Solo LLC vs Individual on Earnings

I already own a LLC for several years and know the reporting. But it is not a trading LLC.

No experience with a prop shop. I'd rather trade my own capital and have total control of it. Do not have to share gain (or loss) with anyone.

Yes, tiddlywinks gave good advice. I already know tons of accounting and finance.

Actually if you are a full time trader or full time trading, you do run your own business and it should be reported as a business, including all expenses.

The only downside is the FICA tax. I believe the FICA is calculated before any IRA deduction. So it is several thousand $ FICA if you want to fully invest in your IRA/SEP etc.
 
Quote from RedSun:

I already own a LLC for several years and know the reporting. But it is not a trading LLC.

No experience with a prop shop. I'd rather trade my own capital and have total control of it. Do not have to share gain (or loss) with anyone.

Yes, tiddlywinks gave good advice. I already know tons of accounting and finance.

Actually if you are a full time trader or full time trading, you do run your own business and it should be reported as a business, including all expenses.

The only downside is the FICA tax. I believe the FICA is calculated before any IRA deduction. So it is several thousand $ FICA if you want to fully invest in your IRA/SEP etc.
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hmmm... unless you are a corp, the way you will pay FICA is via SE tax... so not sure how you are structured... in any event, to me it is worth it being able to put away close to $50K a year on an individualK plan that enables me to use those funds and turn around and buy real estate with it, and also continue trading future spreads with it as well... bu everyone should run their own numbers and do a CBA to determine what they find or not acceptable...
 
Quote from ofthomas:

hmmm... unless you are a corp, the way you will pay FICA is via SE tax... so not sure how you are structured... in any event, to me it is worth it being able to put away close to $50K a year on an individualK plan that enables me to use those funds and turn around and buy real estate with it, and also continue trading future spreads with it as well... bu everyone should run their own numbers and do a CBA to determine what they find or not acceptable...
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Yes, FICA = SE tax in this case. If you put away $50k into your solo 401K, then the SE is quite large. But it may be still better than paying IRS the tax on the $50k capital gain.

Time to be creative with offshore account.
 
Quote from tiddlywinks:

In the eyes of IRS, by default(which is not the only option), a single member LLC is considered a "disregarded entity". That means it is treated the same as a sole proprietorship. Like a sole proprietorship, an LLC is a pass-through entity, however the LLC will issue a year-end K1 statement with all income, credits, gains, and losses maintaining their original characteristics on your individual tax return.

You are missing the bigger and better picture however. If done correctly, an entity (including single member LLC) can provide you with "earned income". Remember ALL trading gains are "unearned" income. Earned income is required in order to unlock several benefits and deductions such as health insurance, retirement accounts, and home office deduction to name a few. Not too mention you are no longer chained to the restrictive limitations of Schedule A (itemized deductions), or the $3000 max annual loss deduction imposed on sole proprietorships (and default treatment single member LLCs).

Trade On!
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If you are trading with a true prop firm then you are a member/partner you get issued a K1 and your taxes should say prop trader for occupation i.e. you could not be prop trading on the side and so you buy pass the $3k/year write off and all the other issues.
 
Quote from RedSun:

Yes, FICA = SE tax in this case. If you put away $50k into your solo 401K, then the SE is quite large. But it may be still better than paying IRS the tax on the $50k capital gain.

Time to be creative with offshore account.
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just a reminder, US Cit's are taxed on their global income, regardless of which country... there are some countries that have tax treaties... but then again, to make any significant impact on your liability to the rev services you would need to be baking millions to make it worth going offshore and legally structuring things... I somehow doubt you would fall in the category given you seem to be concerned about a few thousand on SE taxes...

again, my advice... seek professional tax advice... offshore requires more spending than you think to structure things properly the legal way... if not, and you get caught for not declaring the funds offshore.. you will be paying a lot more than those few $K's in penalties and interest alone...
 
Quote from dealmaker:

If you are trading with a true prop firm then you are a member/partner you get issued a K1 and your taxes should say prop trader for occupation i.e. you could not be prop trading on the side and so you buy pass the $3k/year write off and all the other issues.
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Good to know. I am not a prop trader (nor interested in becoming) but that does make sense. Thanks.
 
Quote from 2rosy:

isnt the benefit of an LLC if you get personally sued the LLC assets cannot be touched?
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That is part of it. But if you are solo with no outside capital, there is no or little liability to speak about.
 
Quote from RedSun:

Hi, I understand most of the differences of solo LLC over no LLC. My question here is on the LLC earning.

If I make $$ from my LLC, say $50k (after expenses) from trading futures (only). Does this earning go to my top line as wage/earning?

I really like it to be considered as capital gain instead of regular earning. If I do not have LLC, the gain/loss from straddle (futures) go to my capital gain.

I can use some of the capital gains to offset some of my capital loss carried forward from last year. But I really hate more earnings.

Please let me know. I think LLC earning is considered wage/earning, which is not good for me.
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A single-member LLC (SMLLC) is a disregarded entity, a tax nothing in the eyes of the IRS. An SMLLC trader qualifying for trader tax status (TTS) files a Schedule C for their trading business expenses. Trading gains and losses are reported on other tax forms - Form 8949 for securities, Form 6781 for Section 1256 contracts and Form 4797 for Section 475 MTM. Trading gains are not earned income, except for a full member of a futures exchange trading futures on that exchange (Section 1402i).

Sole prop traders, including SMLLC disregarded entities don't have earned income. That means no SE tax on trading gains and no AGI deductions for retirement plans and health insurance premiums on trading gains, either.

That's why we recommend S-Corp elections for SMLLCs, so they are separate tax-filing pass-through entities. The SMLLC S-Corp can pay the owner a fee or salary, to financially engineer some earned income to unlock AGI deductions. S-Corp elections can be filed late with Rev. Proc. relief. But, S-Corp 2012 extensions were due March 15, 2013 and the late-filing penalty is $189 per month, per partner (which is just one partner).

A Schedule C trader - sole prop whether SMLLC or unincorporated - can not pay themselves a fee.
 
This is interesting.

I think there is still some flexibility on how you file the tax on the LLC.

I think some file LLC as a real trading business, as if you run a money management firm with other's capital. Then it is a business, with full set of expenses and profit/income. You can deduct the IRA and insurance.

Some file LLC as a pure pass-through. Then you treat yourself as if there is no LLC.

Some will mix them together, for the better part of expenses/benefits, and do not pay tax on the income, but treat it as capital gain.

This is why tax reporting is never the same with different accountants. Be creative. As long as you do not violate the IRS rules.
 
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