is the CME Electronic Corporate Membership subject to self-employment tax?

M

mgarc

i would just like to ask to those who have looked into this before.

i know that buying or leasing a seat on an exchange would subject one to paying self employment tax. thus the savings on fees would be outweighed by the SE tax.

my question is whether going the ECM route would also subject one to self employment tax?

much thanks...
 
A futures exchange membership is a futures exchange membership, the type does not matter.

Read tax code section 1402(i) "Special rules for options and commodities dealers"

In particular:

"(B) Commodities dealer

The term “commodities dealer” means a person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade which is designated as a contract market by the Commodities Futures Trading Commission."

You would have to be making a rather large profit per contract round turn or have total annual profits less than $110,000 to have the FICA tax cost you more than the savings in exchange fees.
 
thanks for the reply. that makes sense.

although as a counterpoint, according to robert green of GTT, some tax attorneys believe that this less-than-full membership does not trigger Section 1402i self-employment income.

http://www.greencompany.com/blog/index.php?postid=22

bottom line i suppose is that it is debatable and not quite black and white.

i agree with you with regards to having a high p/l to volume "ratio" in order for the self employment tax to weigh more than the commission savings. up to the trader to do the math.
 
I researched a lot and could not find a clear answer on whether an individual trading through a retail broker with IOM lease has to pay Self employment FICA tax?
( Individual without active trader status /Mark-to Market claimed ; without any LLC/ S or C corp / partnership; and without any trading expenses tax exemption claimed)

As I understood there is fine distinction between the "Commodities dealer" and "trader".

As per the Commodities dealer definition verbiage -
" AND is registered with a domestic board of trade which is designated as a contract market by the Commodities Futures Trading Commission."

So if an individual leases a seat from third party , they do not become "registered with a domestic board of trade " .. they are simply leasing it from the registered IOM seat owner? .. The individual himself if not getting registered with the 'board of trade'?

Can any IOM lessee trader who trades with retail broker provide any insight on the SE tax ?

Thank you in advance.
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http://www.taxresourcegroup.com/library/memo/1284.html

"Finally, there is also a special self-employment tax category for taxpayers dealing in Section 1256 contracts. Since Section 1256 contracts produce both short-term and long-term capital gains, such taxpayer's income would, absent a special rule, be exempt from self-employment tax just like the securities trader described above.

Section 1402(i) provides a special rule for so-called dealers in Section 1256 contracts. Under this special rule, the income from Section 1256 contracts is subject to self-employment tax notwithstanding its status as capital gain. Given the backdrop of the characterization of some taxpayers as dealers and others as traders, the terminology "commodities dealer" is initially troublesome. Is it possible to be a commodities trader rather than a commodities dealer and thereby avoid this special rule?

Section 1402(i)(2)(B) resolves the issue by defining a commodities dealer for purposes of Section 1402(i) as a person who regularly engages in trading Section 1256 contracts and is registered with a domestic board of trade which is designated as a contract market by the Commodities Futures Trading Commission.

As I understand it, TP is regularly engages in trading Section 1256 contracts and is registered with a board of trade which appears to meet the exact specification set forth in the statute. Accordingly, it seems clear that pursuant to Section 1402(i), TP's income and loss flowing from the partnership would be subject to self-employment tax."

Same commodity dealer definition on SSA website -
http://www.ssa.gov/OP_Home/ssact/title02/0211.htm#act-211-h-2-b
 
What is so difficult to understand about what I posted over 2 years ago:

"A futures exchange membership is a futures exchange membership, the type does not matter."

You cannot lease any CME/IMM/IOM/GEM seat without applying for and being accepted for membership.

http://www.cmegroup.com/company/membership/becoming-a-member.html


And why would you want to lease a seat and still use a retail broker? With or without a seat, if you are doing any volume you can negotiate directly with a clearing firm for a lower than rack retail commission rate.
 
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