CTA Startup

[Aaron]

Quote from Devin Brady:

Somehow IB gets away with this, but it is still technically illegal.

Even if you are getting paid management and performance fees there are still NFA registration exemptions depending on number of clients, AUM, and whether you hold yourself out to the public as a CTA.

IB does keep an eye on it's FA accounts and, at least in my case, wanted to be sure I was registered, perhaps based on the volume or assets in my client sub-accounts. As far as I know they are in full compliance with NFA Bylaw 1101 which states that no NFA member may carry an account, accept an order, or handle a transaction in futures on behalf of any non-member that is required to be registered as a CTA or in some other capacity.

 

[SuperVolatility]

Quote from yip1997:


If you are a CTA, you need to pay ss, medicare tax for your trading profit, i think. I don't recall where i read that info. Please collect me if i am wrong. That was the reason that put me off the registration several years ago.

Are you sure? You are scarying me....if I have to pay bunch of these taxes including some other kind of self employment I might have to put it off too.

Aaron?

 

[Stok]

Quote from SuperVolatility:

Are you sure? You are scarying me....if I have to pay bunch of these taxes including some other kind of self employment I might have to put it off too.

Aaron?

Depends on the structure of your management company, Aaron will know best about CTA...and I would like to know as well.

 

[Aaron]

Quote from Stok:

Depends on the structure of your management company, Aaron will know best about CTA...and I would like to know as well.

See the posts on March 4th in this same thread when Yip asked this before. Fee income will flow through your Schedule E and you'll pay self employment taxes on it (if you are a US taxpayer and if your management company is a sole proprietorship, LLC, or LP), but your trading profits (i.e. profits you make trading in your own account) will always be 60/40 capital gains.

Being registered as a CTA is entirely different than electing market maker status for securities dealers -- perhaps that is what Yip was thinking of.

 

[Stok]

Quote from Aaron:

See the posts on March 4th in this same thread when Yip asked this before. Fee income will flow through your Schedule E and you'll pay self employment taxes on it (if you are a US taxpayer and if your management company is a sole proprietorship, LLC, or LP), but your trading profits (i.e. profits you make trading in your own account) will always be 60/40 capital gains.

Being registered as a CTA is entirely different than electing market maker status for securities dealers -- perhaps that is what Yip was thinking of.

So, management fee and performance fee is subject to SET if you are a CTA and or CPO? I have setup a LP/C-corp for my company, in which, my income flows through to my personal and I pay no SET.

 

[SuperVolatility]

Quote from Stok:

So, management fee and performance fee is subject to SET if you are a CTA and or CPO? I have setup a LP/C-corp for my company, in which, my income flows through to my personal and I pay no SET.

what was the purpose of setting up an LP/C-Corp?

 

[Stok]

Quote from SuperVolatility:

what was the purpose of setting up an LP/C-Corp?

My CPA helped me set mine up and let me explain. I manage a LP with another individual, it's his money and he owns 99%. I am the GP (own 1%), since I manage the LP. So, as the GP, I setup my own company to be the GP. I have an LP, in which I have a C-corp as my GP of my LP. It all sounds complicated, but really isn't.

I get paid a salary, as of right now, and that is paid to my LP, then I pay myself a the same salary from my LP to me. Since my company is an LP/C-corp I am not subject to the crazy SET tax.

My point was, thinking out loud, if I had an LLC as the management company of an CTA or CPO, then I would use my structure(LP/C-corp) as the owner of the LLC, and not me personally. So, the LLC is a pass through to the LP, then the LP pays me personally.

Again, guys, I am on a salary and not dealing with all the performance fees, etc...so it may not work and I am still trying to learn the CTA/CPO side of the business...just explaining how I have my structure setup, and have had this for 3 years.

This SET thing though for a CTA/CPO does make me really double think this whole idea.

 

[Aaron]

Quote from Stok:

My CPA helped me set mine up and let me explain. I manage a LP with another individual, it's his money and he owns 99%. I am the GP (own 1%), since I manage the LP. So, as the GP, I setup my own company to be the GP. I have an LP, in which I have a C-corp as my GP of my LP. It all sounds complicated, but really isn't.

I get paid a salary, as of right now, and that is paid to my LP, then I pay myself a the same salary from my LP to me. Since my company is an LP/C-corp I am not subject to the crazy SET tax.

What was the point of the C-corp as the GP of your LP?? I have yet to see a good reason for a trader or CTA to set up a C-corp. Heck, even Goldman Sachs was a partnership until it wanted to go public. You are paying double taxes -- first at the corporate level and then your personal income tax when you get a salary.

And the self employment tax is the same as the withholding your C-corp is going to have to make out of your salary. And filing Schedule E with your taxes is simpler, if you ask me, than filing and paying withholding tax at the corporate level. You aren't saving any money anywhere, are you?

I think you made things overly complicated for no benefit that I can see. Now you have to do a corporate tax return _and_ a 1065 for your LP. Ugh. Or rather I should say, you have to pay your CPA (who set up this structure) to do both a corporate tax return and a 1065. Sounds like your CPA is ensuring his income stream for years to come.

Maybe I'm not understanding something, but I would suggest you get a second opinion from another CPA.

 

[Stok]

Quote from Aaron:

What was the point of the C-corp as the GP of your LP?? I have yet to see a good reason for a trader or CTA to set up a C-corp. Heck, even Goldman Sachs was a partnership until it wanted to go public. You are paying double taxes -- first at the corporate level and then your personal income tax when you get a salary.

And the self employment tax is the same as the withholding your C-corp is going to have to make out of your salary. And filing Schedule E with your taxes is simpler, if you ask me, than filing and paying withholding tax at the corporate level. You aren't saving any money anywhere, are you?

I think you made things overly complicated for no benefit that I can see. Now you have to do a corporate tax return _and_ a 1065 for your LP. Ugh. Or rather I should say, you have to pay your CPA (who set up this structure) to do both a corporate tax return and a 1065. Sounds like your CPA is ensuring his income stream for years to come.

Maybe I'm not understanding something, but I would suggest you get a second opinion from another CPA.

I have the C-corp in order to have a LP. I am a one man show, and if I have a LP, I need one other partner..thus the C-corp is my other partner. The c-corp gets paid nothing, they own 1% of the LP. I own 99%. I do not pay any taxes on the corporate level (none on LP or C-corp). Yes, I file 3 tax returns and pay my taxes on the personal level, just federal taxes, no SET and no state taxes b/c I live in TX ;-)

Well, I am saving, what, 12.3% in SET a year? That adds up big time. Now, maybe I am doing it wrong, but if I did a SP or LLC as the GP of my LP I manage, I would be subject to SET from what I understand.

I still have a lot of learning to do thou ;-), and this board has been great so far.

 

[heech]

I don't understand the need for a C-corp either. Seems to me you could've been a LLC in your LP.

But as far as double taxation goes, I'm assuming you're sub-chapter S, so at least you're avoiding that... but I do believe you still have to pay the same withholding/social security you would've otherwise had to pay, every time your corporation sends you a paycheck.