Starting a fund / raising capital

Busta21 · Dec 8, 2012

Quote from doublet83:

Great year so far. Made 860k representing 150% return.

I am quite concerned with taxes next year. Federal tax rates going up. Medicare taxes will now be on unearned income as well when previously they were just on earned income and the rate is going up too. New Obamacare tax on investment income. So for a trader based in NYC, it seems like your marginal tax rate will be about 59%. I'm all for taxing the rich, but 59%..Christ.

Federal 39.6%
NY 6.9%
NYC 3.6%
SS 10.4% up to 100k 1.4%
Medicare 3.8%
Obamacare tax 3.8%
59.1%

Am I misunderstanding something here? It seems like my marginal tax rate will be going up 14% because previously I was not subject to SS tax, Medicare tax, and Obamacare, along with the lower federal tax rate.

Great year so far, congrats! Anyone here familiar with setting up off-shore? There has to be a way to get around these rates.

007Arb · Dec 8, 2012

Quote from doublet83:

Great year so far. Made 860k representing 150% return.

Great returns the past few years. I didn't check to see if I have already posted in this thread but you do know hedge fund returns over the past 20 years or so are around 11% to 12% per annum. And even lower since 2008. That's actually an overstatement because it doesn't account for the funds that have dropped out due to poor performance and hence non reporting.

Busta21 · Dec 8, 2012

Quote from 007Arb:

Great returns the past few years. I didn't check to see if I have already posted in this thread but you do know hedge fund returns over the past 20 years or so are around 11% to 12% per annum. And even lower since 2008. That's actually an overstatement because it doesn't account for the funds that have dropped out due to poor performance and hence non reporting.

Ya, but those % amounts are on larger AUM's - These returns are great though.

heech · Dec 8, 2012

Quote from Busta21:

Great year so far, congrats! Anyone here familiar with setting up off-shore? There has to be a way to get around these rates.

Nope, nothing. Only option is to renounce citizenship and move elsewhere. Other than state taxes, nothing else you do will save you a penny from the IRS. (Legally.)

doublet83 · Dec 8, 2012

Quote from doublet83:

Great year so far. Made 860k representing 150% return.

I am quite concerned with taxes next year. Federal tax rates going up. Medicare taxes will now be on unearned income as well when previously they were just on earned income and the rate is going up too. New Obamacare tax on investment income. So for a trader based in NYC, it seems like your marginal tax rate will be about 59%. I'm all for taxing the rich, but 59%..Christ.

Federal 39.6%
NY 6.9%
NYC 3.6%
SS 10.4% up to 100k 1.4%
Medicare 3.8%
Obamacare tax 3.8%
59.1%

Am I misunderstanding something here? It seems like my marginal tax rate will be going up 14% because previously I was not subject to SS tax, Medicare tax, and Obamacare, along with the lower federal tax rate.

I think I messed up and double counted the Obamacare tax because I was confused with the wording from some articles I was reading. So the marginal tax rate would be 55% which is a lot better than 59%.

I'm planning on talking to a tax professional (hopefully one that specializes in traders) to get some advise. I'm not sure if there's anything more sophisticated than just electing as a professional trader, and taking as many business deducations as I can (I don't have many).

sf631 · Dec 8, 2012

For a tax pro, talk to Robert Green (greencompany). Don't think there are as many options going forward (avoiding medicare tax for example) but he knows his stuff.

Also, what is the SS "1.4%"? Is that the average tax rate for your 860K assuming you pay 10.4% on the first 100K? If you're trying to determine your marginal rate, this isn't right. Either calc the average tax rate or the marginal tax rate, but don't mix the two

doublet83 · Dec 8, 2012

Does anyone know whether or not you can contribute to a regular and/or a roth ira if you elect professional trader tax status and what the maximum contribution would be?

doublet83 · Dec 8, 2012

Quote from sf631:

For a tax pro, talk to Robert Green (greencompany). Don't think there are as many options going forward (avoiding medicare tax for example) but he knows his stuff.

Also, what is the SS "1.4%"? Is that the average tax rate for your 860K assuming you pay 10.4% on the first 100K? If you're trying to determine your marginal rate, this isn't right. Either calc the average tax rate or the marginal tax rate, but don't mix the two

Yeah I know its neither the marginal nor the average. Just my fuzzy math to make the rate seem higher because I'm really a little bit freaked out about how high my taxes are going to be.

rallymode · Dec 8, 2012

Quote from doublet83:

Great year so far. Made 860k representing 150% return.

I am quite concerned with taxes next year. Federal tax rates going up. Medicare taxes will now be on unearned income as well when previously they were just on earned income and the rate is going up too. New Obamacare tax on investment income. So for a trader based in NYC, it seems like your marginal tax rate will be about 59%. I'm all for taxing the rich, but 59%..Christ.

Federal 39.6%
NY 6.9%
NYC 3.6%
SS 10.4% up to 100k 1.4%
Medicare 3.8%
Obamacare tax 3.8%
59.1%

Am I misunderstanding something here? It seems like my marginal tax rate will be going up 14% because previously I was not subject to SS tax, Medicare tax, and Obamacare, along with the lower federal tax rate.

If you previously were not subject to FICA taxes then the only new thing that hits you is the 3.8% surtax on investment income over 200k plus the increase in rates due to the Bush tax cuts expiring.

sf631 · Dec 8, 2012

Can someone confirm that the 3.8% is only on the amount above 200K (or 250K) rather than on the whole amount for anyone who crosses 200K? Assuming so, hoping so. It isn't a huge consolation for someone making 860K, but matters much for those a bit closer to earth in the 200-500 range.