Tax Question -- Joint Tenants in Common

[catmango]

Are there any ETers who are doing this?

A couple of relatives asked me to trade some of their money in my account in exchange for a cut of the after-tax profits. At the time we all thought it would be easiest to just treat all the profit as my own for tax purposes and then not bother my "silent partners" with the tax burdens associated with their share of the profits (since there was no way to show that the profits belonged to them to begin with). This works well with small profits, however, as our combined profits grow, then I'll be pushed more quickly into a higher tax bracket than if we were to split the profits pre-tax, making this approach less and less tax efficient.

If I wanted to instead spread the tax burden over myself and my two relatives (without having to go through the complicated hassles of LLPs or incorporated investment clubs, etc.) would it be easier to just do a joint tenancy in common account? It looks like that would be the most pain-free way to take advantage of everyone's lower marginal tax rates. Are there easier ways of accomplishing my stated goal of being as tax efficient as possible with minimal hassles?

Any help would be greatly appreciated.

 

[FuturesTrader71]

How much money are you expecting to manage? You might consider setting up an S-Corp and then treating everyone as officers. You then have the benefit of more favorable tax treatment and a clean tax bill. That all depends on the size of the account.

 

[Free Thinker]

Quote from catmango:

Are there any ETers who are doing this?

A couple of relatives asked me to trade some of their money in my account in exchange for a cut of the after-tax profits. At the time we all thought it would be easiest to just treat all the profit as my own for tax purposes and then not bother my "silent partners" with the tax burdens associated with their share of the profits (since there was no way to show that the profits belonged to them to begin with). This works well with small profits, however, as our combined profits grow, then I'll be pushed more quickly into a higher tax bracket than if we were to split the profits pre-tax, making this approach less and less tax efficient.

If I wanted to instead spread the tax burden over myself and my two relatives (without having to go through the complicated hassles of LLPs or incorporated investment clubs, etc.) would it be easier to just do a joint tenancy in common account? It looks like that would be the most pain-free way to take advantage of everyone's lower marginal tax rates. Are there easier ways of accomplishing my stated goal of being as tax efficient as possible with minimal hassles?

Any help would be greatly appreciated.

the ib financial advisor account is the best way to go. each client pays their own taxes and you dont have any hassles.

 

[FuturesTrader71]

Quote from vhehn:

the ib financial advisor account is the best way to go. each client pays their own taxes and you dont have any hassles.

I didn't know that this was available. Vhehn, do you know if you can do this with someone living in Canada?

 

[Free Thinker]

Quote from FuturesTrader71:

I didn't know that this was available. Vhehn, do you know if you can do this with someone living in Canada?

dont know about canada but i use it here and love it.

 

[omniscient]

vhehn and FT have already provided options, but you might also want to contact someone at:
http://greencompany.com/

the website has a lot of great info, the book is great, and so far Robert has been very quick to respond to my questions.

hth

take care -

omni

BTW: i am in a similar situation. i started a partnership with my father but we are now looking into better, more comprehensive, more complete alternatives. we want all three of us to be happy winners - my dad, me, and Uncle Sam

 

[catmango]

Quote from vhehn:

the ib financial advisor account is the best way to go. each client pays their own taxes and you dont have any hassles.

Unfortunately I'm not a licensed professional, and I believe that living in CA, the state requires me to be licensed before setting up something that has me listed as an "advisor".

 

[catmango]

Quote from FuturesTrader71:

How much money are you expecting to manage? You might consider setting up an S-Corp and then treating everyone as officers. You then have the benefit of more favorable tax treatment and a clean tax bill. That all depends on the size of the account.

It's only six figures, but aren't there many disadvantages with S-Corps, especially since I'm based in CA?

 

[Free Thinker]

Quote from catmango:

Unfortunately I'm not a licensed professional, and I believe that living in CA, the state requires me to be licensed before setting up something that has me listed as an "advisor".

then use the friends and family account. most states allow 15 clients before needing a license.

 

[illiquid]

Isn't friends and family account just the ability to manage multiple IB accounts from one TWS, rather than managing a single account with varying proportional ownership?