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Taxes with an LLC
- Thread starter TraDaToR
- Start date
As always with taxation, the answer depends on the particular situation that the OP has, and also depends on a number of decisions that they choose to make.
In general, most cap gains are not subject to SSI, since they are not earned income. There are a myriad of ways that that could be different in a particular situation, but rarely would those choices make sense. There are also exceptions (employee options transactions, depending on how they are structured, for example)
Choice of corporate structure notwithstanding, your LLC can generally deduct business expenses associated with trading (which become offsets to other ordinary income, which is even better than an offset against long term capital gains) -- again, there are always exceptions.
I have the unfortunate joy of knowing more about the tax code than I ever wanted to....
In general, most cap gains are not subject to SSI, since they are not earned income. There are a myriad of ways that that could be different in a particular situation, but rarely would those choices make sense. There are also exceptions (employee options transactions, depending on how they are structured, for example)
Choice of corporate structure notwithstanding, your LLC can generally deduct business expenses associated with trading (which become offsets to other ordinary income, which is even better than an offset against long term capital gains) -- again, there are always exceptions.
I have the unfortunate joy of knowing more about the tax code than I ever wanted to....
Quote from QQQBALL:
The income flows through; the LLC doesn't pay SSI.
This is generally correct -- LLC's are designed as pass-through entities, and they don't pay (most income) taxes, they are paid by the owners of the LLC. In general, small but non-solo LLC's choose partnership tax treatment -- which can get pretty complex. Single-owner LLC's are often treated as disregarded entities by the IRS (don't ask), and often the tax treatment is the same as if you were a sole proprietor.....
Social security and medicare taxes are not owed on capital gains for most traders. It does not matter what company structure you use, capital gains are not subject to self employment taxes. You are only subject to these taxes when your capital gains are treated as earned income as is the case with commodity and securities dealers or if you choose to set up a company and pay yourself a salary.
All this information is on the web and all tax software has this built in. How can you people not know this by now?
IRS Publication 550 page 72:
âSelf-employment tax.
Gains and losses from selling securities as part of a trading business are not subject to self-employment tax. This is true whether the election is made or not.â
All this information is on the web and all tax software has this built in. How can you people not know this by now?
IRS Publication 550 page 72:
âSelf-employment tax.
Gains and losses from selling securities as part of a trading business are not subject to self-employment tax. This is true whether the election is made or not.â
Quote from opt789:
Social security and medicare taxes are not owed on capital gains for most traders. It does not matter what company structure you use, capital gains are not subject to self employment taxes. You are only subject to these taxes when your capital gains are treated as earned income as is the case with commodity and securities dealers or if you choose to set up a company and pay yourself a salary.
All this information is on the web and all tax software has this built in. How can you people not know this by now?
IRS Publication 550 page 72:
âSelf-employment tax.
Gains and losses from selling securities as part of a trading business are not subject to self-employment tax. This is true whether the election is made or not.â
..there are some other, relatively obscure exceptions, but this is correct in most normal cases...
Agreed.Quote from gearhead:
..there are some other, relatively obscure exceptions, but this is correct in most normal cases...
That is why I said âmostâ traders. I like to keep things simple so I set up a general partnership with my wife so there are basically no filling fees or registrations. An LLC will not only cost you money to create and maintain, but there are also several states that have additional taxes on all LLCs. If you are just trading for yourself then the LLC doesnât offer you any realistic protection. For those who donât know, you are allowed to deduct all your trading related expenses whether you set up an entity or not.
Quote from opt789:
Agreed.
That is why I said âmostâ traders. I like to keep things simple so I set up a general partnership with my wife so there are basically no filling fees or registrations. An LLC will not only cost you money to create and maintain, but there are also several states that have additional taxes on all LLCs. If you are just trading for yourself then the LLC doesnât offer you any realistic protection. For those who donât know, you are allowed to deduct all your trading related expenses whether you set up an entity or not.
I'm with you...for most solo traders there isn't too much advantage to an LLC structure per se. It becomes more important if you have more people involved and/or are doing things beyond trading. As opt789 indicates, though, you do want to take advantage of the expense deduction, which you can do without the LLC formality. Technically, LLC's are often subject to higher data feed fees as well, since you've become (to the exchange) a professional trader...
Quote from opt789:
Agreed.
That is why I said âmostâ traders. I like to keep things simple so I set up a general partnership with my wife so there are basically no filling fees or registrations. An LLC will not only cost you money to create and maintain, but there are also several states that have additional taxes on all LLCs. If you are just trading for yourself then the LLC doesnât offer you any realistic protection. For those who donât know, you are allowed to deduct all your trading related expenses whether you set up an entity or not.
there is very few bright people on this board, and majority have no clue on most of the stuff they are talking about..
do your homework guys..please..
Investment Expenses: What's Tax Deductible?
Investment-related miscellaneous itemized deductions
Miscellaneous itemized deductions are generally limited to the amount of expenses over and above 2% of your adjusted gross income (AGI). In other words, thereâs a floor below which you lose the ability to deduct.
http://www.schwab.com/public/schwab...investment_expenses_whats_tax_deductible.html
Quote from Bob111:
there is very few bright people on this board, and majority have no clue on most of the stuff they are talking about..
do your homework guys..please..
Investment Expenses: What's Tax Deductible?
http://www.schwab.com/public/schwab...investment_expenses_whats_tax_deductible.html
well, sort of.
If you've elected trader tax status (in general, if you're claiming to be a full-time trader), then you are not subject to the misc. deduction limitations. In point of fact, if you claim your investment operations constitute a business, then you don't claim investment expenses on schedule A (which is where the 2% AGI limitation is imposed) but claim them on a schedule C (where no such limitation exists)
If you're a casual trader (the definitions and limitations of all of these terms are less than precise, and the case law is ambiguous at best, but in general, if trading is a sideline rather than a profession), then you can't claim business expenses for trading, and are subject to the limitations that you describe.
It gets even murkier when you wade into the caselaw around how a trading corporation (e.g., an LLC with trading activity) gets treated. In general, an LLC would claim to be a 'professional' trader, and would deduct trading expenses as general business expenses (on a schedule C or a 1065.) I'm certain there are notable exceptions, but I suspect that the existence of the LLC structure (while not required) is often enough for the IRS not to attempt to disallow the deductions....
Ah, the joys of the tax code. Like the devil, it's possible to quote different parts of the code to 'prove' virtually any point imaginable....
I do have quite a bit of experience with tax law, and I still find that there are lots of inconsistent interpretations, even for things that should be straightforward. Your mileage may vary.