Trading as an individual vs. as a limited company

[mikeriley]

Maybe a stupid question but I never understand how you practically make such transition as you have to put (income) taxed money in it but you have to pay tax again if you get it out?

(of course this doesn't apply to a special case where you "fill" the company with salary from a consultancy job (if this is even possible))

You are allowed to be an employee on the payroll of your own company. Getting
a 1099 already establishes a trader/investor as self employed, which can be wrapped up in the mighty I.R.S tax benefits of incorporation.

 

[movingslow]

A follow-up question: is it perfectly legal for one person to trade simultaneously through 1) an individual account and 2) a business account with the same broker?

Reason for asking this is that in many countries, long-term investment returns are not taxed or the tax is low, whereas short-term trading profits are taxed heavily. So the optimal thing to do would be to handle your long-term investments as an individual and do short-term trading as a business entity.

Does anyone know whether this is common or if there are any potential legal obstacles? Do brokers allow this?

 

[Robert Morse]

Yes.

A follow-up question: is it perfectly legal for one person to trade simultaneously through 1) an individual account and 2) a business account with the same broker?

 

[virtusa]

Does anything significantly change in the client-broker relationship if you move from trading as an individual to trading as a private/limited company? Technically not a fund (no clients), but simply a business started for managing your own money and/or family money.

The taxation of an individual trader is rather high where I live (in Europe). Many individual traders or investors instead start a company and manage their money through it.

But does anything significantly change in the relationship with the broker when trading in the US markets (e.g. via IB)? For example, would you need a Series 7 license or other similar requirements? I'd like to be aware of possible drawbacks.

I had a company for 4 years that was solely trading my own money. This was stated in the articles of association when the company was founded. I never paid professional fees. Had no problem to find a broker for trading US markets. My broker needed however a copy of the articles of association when the company was founded to be sure I was only trading my own money. I also was the sole managing director of the company.
Taxation was much lower.
Moved after that to a low tax country and closed the company as I didn't need that construction anymore.

I have a Series 7 license, but it was never asked. If I would have traded other people's money too, I would have to obtain a license in the country where I had my company. There are specific rules for trading other people's money in the US. Ask Robert Morse maybe.

You pay your taxes (incone from dividends and wage) and the company pays too.

Not true, I never paid double. In some countries there are ways to avoid this double taxation. Find a good tax consultant.

 

[virtusa]

You are allowed to be an employee on the payroll of your own company. Getting
a 1099 already establishes a trader/investor as self employed, which can be wrapped up in the mighty I.R.S tax benefits of incorporation.

He is in Europe, so IRS has nothing to do with the taxation.