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

I set up an LLC which acts as a husband/wife partnership last year for the mere purpose of fully funding a mini-401k for both me and my wife. You can submit around $45k pp, per year. This means after two good years we will have $180k+ in 401k's which is a great start for our retirement. The downside is the SE tax, but part of this is offset by the 401k deductions. Worth it in my opinion for peace of mind. I use Green Trader fwiw.
 
Quote from opt789:

What exactly are you guys referring to? Capital gains are not subject to any self employment taxes.
"Gains and losses from selling securities as part of a trading business are not subject to self-employment tax. This is true whether the election is made or not."
http://www.bankrate.com/brm/itax/tax_adviser/20040826a1.asp
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opt789, this is exactly the point...
Once you trade through an entity, and paying yourself an income, claiming all your deductions, providing company-paid health insurance, providing company sponsored retirement plans, etc, etc, etc self employment tax applies.

That said, without trading as an entity, and generating no earned-income there are no good options regarding health expenses, retirement vehicles, and other things requiring earned income. Of course, with no earned income, there is no self employment tax.

I might also add, the word "securities" by default, does not apply to all classes of trading instruments.

Osorico
 
Quote from Trader5287:

Better check how owner health insurance premium deductions are treated too.
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That's easy. The wife as an employee of the corp or LLC gets full medical/dental/vision/fishing lessons for her entire family... which includes YOU, the owner, and all of your young children. Work the wife part-time only, just enough to pay for the benefit premiums, and in your benefit statement, list full benefits available to ALL employees, so your wife is covered even though only part-time. Why this workaround? Because as a sole-member C-corp or LLC, it's damned near impossible to get benes for yourself, even if they're not only for you. See your CPA.
 
You can also set up a separate corp for the health benefits and such. Once you have one set up the second is real easy, and it also makes income shifting easier also.
 
Quote from osorico:

The first thing a US trader should determine is how he/she will offset the 15.3% SE (self-employment) tax, which in 2008 applies to the first 102K, for a total of $15,606. In 2009, while I am not 100% confident it is enacted yet, 1.45% above 102K with no ceiling applies. Additionally, brokerage accounts titled in the name of an LLC or any other entity are considered "professional" and will incur applicable recurring fees based on the "professional" rate schedule. The professional designation is determined by exchanges, not brokerages. In the past, some brokerages were willing to "challenge" professional designation on behalf of the client.

Just a couple of many things to consider.

Osorico
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In 2008 Social Security SE tax is 12.4% on the first 102k and Medicare SE tax is 2.9% on all income with no dollar cap. The cap on the Medicare tax was removed in 1991.
 
I was looking into this recently and did a little research. I went ahead and formed the LLC, but now I'm not sure if I'm going to use it. I don't need health care and I don't intend to form a retirement fund so it's probably not a benefit for me.

Here's an article and a link which gives a good description of the various entities a trader can form:

FACTORS AND ADVANTAGES TO CONSIDER ABOUT CREATING A TRADING ENTITY

Asset protection from creditors or litigants
Section 475 Election Availability
401(k) and Pension Plans
Tax Savings from Planning Strategies
Fringe Benefits Allowable
Retirement Planning
Every trader is unique with different needs and different fact patterns such as their assets and liabilities, family considerations, state of residence, etc. Your trading business and entity structure must be custom tailored to meet your particular circumstances. A 29 year old single scalper with gains of $300,000 a year has different needs than a 45 year old married Momentum Trader with 3 children and a full-time job.

http://www.taxesfortraders.com/cgi/pp/entities.htm
 
Quote from GermanTrader:

That's easy. The wife as an employee of the corp or LLC gets full medical/dental/vision/fishing lessons for her entire family... which includes YOU, the owner, and all of your young children. Work the wife part-time only, just enough to pay for the benefit premiums, and in your benefit statement, list full benefits available to ALL employees, so your wife is covered even though only part-time. Why this workaround? Because as a sole-member C-corp or LLC, it's damned near impossible to get benes for yourself, even if they're not only for you. See your CPA.
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If I understand the tax code correctly (and I am not sure of that!) The above only works if the LLC is taxed as a corporation and not an LLC taxed as a partnership. Do you agree GermanTrader?
 
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.
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You are making pretty good money.

At your level its a good idea to get have your taxes done by a CPA. Most good CPAs have access to a tax attorney who they will consult when necessary. For my circumstances the firm is usually able to find enough savings to pay their own fee. A good firm will supply representation for you in any interaction or dispute with the IRS.

I'm thinking you probably already know all of this.

Having a relationship with an attorney and a CPA over the long term can really protect you and your assets. Worth the money imho.
 
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