Signing As Individual or LLC With A Prop Firm?

[dve250]

So what entity do most people form when joining a prop, LLC or S-Corp? Here's a good article:
http://www.powerhomebiz.com/vol136/structure.htm

 

[Don Bright]

Quote from dve250:

So what entity do most people form when joining a prop, LLC or S-Corp? Here's a good article:
http://www.powerhomebiz.com/vol136/structure.htm

Most prefer the tax and limited liability of individual membership.

Don

 

[dve250]

According to that article and other sources I read, If you don't set up the LLC to tax as an S-Corp you will have to pay Self Employment tax on the total income you generate. Whereas in an S-Corp you pay yourself a reasonable wage and pay Self Employment tax on that, and money above that is distributed as a dividend, thus saving on taxes.

 

[Don Bright]

Quote from dve250:

According to that article and other sources I read, If you don't set up the LLC to tax as an S-Corp you will have to pay Self Employment tax on the total income you generate. Whereas in an S-Corp you pay yourself a reasonable wage and pay Self Employment tax on that, and money above that is distributed as a dividend, thus saving on taxes.

As noted in Bob Green's article, and our last 18 years, our LLC members are exempt from Self Employment taxes. An S corp entity would have to have the "owner" sign personal guarantees in excess of the risk capital (as is required by 99% of all lending institutions). The IRS is hot on the low self wage paid by an S-Corp, giant red flag item. You can call Ray Lucia on that one, LOL.

(once again, not tax or legal advice, and not from Bright Trading or any of its' affiliates. Personal opinion from me, my public accounting experience)

Just trying to help, and show you how we handle things.

Don

 

[sobepehopeful]

Quote from Don Bright:

As noted in Bob Green's article, and our last 18 years, our LLC members are exempt from Self Employment taxes. An S corp entity would have to have the "owner" sign personal guarantees in excess of the risk capital (as is required by 99% of all lending institutions). The IRS is hot on the low self wage paid by an S-Corp, giant red flag item. You can call Ray Lucia on that one, LOL.

(once again, not tax or legal advice, and not from Bright Trading or any of its' affiliates. Personal opinion from me, my public accounting experience)

Just trying to help, and show you how we handle things.

Don

Don, it seems like it's less hassle for a trader to sign up as an individual, but if a trader was with a firm that issues a K-1 and he/she signed on with that firm under an LLC, wouldn't there be more tax write-offs available because of the LLC opposed to the individual?

 

[Don Bright]

Quote from sobepehopeful:

Don, it seems like it's less hassle for a trader to sign up as an individual, but if a trader was with a firm that issues a K-1 and he/she signed on with that firm under an LLC, wouldn't there be more tax write-offs available because of the LLC opposed to the individual?

We allow our traders to submit all legitamit expenses to us in December, thus lowering their K-1 number, which is probably the best way to benefit. And, the 15% exemption from SS tax covers a lot of retirement $$.

FWIW,

Don

 

[dve250]

Here are some links I found on the topic of self employment taxes in an llc.

http://smallbusinessonlinecommunity.bankofamerica.com/message/4420

http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P12_4876

http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P12_4710

http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

http://www.allbusiness.com/accounting-reporting/corporate-taxes-limited/1288-1.html

http://www.nysscpa.org/cpajournal/2006/606/essentials/p32.htm

After reading these links I don't see how someone who forms an LLc to trade in a prop firm doesn't pay SE tax.

 

[TraderD72]

Quote from Don Bright:


Some accountant types try to talk traders into forming "entities" but I have not seen any real reason to do so, quite the contrary.

Don

Is this just for "prop" traders?

Would this apply for someone trading their own money (NO series 7, no extra leverage) at a prop firm?

 

[Don Bright]

Quote from TraderD72:

Is this just for "prop" traders?

Would this apply for someone trading their own money (NO series 7, no extra leverage) at a prop firm?

Well...you pretty much defeat the purpose of being at a Prop firm... not taking advantage of the benefits...so, I guess you could do whatever you like as a Retail trader.


(I may have missed something?)

Don