Thus, no special account and no pre-approved bank/broker is needed. You can use Interactive Brokers or whatever broker you choose. And you can probably short stocks and trade derivatives all you want.

With regard to whether this box 3 setup applies to active traders, I am none the wiser, but I will try to find out.