tax sheltering strategies

Quote from lindq:

You may well be better of just filing as a trader in securities, unless there is some specific reason you need a corp.

Big reason why? You pay no self employment tax, which is a large savings. And you can still deduct health insurance, offfice, hardware, software, publications, data fees, etc. etc.
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lindq: Seems like you have some helpful insight on this matter. If you don't mind, can you give me some insight on my situation. I started actively day trading futures this November and from all I have read, I would qualify for "trader status," however, I will be receiving severance pay through the end of 2007. I am wondering if it would be a good idea to put "trader of securities" on my 2007 tax-form, or better to wait until 2008, being that there is not much time left in the year.

Also I want to make sure that I don't pay self-employment tax in 2008 as a trader. Am I correct in understanding that the way to get out of self-employment tax is to have my tax status as "trader of securities"?
Thanks
 
Be careful here. Investment or trading income is not considered earned income if its not how you made or are making your living. But if you are a professional trader, i.e. you have trader status -- you make your living from trading -- that trading income may therefore become earned income. Check this out carefully with an expert. For me, my investment/trading income is not earned income. I am not officially someone who trades for a living, although i do it full-time. Go figure?

Think twice about not paying self-employment tax. That may be something you should be doing, depending on your circumstances. Do you already have enough Soc.Sec contributions (or will you have by retirement age) to max out your soc. sec. retirement benefit? Check with the Soc. Sec. administration. They will tell you how this is calculated. Don't assume all the nonsense on these boards about social security being broke when you get to retirement age and you not getting anything back. Soc. security can be one of your wisest investments for two reasons. It maximizes the return for the amount of contribution you make if you live longer than you expected, and it offers some protection against becoming disabled. Bottom line is you would have to contribute more per month in a private plan to guarantee the same benefit for life. The trade-off is that with Soc Sec. you don't leave an estate when you die. You need both a private contribution plan and social security in my opinion. And you may need private disability insurance as well, depending on your circumstances. There is an awful lot of misinformation about social security on these boards. But it would be a mistake to assume you don't want to pay self-employment tax without apprising yourself of all the ramifications. On the other hand, If you've got several million of well-managed liquid assets you probable don't need, social security, medicare, or disability insurance.
 
sideshowbob: I checked out those websites pretty well much of today. Thanks, still left me with some questions, see below.

Quote from piezoe:

Be careful here. Investment or trading income is not considered earned income if its not how you made or are making your living . . . .
Think twice about not paying self-employment tax . . .
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Thanks for the input. There seems to be a lot information that is up for personal interpretation out there, I suppose much of it depends on personal preference and how one interprets tax code. I am trying to get some hard conservative numbers on an amount of tax I need to figure on paying as a trader.

I am trading futures only and I am trying to calculate what I will need to put away for taxes on my trading. I qualify for the Status of an Active Trader if I want to claim it, but not sure I want to with all the info I am reading from various sites.

As a day trader of index futures the 60/40 rule applies to all gains, which comes out to approx. 23% on all gains. If I don't chose to use the Active Trader Status I can only deduct 3,000 for loses. Being that I only trade index futures, the WASH rule doesn't apply to me, correct? I live and trade from California so I will have to pay CA State Income Tax, which I have to look into.

Also I am not sure about Self Employment Tax which is 15% if I pay it myself, but hoping not too? I am only 39 so could easily continue to pay into Social Security if I wanted or felt the need to.

Bottom Line: I am a day trader of index futures, wondering what percentage of my gain I should calculate going to pay the tax?
I will file as an individual.
Capital Gains 23%
State Income Tax ??
Self Employment Tax??
Am I missing anything?

Thanks for the help. Trying to stay away from having to pay a CPA for a consultation call.
 
Bottom Line: I am a day trader of index futures, wondering what percentage of my gain I should calculate going to pay the tax?
I will file as an individual.
Capital Gains 23%
State Income Tax ??
Self Employment Tax??
Am I missing anything?

Thanks for the help. Trying to stay away from having to pay a CPA for a consultation call.
More...


get a old copy of taxcut software and play with the numbers, if you don't want spend money on CPA.
 
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