Transferring equities to LLC

[savoir]

Downsides include setup costs, increased compliance costs and complexity, substantially higher audit risk. (These are all upsides to the tax person whose services you will need.)

Also you are triggering employment taxes in order to defer income tax on contributions to a retirement account. I am not a fan of overhyped retirement accounts so that would not be a factor for me in deciding to organize my trading through an entity. I realize most do not share that view.

Good luck.

 

[tiddlywinks]

Do you see any issue with this structure? thanks.

Your concept is correct, as long as the S-Corp qualifies for Trader Tax Status. Without that, you are not allowed to re-characterize capital gains into wages or otherwise. Capital gains would essentially be eliminated because everyone would simply form a trading entity!! In an S-Corp, saving on SE tax can be through "distributions", so long as you are paying yourself W2 wages(with normal payroll tax deductions) that are "reasonable" for the job you perform.

You also need to realize that an S-Corp taxation creates an entirely different "structure" than that of an LLC. The primary thing in common is the pass-though nature. If you choose to be taxed as an S-Corp, your LLC must be updated throughout to reflect S-Corp regulations and operations. This is also critical for the "protection" that an LLC provides. Creditors will easily pierce-the-veil with improper corporate documents and/or operations. Ignorance of wording or knowledge of the law is useless in such a situation. An LLC operation is not an S-Corp operation.

I understand you may be the sole owner/shareholder of the S-Corp. But unlike an LLC, there is only one class of shares. Everybody MUST be equal (based on shares owned) regarding the S-Corp, including distributions, profits, losses, liquidation rights, etc etc.. The fact you are only one, doesn't matter. You operate as an S-Corp or you WILL lose it. Heres a non-financial related example... You die. Your spouse inherits. Your spouse is a resident of Canada. The S-Corp will be shut down immediately!! It is real life possibility/example. S-Corps also have eligibility rules.

Be prepared to file form 1120S with the IRS for the S-Corp federal reporting. Your state may require specific S-Corp filing as well. Most states do not, but yours might.
The 1120S will allow a K-1 to be generated for each of the S-Corp shareholders.
The S-Corp will also provide a W2 for every employee paid wages or salary, and a 1099 for non-employees paid $600 or more.

The individuals receiving such documents will file personal federal/state tax forms using the K-1, W2, 1099, documents as required by tax law.

I operate a Trading Business S-Corp. The start-up was daunting. Dot your i's and cross the T's. Formal S-Corp documentation is a requirement. If the S-Corp will not qualify for TTS, this post, this thread, is waste. Entities and individuals are separate taxpayers in the eyes of the IRS. Sole Proprietor and SMLLC are the only exceptions to that.

 

[deltaf0rce]

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.

You ever heard of the corporate vail?

 

[newbee2020]

Your concept is correct, as long as the S-Corp qualifies for Trader Tax Status. Without that, you are not allowed to re-characterize capital gains into wages or otherwise. Capital gains would essentially be eliminated because everyone would simply form a trading entity!! In an S-Corp, saving on SE tax can be through "distributions", so long as you are paying yourself W2 wages(with normal payroll tax deductions) that are "reasonable" for the job you perform.

You also need to realize that an S-Corp taxation creates an entirely different "structure" than that of an LLC. The primary thing in common is the pass-though nature. If you choose to be taxed as an S-Corp, your LLC must be updated throughout to reflect S-Corp regulations and operations. This is also critical for the "protection" that an LLC provides. Creditors will easily pierce-the-veil with improper corporate documents and/or operations. Ignorance of wording or knowledge of the law is useless in such a situation. An LLC operation is not an S-Corp operation.

I understand you may be the sole owner/shareholder of the S-Corp. But unlike an LLC, there is only one class of shares. Everybody MUST be equal (based on shares owned) regarding the S-Corp, including distributions, profits, losses, liquidation rights, etc etc.. The fact you are only one, doesn't matter. You operate as an S-Corp or you WILL lose it. Heres a non-financial related example... You die. Your spouse inherits. Your spouse is a resident of Canada. The S-Corp will be shut down immediately!! It is real life possibility/example. S-Corps also have eligibility rules.

Be prepared to file form 1120S with the IRS for the S-Corp federal reporting. Your state may require specific S-Corp filing as well. Most states do not, but yours might.
The 1120S will allow a K-1 to be generated for each of the S-Corp shareholders.
The S-Corp will also provide a W2 for every employee paid wages or salary, and a 1099 for non-employees paid $600 or more.

The individuals receiving such documents will file personal federal/state tax forms using the K-1, W2, 1099, documents as required by tax law.

I operate a Trading Business S-Corp. The start-up was daunting. Dot your i's and cross the T's. Formal S-Corp documentation is a requirement. If the S-Corp will not qualify for TTS, this post, this thread, is waste. Entities and individuals are separate taxpayers in the eyes of the IRS. Sole Proprietor and SMLLC are the only exceptions to that.

Thanks for taking time to answer my question. Useful information.

 

[Sig]

You ever heard of the corporate vail?

Not sure why the corporate veil matters, it's about liability of the owners of the corporation for actions taken by the corporation. It's a vanishingly small probability that a single owner LLC engaged in trading gets sued by anyone ever, so that benefit is of limited utility. And in the extremely rare case you did do something worth suing over, you would almost certainly be personally liable as well because you would have been the person responsible for the actions that brought the suit. Are you talking about another corporate veil?

 

[savoir]

You ever heard of the corporate vail?

You mean veil, as in piercing the corporate veil. What about it? You seem clueless.

I replied to this thread because there was erroneous information posted about the tax treatment of property transfers to an entity. I'm a retired tax attorney and I was in practice when the check-the-box regs came out and states first began enacting LLC statutes.

Not everyone on this site is a bullshit artist. It just appears that way.

 

[tiddlywinks]

Not everyone on this site is a bullshit artist. It just appears that way.

@savoir

This is the 2nd thread we have in common in the course of a week where you have sprinkled your pixie dust with snide, snarky, or disapproving tone, seemingly directed at me.

I don't know who you were on this site in years past, and it doesn't matter. But if you have something to say to me, or would just like to discuss or correct a specific post, detail, or topic that I have made, that would be fine.

 

[savoir]

@savoir

This is the 2nd thread we have in common in the course of a week where you have sprinkled your pixie dust with snide, snarky, or disapproving tone, seemingly directed at me.

I don't know who you were on this site in years past, and it doesn't matter. But if you have something to say to me, or would just like to discuss or correct a specific post, detail, or topic that I have made, that would be fine.

Your post is a head-scratcher. Sure, you posted some misinformed gibberish in this thread, but my reply was not about you.

I don't know who you are. I'm not the shy type to address people indirectly, so I had to look at my post history to find the other thread you refer to that got you worked up. I commented in only one other thread this week, about Jack Hershey, and it had nothing to do with you.

You are one narcissistic dumbass.

 

[sprstpd]

Downsides include setup costs, increased compliance costs and complexity, substantially higher audit risk. (These are all upsides to the tax person whose services you will need.)

Also you are triggering employment taxes in order to defer income tax on contributions to a retirement account. I am not a fan of overhyped retirement accounts so that would not be a factor for me in deciding to organize my trading through an entity. I realize most do not share that view.

Good luck.

Can't agree more with this post. My philosophy is to keep my finances as simple as possible so that they take up less of my time, they don't cost as much, and I am not dependent on anyone else to defend how I report my taxes. The money I might save by incorporating or creating an LLC is not worth the added complexity to me.

 

[tiddlywinks]

You are one narcissistic dumbass.

Please place me on ignore. I have nothing to offer you on this forum about trading and trading related. Schmuck.