I think what you may be missing is that (and I'm not an accountant so I'm not sure, but I used to have an accountant so I know what they're likely to say):
1. your income will also be taxed by the country you live in;
2. I think you won't be able to deduct your house/living expenses as an ordinary expense of business. Gee, wouldn't it be nice if we could. Someone tried to convince the IRS that living expenses were necessary expenses in order to stay employed in order to generate income, but that didn't fly.
If you form a C corp, cap gains receive favored treatment, I think. An LLC receives no tax treatment, as P/L is passed onto the partners. In that respect, it's like an S Corp. Whatever entity... allowable deductions are ordinary business expenses: phone, office, postage, professional fees, parts of medical insurance, data feed, software and so on. The costs of doing business.
From the corp's profits, you'd pay yourself a salary. On that salary you will pay FICA. It's not all bad: assuming the gov't doesn't permit the social security system to go under, which is in their interest, you could get more out of ss than you ever put in. You'll also be eligible for medicare, which will save you a bunch on health insurance. All you have to do is pay into ss, and then not die.
That salary is, as you know, your earned income. With that, you can contribute to a 401 or SEP IRA or IRA retirement plan.
Now about your example. Unless your fiancee is trading shoulder to shoulder with you and generating profits, don't give her half your income. I know you love her and trust her with your life, but it's not the wisest thing to do. She's not reading this, is she?
First, things happen, and she may never become your wife, in which case, she's still entitled to half your trading profits. Or you guys may get divorced, in which case, she's entitled to half the profits, plus half your salary, plus the house. I know people think it happens to the other guy, but sometimes you become the other guy. That's where the "other guys" come from. They come from the land of "That will Never Happen To Me".
A better way is to employ her as a part timer and pay her. It's deductible to the LLC, and earned income to her. Whatever you pay yourselves has to be in line with the industry. She can do the books, handle paperwork, whatever. If she's a trader, then that's a different story if she's bringing in money. Pay then should be proportional, to be fair.
To use your example for a couple of scenarios: assume you have $200K in cap gains profits, in a LLC. The LLC has business expenses of, let's say, $20,000 year, and you pay your fiance $50K a year, pays you $80,000 a year, puts $X in your retirement plan and $X in hers (a 401 where you can contribute sizable amounts and have your employer, the LLC, match contributions. The LLC can then deduct the cost of its contributions from its profit), and passes the $50,000 (less retirement matching contributions) balance to you (If it were a C corp, it could retain the 50K (less contributions) and pay the corp. tax rate on it). You would personally have earned income of $80,000 and passive income of $50,000 (less the previously mentioned contributions). Your fiance would have earned income of $50,000.
Your FICA would be based on the $80,000 salary, which gets reported on schedule C, from which you can further write off other nominal expenses such as auto use. That earned income also becomes the base for which the retirement contributions could be made.
Play with those figures to see how it would work with the $80,000 exemption you mentioned.
1. your income will also be taxed by the country you live in;
2. I think you won't be able to deduct your house/living expenses as an ordinary expense of business. Gee, wouldn't it be nice if we could. Someone tried to convince the IRS that living expenses were necessary expenses in order to stay employed in order to generate income, but that didn't fly.
If you form a C corp, cap gains receive favored treatment, I think. An LLC receives no tax treatment, as P/L is passed onto the partners. In that respect, it's like an S Corp. Whatever entity... allowable deductions are ordinary business expenses: phone, office, postage, professional fees, parts of medical insurance, data feed, software and so on. The costs of doing business.
From the corp's profits, you'd pay yourself a salary. On that salary you will pay FICA. It's not all bad: assuming the gov't doesn't permit the social security system to go under, which is in their interest, you could get more out of ss than you ever put in. You'll also be eligible for medicare, which will save you a bunch on health insurance. All you have to do is pay into ss, and then not die.
That salary is, as you know, your earned income. With that, you can contribute to a 401 or SEP IRA or IRA retirement plan.
Now about your example. Unless your fiancee is trading shoulder to shoulder with you and generating profits, don't give her half your income. I know you love her and trust her with your life, but it's not the wisest thing to do. She's not reading this, is she?
First, things happen, and she may never become your wife, in which case, she's still entitled to half your trading profits. Or you guys may get divorced, in which case, she's entitled to half the profits, plus half your salary, plus the house. I know people think it happens to the other guy, but sometimes you become the other guy. That's where the "other guys" come from. They come from the land of "That will Never Happen To Me".
A better way is to employ her as a part timer and pay her. It's deductible to the LLC, and earned income to her. Whatever you pay yourselves has to be in line with the industry. She can do the books, handle paperwork, whatever. If she's a trader, then that's a different story if she's bringing in money. Pay then should be proportional, to be fair.
To use your example for a couple of scenarios: assume you have $200K in cap gains profits, in a LLC. The LLC has business expenses of, let's say, $20,000 year, and you pay your fiance $50K a year, pays you $80,000 a year, puts $X in your retirement plan and $X in hers (a 401 where you can contribute sizable amounts and have your employer, the LLC, match contributions. The LLC can then deduct the cost of its contributions from its profit), and passes the $50,000 (less retirement matching contributions) balance to you (If it were a C corp, it could retain the 50K (less contributions) and pay the corp. tax rate on it). You would personally have earned income of $80,000 and passive income of $50,000 (less the previously mentioned contributions). Your fiance would have earned income of $50,000.
Your FICA would be based on the $80,000 salary, which gets reported on schedule C, from which you can further write off other nominal expenses such as auto use. That earned income also becomes the base for which the retirement contributions could be made.
Play with those figures to see how it would work with the $80,000 exemption you mentioned.
