Pros and Cons: LLC vs S-Corp

[TraderZones]

Quote from bigarrow:

the reason I have a corp for my construction business is if an accident happens, someone dies, a building burns down, a car wreck by one of my subs, then I am (hopefully) removed from the lawsuit. This of course doesn't protect me from negligence.
But my corp does save me taxes also and some benefits. A trader wouldn't need that kind of legal protection.

You get it. Liability protection financially means little for something like construction, because any potential creditor makes you take PERSONAL responsibility for the debts anyway, so they can stil come after your assets.

And if you are negligient, it is also useless.

As you said, for a trader, it is of little value.

 

[TraderZones]

Another reason LLC / S Corp complete waste of time

Any self-eployed person can set up IRA's and SEPs (for up to 25% of your income). Corp structure is an unnecessary complexity.

 

[Free Thinker]

Quote from TraderZones:

Another reason LLC / S Corp complete waste of time

Any self-eployed person can set up IRA's and SEPs (for up to 25% of your income). Corp structure is an unnecessary complexity.

self employed traders cant. you need earned income to contribute to an ira. trading income is not earned income.

 

[Lakeside]

Quote from vhehn:

self employed traders cant. you need earned income to contribute to an ira. trading income is not earned income.

Thats my understanding, and my goal for dealing with this at all. To build up a self directed 401k in which to trade and attain uninhibited compound growth.

 

[MJ888]

This is a very good thread that addresses a major problem that traders have.

After reading all of the replies and doing some research on my own, I have come to the conclusion that maybe I should do both.

1) I should continuing reporting a majority of my trading income as capital gains paying 14% to 15% average for Federal taxes.

2) I would also want to set up either an S Corp or LLC and use it to put a "face" to what I am doing for a living. I have recently tried to obtain medical coverage and am in the process of applying for a mortgage. Both instances, I am having trouble justifying what I do for a living even tho I have a high income. Because technically, I am considered "unemployed" with a nice capital gain. And most banks/lenders/landlords/insurance agencies have a hard time doing business with someone who is considered "unemployed."

Any thoughts on this?

 

[opt789]

The bottom line is that you do not need to form an entity for your trading business to take all the basic deductions related to trading, but it is a good idea to do so because it will give you the ability to take additional deductions if you choose to do so now or in the future. It is a safe assumption that the IRS as well as lenders will take you more seriously if you have an entity. Another option is that if you are married you can set up a general partnership and not have to pay or file for an LLC. You need to talk to a professional before doing anything because everyone’s circumstances are different, and there are some states that charge extra taxes on LLC entities.

 

[Vista]

What about trading within an LLC or S Corp. for protection from a black swan event. Lets say your account suffers massive losses due to CME being shut down for a week, because of an attack.

Can you declare bankruptcy on the LLC or S Corp. and walk away saving your other assets?

 

[Jachyra]

If you go see a reputable tax attorney or a reputable accountant, who knows what they're talking about and isn't trying to sell you anything, they will almost always tell you that the use of legal structures like corporations and LLC's are all about asset protection and NOT about reducing your tax liability, and that unless you have a need the legal protection from lawsuits, then don't waste your time or money.

 

[Redneck]

Quote from Redneck trader:

FWIW & IMHO


I use them


So if you put any stock in the stuff I post

Try em - You can always say no - or walk away

If you don't - then no use in me saying try em


Take Care
Redneck

I am glad this thread came back up

I recommended traders accounting - in an earlier post

After working with them over the past few weeks - I rescind my recommendation - and ask anyone thinking about using them to proceed with CAUTION!!!!!


Seems they have become incompetent since last year - I will no longer be using them


Redneck

 

[TraderZones]

Quote from opt789:

It is a safe assumption that the IRS as well as lenders will take you more seriously if you have an entity. .

I had an S corp for years. It is a safe assumption that you are likely to undergo audits if you have a legal structure.

Setting up a legal entity for trading is almost always the wrong thing to do.