Transferring equities to LLC

N

newbee2020

I have been trading for last 1+year individually. I feel I could benefit from LLC (s corp) primarily to open retirement fund and perhaps save some on employment taxes. My question is If I were to initially fund my LLC account by transferring equities from in individual brokerage and eventually trade them, is that a problem? Will I have issues with IRS later? or do I need to fund the LLC with cash only?
Appreciate your advise.
 
Be aware if you are trading under a LLC you will be considered a "professional" under some circumstances. This will mean very high data fees at least.
 
FSU said:
Be aware if you are trading under a LLC you will be considered a "professional" under some circumstances. This will mean very high data fees at least.
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Ty for the reply. What data fee you are referring to?
 
A transfer will be a taxable event for the individual. The same as selling.
Additionally there are transfer fees, and perhaps a time delay to complete a transfer.

Since it is a taxable event to the individual, the simple way is fund with cash.
Accounting-wise funding with cash will be easier for both the individual and the entity.
 
tiddlywinks said:
A transfer will be a taxable event for the individual. The same as selling.
Additionally there are transfer fees, and perhaps a time delay to complete a transfer.

Since it is a taxable event to the individual, the simple way is fund with cash.
Accounting-wise funding with cash will be easier for both the individual and the entity.
More...
I talked to some CPAs,and they say it is not a taxable event for the individual, although one of said it is. I am still not sure. May I know your source for the information that it is a taxable event for individual. My individual brokerage says they can transfer the equities as is or can make it taxable per my instruction. Ty for the help.
 
newbee2020 said:
I talked to some CPAs,and they say it is not a taxable event for the individual, although one of said it is. I am still not sure. May I know your source for the information that it is a taxable event for individual. My individual brokerage says they can transfer the equities as is or can make it taxable per my instruction. Ty for the help.
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Transfer in this discussion means transfer of ownership. The price on the date of transfer (i'll let the tax accountants figure out exactly what date that is) becomes cost basis for the valuation of the buy-in which also happens to be the cost basis of this now entity owned asset, in the event the entity sells that asset. This is exact equivalent to the individual selling the asset, which is a taxable event. What the individual does with the proceeds is not important.

An individual is not allowed to maintain LEGAL ownership (aka titling) of an asset, if the value of the asset (shares) is being used for the buy-in. With an S-Corp, SHARES of the S-Corp are given to those that buy-in, and all share rights, including liquidation rights, MUST be equal. However, a non-voting-right share-class is available. Otherwise, the individual is making a loan to the entity with specific and formal terms and conditions for payback. S-Corp rules are clear. S-Corp status is usually rescinded by the IRS for improper record-keeping and/or non-compliant shareholder rights. There are other reasons too.


Your CPA's are morons, UNLESS you are withholding pertinent information necessary to accurately answer your question, or you are modifying the information to produce an answer you want.
 
I take it you want to form a single-member LLC and make the election to have it taxed as an S-Corp. If this is the case, the transfer of equities to the LLC either before or after making the election is a non recognition event, i.e., not taxable at the time of the transfer.

Now, whether this is a wise thing to do in the first place is questionable.
 
I would check with your broker if this is permitted. I wire-transferred money from my company bank account to my personal trading account at my broker (Interactive Brokers), and couple months later the broker’s compliance department called me and investigated this, asking various questions and informing me that I’m not permitted to fund personal brokerage account from non-personal bank accounts and vice-versa. They noted this as an exception due to my ignorance and asked not to do it again. Basically a company is a 3rd party and cannot deposit or withdraw money on your behalf. I’d assume this applies to securities as well, but not sure. Your broker may give you better info than CPAs.
 
savoir said:
I take it you want to form a single-member LLC and make the election to have it taxed as an S-Corp. If this is the case, the transfer of equities to the LLC either before or after making the election is a non recognition event, i.e., not taxable at the time of the transfer.

Now, whether this is a wise thing to do in the first place is questionable.
More...

Ty for reply. My understanding is that if you trade under LLC you can potentially save on self employment taxes for the profits, although the profits are passed back to me to be filed under individual tax return. Plus I intend to pay myself as an employee (for this I will have to pay self employment tax) but can use some of the salary I draw for funding a retirement plan (which is one of the main reason for me) which may also lower some of the tax.

Do you see any issue with this structure? thanks.
 
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