Career traders.....LLC?

B

bathrobe

I recently talked with an accountant and a lawyer about my taxes and was told I should be using an LLC to trade.
First off, I trade full time as a career (my only job) and I only trade futures contracts, about 2000 rt's a year, I also currently trade from my home, and am going to purchase new equipment in the near future. Below are the reasons I was given as to why it is advantageous, I would like to know if those of you who are career traders formed an LLC, a Corporation, or a cross between the two, and if it as helpful as stated below.

1. The IRS is less likely to audit if you trade from a formal entity.

2. Deductions (home office, utilities, Cable, computer, monitors, TV used to view Bloomberg in office).

3. When you pay yourself with an LLC you pay no taxes on payroll.

4. Asset protection

5. Flow through tax structure.

6. Carryover of previous years loss

7. Education, travel, anything related to business can be deducted up to a point.

Any help is greatly appreciated by anyone who has done this, any businesses in the NYC area that help traders with this that you know of please share.
 
Quote from bathrobe:

I would like to know if those of you who are career traders formed an LLC, a Corporation, or a cross between the two, and if it as helpful as stated below.

1. The IRS is less likely to audit if you trade from a formal entity.

2. Deductions (home office, utilities, Cable, computer, monitors, TV used to view Bloomberg in office).

3. When you pay yourself with an LLC you pay no taxes on payroll.

4. Asset protection

5. Flow through tax structure.

6. Carryover of previous years loss

7. Education, travel, anything related to business can be deducted up to a point.

Any help is greatly appreciated by anyone who has done this, any businesses in the NYC area that help traders with this that you know of please share.
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These are the issues I can comment on from personal experience:

1. If you trade regularly and have nothing to hide, you have no fear of the IRS. An LLC provides no protection.

2. You can deduct anything as a trader that you can deduct with an LLC.

3. When you file as a trader, your income is not considered earned income. So you pay no self employment tax or social security. This is a huge savings. Not true if you pay yourself a salary from an LLC. Your taxes may well be higher.

If you are making serious income (congratulations), you may be able to cook up a good retirement program with an LLC. Other than that, IMO, you are better off just filing as a trader and not getting involved in a corp structure.

Also consider that a CPA and a lawyer, if you are their client, are of course going to want you to do an LLC. Duh. How do you think they pay their rent?
 
Quote from bathrobe:

I recently talked with an accountant and a lawyer about my taxes and was told I should be using an LLC to trade.
First off, I trade full time as a career (my only job) and I only trade futures contracts, about 2000 rt's a year, I also currently trade from my home, and am going to purchase new equipment in the near future. Below are the reasons I was given as to why it is advantageous, I would like to know if those of you who are career traders formed an LLC, a Corporation, or a cross between the two, and if it as helpful as stated below.

1. The IRS is less likely to audit if you trade from a formal entity.

2. Deductions (home office, utilities, Cable, computer, monitors, TV used to view Bloomberg in office).

3. When you pay yourself with an LLC you pay no taxes on payroll.

4. Asset protection

5. Flow through tax structure.

6. Carryover of previous years loss

7. Education, travel, anything related to business can be deducted up to a point.

Any help is greatly appreciated by anyone who has done this, any businesses in the NYC area that help traders with this that you know of please share.
More...

I 3rd the above.
READ THIS THREAD, especially what Bob111 said about filing as "unemployed" and filing a schedule D. It sounds much better for your situation:

http://elitetrader.com/vb/showthread.php?s=&threadid=104040
 
This site has an interesting structure. LLC with C corp as a member as the base structure. I am considering consulting them myself to see if this would save money in my situation.

An LLC is popular and very beneficial for active traders. The LLC allows you to capture all of your business expenses and start-up costs. It also allows you to take money out of your trading account each month to live on, without paying payroll taxes! And, for the most advantageous tax benefits, your LLC can sponsor a 401(k) plan and funnel your trading profits as tax deductible contributions into your own self-managed retirement plan.

(5) The corporation, as opposed to the pass-through LLC, is a taxable entity. Let's look at an example: If the corporation owns 40% of your LLC, and the LLC earns $100,000, the corporation would be responsible for $40,000 in taxable income. That currently would be taxed at the lowest corporate rate of 15%. Compare that scenario to not having a corporate minority owner and having the $40,000 added to your 31% individual tax bracket.
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http://tradersaccounting.com/product.php?productid=16173&cat=250&page=1
 
Quote from AshanD:

This site has an interesting structure. LLC with C corp as a member as the base structure. I am considering consulting them myself to see if this would save money in my situation.



http://tradersaccounting.com/product.php?productid=16173&cat=250&page=1
More...

A) This sounds like a structure designed to raise $$$ for the company that published it.

B) The "some people file in Nevada to save state income taxes" smells. You must pay state income taxes in the state you live in.

C) Having an LLC and C corp will be a big pain of paperwork, quarterly reporting and annual tax preparation.
 
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