The moment you formed the LLC and began trading in it, you are subject to the 15% self employment tax, period.
The LLC is a tax conduit, pays zero tax, allocates to members based on the partnership democracy, commonly known as a partnership agreement.
Incubator hedge fund? Your trading an account, get your record audited after a period of time, forget the buzz words.
A hedge fund is a legal structure, not an asset class.
You cannot 'hold' you licenses in a fund. You would need to form a b/d, and that is entirely a different matter.
If you do not intend, and trust me you wont gather any significant assets from anyone remotely familiar with professional asset allocation; with a fund that had zero legal and tax counsel at formation, that is a massive RED FLAG in the due diligence process. Your dead on that count before the battle began.
If its to trade your own account, then trade your own account. Get it audited, avoid the self employment tax. In CA the LLC tax is $900 annually. The 900 hundred bones can be deducted 100% in the year paid.
Running a fund is a business in and of its self, not every profitable trader with a verifiable track record can make a go of it, its a path wrought with pitfalls. To consider doing it without proper legal/tax counsel is irresponsible,especially to future members if all goes well with your strategy.
You couldnt launch a newspaper stand without an investment of 5-8K, launching a fund on the cheap is a poor risk management 'trade', your first out of the gate.
Trust me, if you tap out an investor, they wont hesitate a minute to spend 5-8k on a hack attorney that will drag you thru hell and back.
All formative costs are deductible over 36 months, so you spread the 15-20K over three years and lower the expense ratio to the initial investors.
