state income tax

Originally posted by Felix

Regarding my personal situation, I'm currently living in Europe (in a country with income taxes as high as 50 %)
More...

JMHO, but there isn't any tax advantage to living in the U.S. -- the highest Federal rates go up to almost 40% on income, and most states tack on somewhere between 4-8%. The states that don't have an income tax make up the difference in other ways, net asset taxes, higher sales tax, various fees, etc. Then there is the Social Security tax, which is basically another 8% Federal income tax with a different name (and doubled for self-employed persons). Then add medicare, and in some areas, municipal taxes on income. These are in addition to sales and property taxes. Point being, I doubt the overall effective tax burden is significantly less in the U.S. than in Europe, especially considering that none of the above taxes go toward health care, which is privately funded, at least for those who pay taxes.

As for New Hampshire, I agree it's a very beautiful state, great environment and outdoor activities - the flip side is that it's very sparsely populated...
 
@Madison

Don't look at the tax rate alone but at the taxes for a particular income. The maximum income tax I was talking about in a European country (slightly above 50 %) kicks in at an annual income of about $50k per year for a single person. A person with the same income in the U.S. would be subject to a maximum federal tax of 27 % only. There are also no tax advantages such as a cap on the taxation of capital gains or the 60/40 rule for commodity trades. As for the state tax, you have the choice where to locate and what taxes to pay (which isn't true in my home country because there is just the federal income tax).

Of course you have to add all kinds of compulsory Social Security Taxes (public health insurance, retirement, unemployment insurance) which may easily eat up another 20 % of an employee's income. Sales taxes in Europe - you'll find a VAT (value added tax) on all goods sold and services rendered in the range of about 10-20 %. Not to mention a gasoline tax that has driven up gas prices to about $3.80 per gallon :mad:
 
Lived here about a year and a half now. I share in many of JWKirkland and rs7's complaints but one thing they didn't mention is the air. I've never had allergies, asthma or anything like that. Once I moved out here my sinuses started hurting on a daily basis. A friend has only lived here five years yet has to go into the hospital for sinus surgery and it seems like everyone has to carry a bottle of Claritin around.

It's a fun town to be single in and it's nice to have friends who are strippers but the drinking and gambling is getting old. God, did I just say that? Maybe I'm getting old. Well, I'll see you at the Pimp n' Ho ball this weekend.

:cool:
 
I think that most traders can avoid Social Security/FICA/Medicare Taxes if their "income" is based on cap gains, dividends, interest, etc. rather than earned or ordinary income. These taxes apply only to ordinary or earned income, not to capital gains.

Now its a separate issue as to how you set up your trading entity and whether that entity "pays you" for trading. If the entity passes the cap gains to you as cap gains, then those are NOT subject to to these taxes. If the entity passes the cap gains to you as ordinary income, then they ARE subject to self-employment tax. (I'm not sure how the Prop firms do it -- do they pass trading profits to the trader as "cap gains" or as "ordinary income" on the K-1???).

Before you think that avoiding Social Security/FICA/Medicare Taxes is great thing, you might want to look into its impact on retirement planning. The lack of ordinary income makes it hard to aggressively sock away funds into a retirement account where you can trade without any taxation (until you retire and start taking distributions). For example, I have a KEOGH account that lets me put about 20% of my self-employment earnings into a retirement account (and with the partnership agreement and "guaranteed payments to partners" I can convert cap gains into ordinary income). Once in the retirement account, the trading gains compound tax-free. When I ran simulations of this for my personal situation, I found that once I reach a certain level of profit generation(not quite there yet), I will be better off in the long-term if I convert some of those cap gains into ordinary income, pay self-employment taxes, sock away 20% into the retirement account, and trade tax-free inside that account. Over time, capital gains earned from trading untaxed capital gains in the retirement account make up for the initial hit from Social Security/FICA/Medicare Taxes.

Of course, there are other issues that impact whether this strategy will work for you. The lack of margin borrowing and presence of PDT(pattern daytrader) restrictions on the retirement accounts could make this strategy unusable to daytraders. Also spreading ones trading capital across multiple accounts can make trading harder. Since I swing-trade the long-side using end-of-day data and order-entry, the PDT restrictions and multiple account issues are not a problem for me.


As with all of matters related to the IRS, I will cover my a$$ by saying "Consult your tax professional" -- I'm just an ordinary guy who knows enough to be dangerous.

Happy trading,
-Traden4Alpha
 
Originally posted by MrDinky
Lived here about a year and a half now. I share in many of JWKirkland and rs7's complaints but one thing they didn't mention is the air. I've never had allergies, asthma or anything like that. Once I moved out here my sinuses started hurting on a daily basis........ seems like everyone has to carry a bottle of Claritin around.
More...
Yeah, almost forgot about that. They say the reason is that they have planted every imaginable kind of vegetation that is not indigenous to the desert. And the spores and pollen just blows around looking for soil which doesn't exist.

You just have to grow a beard like Don Bright...breath through it. Use it like a homegrown gas mask!

:)RS7
 
Just a reminder,

A close friend of mine(& mentor) who is a VERY successful trader likes to say paying more taxes each year is a good thing because that simply means he is making more trading(Of course, he or no one else wants to pay any more than absolutely necessary!)

I can hardly wait until I have to pay a million dollars in taxes on my trading profits(not there, just yet :-) )

But just something to keep in mind. . . . . . . .
 
Originally posted by Traden4Alpha
I think that most traders can avoid Social Security/FICA/Medicare Taxes if their "income" is based on cap gains, dividends, interest, etc. rather than earned or ordinary income...

Happy trading,
-Traden4Alpha
More...

Traden4Alpha, are you a stock trader or commodity trader? I have heard commodity traders are considered self-employed and must pay self-employment tax.
 
Originally posted by CoolTrader


Traden4Alpha, are you a stock trader or commodity trader? I have heard commodity traders are considered self-employed and must pay self-employment tax.
More...
I'm a stock trader, so you may be right about commodity traders. Just be careful as some of the Active Trader/Tech Analysis of Stocks & Commodities magazine articles that I have read mention that some tax preparers don't know how to handle trader's taxes and will lump cap gains into ordinary income (and don't even ask most of them about becoming a mark-to-market trader). And if your trading gains are treated as ordinary income (subject to self-employment tax) then look into setting up a retirement plan for yourself/trading entity.

Wishing everyone has pay a million in taxes this year,
-Traden4Alpha
 
Here's something to keep you up at night. I recall reading that you are not supposed to use an IRA type account in the course of conducting a business.

If you do (and they notice) , there are some special taxes that kick in.

Heavy duty trading in a Keogh MAY be problematic, at least in theory.
 
You must log in or register to reply here.
Back
Top