Need Tax advice !!! Stay retail or form an LLC if you make $200-300K per year?

ProgrammerGuy · May 18, 2008

Quote from eveningtrader:

I spoke with a lawyer some time back about this issue, and he said it doesn't make a different. You can still deduct all your expense even without the entity.

Of course, I haven't yet make 200 to 300k a year.

I heard this too, however when I used to trade retail I didn't have an LLC and my accountant made me pay the self employment tax... fwiw

bigarrow · May 18, 2008

Quote from le140:

I dont have much expense to deduct and it's no big deal if I deduct them or not. Are anyone in the same situation?

If LLC or Corp, which firm are u guys using to do your year end tax?

thanks in advance.

I don't think it's an - either / or - question. A third option is to form a corp that you work for that you pay for investment/trading advise. Then what ever benefits you have trading as an individual you still have and also can take advantage of health and benefits from the corp and have enough income to take advantage of the SS without paying the maximum amount. Just an idea.

DataCruncher · May 18, 2008

Quote from ctarmor-et:

I am read the IRS has two classifications, investor and trader.

If you are considered an investror you could end up with some large tax liabilities. I read something like if you have a trading loss of $200k and then you have a winning of $100k the irs can tax you on a $300k gain ...

I am not sure how correct it is but I could not beleive that can happen ...

Is anyone familiar with these tax classifications ?

not sure what you're talking about here. why would 200K of losses be taxed?

Surdo · May 18, 2008

Quote from DataCruncher:

not sure what you're talking about here. why would 200K of losses be taxed?

I see we have the Blind leading the Blind here!

A $200K Loss and a $100K Gain in the same tax year is taxed as a $100K Gain.

lindq · May 18, 2008

Quote from Surdo:

I see we have the Blind leading the Blind here!

You got that right!

HedgefundTrader2 · May 18, 2008

Quote from FightTheFuture:

HT2, sounds you have a lot of idle time. You really should spend more time focusing on your mutual funds and your sophisticated long only, buy and hold strategy.

le140 is a real trader asking something you obviously know nothing of, or you would have had positive input instead of insults.

People with small accounts donot form entities and trade. Most accounts range from 20,000 to 80,000. You buy 200 shares of BIDU and you are done.

As far as idle time is concerned, you got more than me.

Bob111 · May 18, 2008

The greatest advantage to filing as a trader is that your income is not considered to be "earned income". So you pay no self-employment tax (a big savings), or social security.

file as average joe, and your trading profits will be considered as "ordinary income", so don't have to pay SS\medicare\self employed taxes. same as with trader status.

from tampatrader82

Tell me if I am wrong, but as a trader, you are allowed to actually allocate some of your earnings as earned income, pay the SS taxes, etc, so that you can take advantage of retirement plans.

FWIW I tihnk I read that in a tax book once.

true. this is , what one of the accountants actually recommends,when i asked question about entity for trading.-you not going to save any money with LLC or C,but you do need to have certain SS score at retirement age for medicare and other benefits. best way to get there,he said-put some salary on your 1099(about 5K-6 a year, as taxi driver or something like that) and pay minimum SS tax from this salary.

bigarrow · May 18, 2008

Quote from HedgefundTrader2:

People with small accounts donot form entities and trade. Most accounts range from 20,000 to 80,000. You buy 200 shares of BIDU and you are done.

As far as idle time is concerned, you got more than me.

Generally there are benefits to forming corps for small business even the one man show business. I'm not talking specifically about trading but the basic strategy should be the same. It's a pain and a little bit of work but it is worth it as far as tax savings and tax deferment is concerned.

FightTheFuture · May 18, 2008

Quote from HedgefundTrader2:

As far as idle time is concerned, you got more than me.

You got that right, HT2. I've had it all figured out long ago, no more work for me. You keep workin' at it, all in good time, don't give up. Good luck and good fortune.

le140 · May 18, 2008

Quote from HedgefundTrader2:

Seriously do you expect day traders and scalpers to form an entity to trade? Do you think they possess that kind of sophistication and finesse?

Unless you have some good info to contribute instead of talking trash, please leave my thread.

I will get SS and pension checks from my previous job so it's not like there are no safety net. Hopefully the trading income will be so consistent that I dont even care about the SS check 20yrs from now.

My thinking is staying retail and not pay into the SS program since it may not be around or the benefits are so little compare to what I put in.

Thanks to all that contribute with some very good info.