One more thing, and please bare with me as it's been years since I took corporate structuring courses, but wouldn't an S-Corp limit you in two separate areas, one being that the S-Corp has to dedicate 50% of income to payroll and the second being the S-Corp can only pursue one business venture within the limited partnership structure whereas the C-Corp can pursue unlimited business ventures which creates more write-offs and versatility?
Incorporate as a small trader
- Thread starter Acuario
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One more thing, and please bare with me as it's been years since I took corporate structuring courses, but wouldn't an S-Corp limit you in two separate areas, one being that the S-Corp has to dedicate 50% of income to payroll and the second being the S-Corp can only pursue one business venture within the limited partnership structure whereas the C-Corp can pursue unlimited business ventures which creates more write-offs and versatility?
In a limited partnership, I believe you can allocate as much or as little to the GP as you wish, but I am not an accountant / lawyer.
I currently allocate no profits to the GP (the S corp). Allocating profits to the S Corp, and the need to pay out about 50% of it as salary (again, there are no such rules AFAIK, and not enough precedents either. It seems IRS doesn't give you trouble if you use at least 50% to pay salary) is dependent on my need to generate earned income. I have enough earned income from other sources at this time. If I need earned income in future, I will allocate some profit to the GP.
AFAIK, S-Corp can do as many things as it wants, just like C-Corp. Yes, C-Corp does have some other advantages.
@ramora, no extra costs from IB. But you do get hit by higher data fees. Professional data fees... whatever
I currently allocate no profits to the GP (the S corp). Allocating profits to the S Corp, and the need to pay out about 50% of it as salary (again, there are no such rules AFAIK, and not enough precedents either. It seems IRS doesn't give you trouble if you use at least 50% to pay salary) is dependent on my need to generate earned income. I have enough earned income from other sources at this time. If I need earned income in future, I will allocate some profit to the GP.
AFAIK, S-Corp can do as many things as it wants, just like C-Corp. Yes, C-Corp does have some other advantages.
@ramora, no extra costs from IB. But you do get hit by higher data fees. Professional data fees... whatever
Not much to do with honesty, actually. As an entity, you have to sign up for the institutional account, and are automatically tagged as pro... hence "pro" data fees. Signing up with eSignal et. al... well that's another matter, and "honesty" does play a role.
I had an S corp for a nontrading business that actually had liability chances. But they are generally pushed by websites and CPAs seeking your $$$ or by paper traders dreaming of joining the bigtime, even though few will ever be seriously profitable for any length of time. They add cost, complexity and little value add. For example, you get to file an 1120S and your 1040. For traders, it is almost always an utter waste of time. They think up how to divide their salary from their distributions. Plus you get to pay both sides of the FICA.
For most who trade fulltime, putting yourself as unemployed (no FICA) and taking the gains appropriately is what makes the most sense.
IB also has high margins. If you set up both an S corp and an LLP for yourself with a small account, then it sounds insane, not something to be proud of. If it involved partners, then that was obviously not what was being discussed (one person with their small account)/ All regular folks, including me are Limited Partners.
Anyway, you are being brief about the details, so it is hard to know what you actually did. "Not exactly $15,000" in other words you had $100K? Or $5K?
TraderZones is more right than wrong. Opening an account as an LLC is increasingly difficult. Particularly if the account is small and if it's obvious to the clearing firm that the LLC exists SOLELY as an instrument to limit your personal liability to trading losses. Can you lie about whether the LLC is in "other" business ventures or can you lie about the LLC's net worth? Sure. But if the LLC does indeed go debit and you can't pay up, expect a Federal indictment for fraud.
You don't have personal liability for the losses of a limited liability corporation. No serious trader should ever trade as an individual.
Every single broker I've used has accepted my corporate accounts without person liability clauses.
Yes, you pay professional rates for exchange fees. And you have additional accountancy and legal costs, a few thousand a year extra for me.