Self-employment tax for LLC

Z

zyber

My wife and I are 2 members of LLC (partnership). We trade E-mini S&P 500 future options. I pay my wife her part of profit (no guarantee, non-fixed amount) almost every month. I retain my part of profit in trading capital. I wonder if my wife has to pay self-employment tax since it's not actually her earn (fixed) income. And I don't think I have to pay my self-employment tax either.
Any suggestions?
Regards,
Z
 
Consult an accountant -- you may pay a few hundred dollars -- but compare that with the costs if you do it wrong, get audited, and end up paying the self-employment, plus penalties and interest.

I use Robert Green (www.greentradertax.com) and would recommend him, but there are also other accountants who specialize in this.

SSB
 
I am a part of a two member LLC for trading too. Unfortunately, being my first year day trading, I made squat so I don't have your problem, but I believe only S corps have to pay self employment tax not LLC's. I am not sure where you are and if that matters. I'm in CO. Paul Mann at daytradertax.com is whom I used and wouldn't hestiate to recommend him. You can probably search google, look for Nolo and see what they have to say.
 
i think you're incorrect. all income from an llc flows to your return and is taxed as income. go to robert greens site were he recommends an llc so one can do a retirement plan and write off your health ins but the only downside is you must pay se tax. with the great 60/40 long term /short term capital gains tax rates as an invidual for futures why would you have an llc?
 
Quote from zyber:I wonder if my wife has to pay self-employment tax since it's not actually her earn (fixed) income. And I don't think I have to pay my self-employment tax either.
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The correct answer is what do you want it to be taxed as? Then structure your LLC operations and elections to yield that result. The LLC is quite flexible as per the way Congress and the IRS have it regulated (as long as it is reasonable, ordinary & necessary to run your business, and as long as tax avoidance is not the primary force behind your decisions).
 
trader status you must be talking about taking income as a dividend. many people take a small salary and then take a portion of money as a dividend to avoid se tax. problem is if you have 100k to take and take 25 k as salaryand 75 k as a dividend it won't fly
 
Dividends and the cost of bookkkeeping can keep Wifey in the plus. Pay her minimum wage. Roll the excess trading profits back into the trade.

Remember everything is auditable and you are at the mercy of the agent that you get in your audit...(if you ever get audited)

You better be over 100k in profits to make this pay and be trading fulltime without holding down another job....or the agent could call your stuff a hobby...Then its easy for him...the last three years of taxes get re-written and you owe a lot...


Michael B.

P.s. I do not have one of these set-ups with Wifey....I just pay the tax quarterly and when it gets big enough I will need to deal with it. There is nothing wrong with structering your affairs to pay less tax, its just that there is not many ET wannabee's that make enought to do this.


Quote from zyber:

My wife and I are 2 members of LLC (partnership). We trade E-mini S&P 500 future options. I pay my wife her part of profit (no guarantee, non-fixed amount) almost every month. I retain my part of profit in trading capital. I wonder if my wife has to pay self-employment tax since it's not actually her earn (fixed) income. And I don't think I have to pay my self-employment tax either.
Any suggestions?
Regards,
Z
More...
 
truth is 8 years ago i was scared to death of trading billions of $'s of trades and if the irs would bother me. all these so called trader cpa's all said get a corp as to avoid scrutiny by the irs as you're trading so much. and they'd say you must itemize every trade and they'll get you on the wash rule. truth is i've rarely heard of the irs screwing with any sole 1040 trader. after talking with well known trader cpa's the only thing that catches the irs's eyes are money losing traders trying to file nol returns. the other fear crap is just to generate huge fee's. like i assure you nobody who does 1 billion of sales will itemize there trades. that irs clarification is to prevent part time trader from taking sch c expenses. so if the irs see's the inconsistency of trades they'll deny the sch c.just do things honestly and you'll never have to fear
 
Quote from hedgeking:taking income as a dividend. many people take a small salary and then take a portion of money as a dividend to avoid se tax.

take 25 k as salaryand 75 k as a dividend it won't fly
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LLC's taxed under Subchapter K partnership rules do not pay dividends or salaries to their member/owners.

You might be referring to the Subchapter S rules (which do not apply in this situation here), in which case as a trader in capital assets a salary of $25,000 is very justifiable, per IRS Code section 475.
 
so a S corporation is preferable over an Limited Liability Company for a trader making over 100k per year? and that wants to add Wifey for the tax advantage? Is the fact that she is related have any bearing in questionable circumstances?




Quote from traderstatus:

LLC's taxed under Subchapter K partnership rules do not pay dividends or salaries to their member/owners.

You might be referring to the Subchapter S rules (which do not apply in this situation here), in which case as a trader in capital assets a salary of $25,000 is very justifiable, per IRS Code section 475.
More...
 
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