Forming an entity and transferring brokerage assets

[medtrader2020]

I have unrealized gains of 200K+ in my brokerage account which I’d like to firm an entity and transfer my assets (positions) to. I spoke with Tradersaccounting and the lady rep (CPA?) said I can’t transfer my positions and I’d have to sell my stocks and then transfer the cash to LLC.

BTW, I don’t trade actively and won’t qualify for TTS status for sure.

But, I see TD AMeritrade and IBK allow transfer of accounts to LLC (found from their online forms).

Has anyone transferred brokerage positions (open) to an LLC successfully? Thanks for your thoughts and comments.

 

[lindq]

I have unrealized gains of 200K+ in my brokerage account which I’d like to firm an entity and transfer my assets (positions) to. I spoke with Tradersaccounting and the lady rep (CPA?) said I can’t transfer my positions and I’d have to sell my stocks and then transfer the cash to LLC.

BTW, I don’t trade actively and won’t qualify for TTS status for sure.

But, I see TD AMeritrade and IBK allow transfer of accounts to LLC (found from their online forms).

Has anyone transferred brokerage positions (open) to an LLC successfully? Thanks for your thoughts and comments.

A few years ago with major brokerage, I too needed to zero positions and xfer cash.

The obvious problem with transferring open positions into a new entity is valuing them. What is the cost basis? And what would be your personal tax liability when moving them from your account? Lots of issues.

 

[BMK]

In the USA, it is not illegal to form an LLC and transfer assets into it. And to my knowledge it is not prohibited by any regulations (e.g., SEC, CFTC, etc.).

As lindq has pointed out, the question of basis can get complicated, particularly if the LLC has more than one member. But there is no reason you can't do it.

If your broker won't allow it, then you may have to find a workaround.

Open an individual account at another broker that will allow it. Transfer your positions from your individual account at your current broker to your individual account at the new broker. Then open an account for the LLC at the new broker, and transfer your positions from your individual account at the new broker to the LLC account at the new broker.

But you should consult with a tax advisor to fully understand the consequences before you do this.

BMK

 

[cooper221b]

I have unrealized gains of 200K+ in my brokerage account which I’d like to firm an entity and transfer my assets (positions) to. I spoke with Tradersaccounting and the lady rep (CPA?) said I can’t transfer my positions and I’d have to sell my stocks and then transfer the cash to LLC.

BTW, I don’t trade actively and won’t qualify for TTS status for sure.

But, I see TD AMeritrade and IBK allow transfer of accounts to LLC (found from their online forms).

Has anyone transferred brokerage positions (open) to an LLC successfully? Thanks for your thoughts and comments.

@medtrader2020 - did you happen to figure a way to transfer assets to an LLC and sort the cost basis per BMK & lindq? In a similar situation & also reached out to Tradersaccounting. Any learnings would be appreciated.

 

[Layman]

I heard the same from TradersAccounting. I spoke with another tax attorney and they said it was possible. I spoke with Tastywork. They said as long as the entity was owned by me they would review it and approve it and had done it before

 

[Sig]

I heard the same from TradersAccounting. I spoke with another tax attorney and they said it was possible. I spoke with Tastywork. They said as long as the entity was owned by me they would review it and approve it and had done it before

The question is what you gain by doing this? There's no tax benefit, an LLC is disregarded for tax purposes so gains in an LLC are the same as gains in your personal account for your personal tax purposes. And you can't take advantage of QBI on any gains earned from trading.

 

[tiddlywinks]

The question is what you gain by doing this? There's no tax benefit, an LLC is disregarded for tax purposes so gains in an LLC are the same as gains in your personal account for your personal tax purposes. And you can't take advantage of QBI on any gains earned from trading.

That is EXACTLY the question to ask!!

Without TTS (Trader Tax Status), and S-Corp tax treatment (W2 wages, S-Corp shareholder distributions, and K1 reporting of entity accounting), there is no benefit. OP stated not qualified for TTS, so it's end of road right there.

The QBI thingamajig MIGHT be able to be engineered with a profitable TTS qualified entity, but QBI will likely disappear with a Biden presidency anyway.

 

[Sig]

That is EXACTLY the question to ask!!

Without TTS (Trader Tax Status), and S-Corp tax treatment (W2 wages, S-Corp shareholder distributions, and K1 reporting of entity accounting), there is no benefit. OP stated not qualified for TTS, so it's end of road right there.

The QBI thingamajig MIGHT be able to be engineered with a profitable TTS qualified entity, but QBI will likely disappear with a Biden presidency anyway.

You can't claim QBI on "capital gains and losses, certain dividends, and interest income" according to the IRS. So it would be pretty hard to engineer anything that would qualify. Plus you've got limits based on payroll, and at the point you're paying yourself just to get around that, the FICA taxes you unnecessarily pay would outweigh the QBI benefit.

Not to drift too far, but do you think QBI goes away with a Republican Senate majority? I feel like it will be hard to repeal even if Democrats get the 2 Georgia seats but next to impossible if they don't. I personally benefit from it quite a bit, but I don't think blowing up the deficit for it and the rest of the corporate cuts made any sense so I'd personally support a repeal, I just think it will be hard to pull off.

 

[tiddlywinks]

You can't claim QBI on "capital gains and losses, certain dividends, and interest income" according to the IRS. So it would be pretty hard to engineer anything that would qualify. Plus you've got limits based on payroll, and at the point you're paying yourself just to get around that, the FICA taxes you unnecessarily pay would outweigh the QBI benefit.

MTM provides for ordinary business income. So in addition to TTS, a MTM election must be made. It, QBI, can be engineered. But as you point out the thresholds which are numerous, make engineering a nightmare. IMO, it is much simpler and raises no eyebrows at the IRS if higher W2 wages are paid, beyond the the FICA earnings limit.

Not to drift too far, but do you think QBI goes away with a Republican Senate majority?

Yes, I do.