Trump Tax Plan-Professional traders.

[Sig]

You exist merely to argue, don't you?

A single member LLC by default will be taxed the same as a sole proprietorship.
The owner of the LLC CAN NOT BE AN EMPLOYEE.

A multi-member LLC by default will be taxed as a partnership.
The owners and members of the LLC CAN NOT BE EMPLOYEES.

"reasonable wage" applies to subchapter S corporation taxation, where owners and shareholders CAN BE employees. An LLC, single member or multi-member, must make a formal election to be taxed at the federal level as a corporation, and further, electing subchapter S status.

You are stating something that is incorrect. Pointing that out isn't arguing, it's pointing out a factual error. You are simply wrong, or you're being pedantic and argumentative. Do you agree or disagree with the following:

Joe owns a landscaping company. He is the 100% owner and does all the landscaping work. Joe can set up an LLC which he owns 100% of, and he can do 100% of the LLCs actual work as it's sole employee.

Bill is a doctor. He can set up an LLC with Tom, another doctor. Each owns 50% of the LLC, and each does 50% of the actual work of the LLC as an employee.

(Hint: the answer to both those scenarios is yes. I'm just trying to figure out if you're simply arguing some arcane definition of "employee" or something, or if you really don't understand LLCs)

I'm an entrepreneur, I've been a member of an LLC that I owned and was an employee of. My attorney who set it up and accountants who did our taxes every year didn't blink an eye, it was set up with that in mind. I happen to know dozens of other entrepreneurs who are owners/members of an LLC of which they are the CEO and thus an employee. The vast majority of LLCs are set up this way. You even contradict yourself with your statement that a single member LLC is taxed as a sole proprietorship (which is accurate), pretty much the definition of a sole proprietor is a person who owns and operates a company.
If you can point out the section of the tax code (or any other law) that says an owner or member of an LLC can't be an employee then I'd be happy to learn from that, as well as tell a few hundred thousand people that they've all been inadvertently breaking the law.

 

[newwurldmn]

You exist merely to argue, don't you?

A single member LLC by default will be taxed the same as a sole proprietorship.
The owner of the LLC CAN NOT BE AN EMPLOYEE.

A multi-member LLC by default will be taxed as a partnership.
The owners and members of the LLC CAN NOT BE EMPLOYEES.

"reasonable wage" applies to subchapter S corporation taxation, where owners and shareholders CAN BE employees. An LLC, single member or multi-member, must make a formal election to be taxed at the federal level as a corporation, and further, electing subchapter S status.

Partners being treated as employees.
http://www.journalofaccountancy.com/issues/2014/aug/20149676.html

 

[bronks]

I believe it's the title that makes the difference.
Started as a sole-proprietorship, but couldn't pay into my union benefits package as such.

Re-registered as an LLC, with me being the VP, I was now an employee within the LLC and able to receive all the benefits of a union employee. More importantly, my CPA was able to be a lot more... um, how you say... creative..... under the LLC umbrella.

I have no idea what benefit a sole-proprietorship serves. The only thing I can think of is that it's easy to set up. Other than that... pffft

 

[tiddlywinks]

You are stating something that is incorrect. Pointing that out isn't arguing, it's pointing out a factual error. You are simply wrong, or you're being pedantic and argumentative. Do you agree or disagree with the following:

Joe owns a landscaping company. He is the 100% owner and does all the landscaping work. Joe can set up an LLC which he owns 100% of, and he can do 100% of the LLCs actual work as it's sole employee.

Bill is a doctor. He can set up an LLC with Tom, another doctor. Each owns 50% of the LLC, and each does 50% of the actual work of the LLC as an employee.

(Hint: the answer to both those scenarios is yes. I'm just trying to figure out if you're simply arguing some arcane definition of "employee" or something, or if you really don't understand LLCs)

I'm an entrepreneur, I've been a member of an LLC that I owned and was an employee of. My attorney who set it up and accountants who did our taxes every year didn't blink an eye, it was set up with that in mind. I happen to know dozens of other entrepreneurs who are owners/members of an LLC of which they are the CEO and thus an employee. The vast majority of LLCs are set up this way. You even contradict yourself with your statement that a single member LLC is taxed as a sole proprietorship (which is accurate), pretty much the definition of a sole proprietor is a person who owns and operates a company.
If you can point out the section of the tax code (or any other law) that says an owner or member of an LLC can't be an employee then I'd be happy to learn from that, as well as tell a few hundred thousand people that they've all been inadvertently breaking the law.

An employee has W2-earnings with payroll tax deductions.
A single-member LLC, sole proprietor has no W2 earnings (from that business) and no payroll tax deductions. 100% of a sole proprietors earnings are subject to self-employment taxation. "Owner" is not another word for "employee". The same applies to "members" (and/or owners) of a multi-member LLC. And this is irrespective as to whether or not the self-employment income was actually paid out or not.

You call it or say whatever the hell you want. W2 earnings, those earned by an employee, are not the same as self-employment income. The IRS agrees on the federal level, the state level may be different.

Good day

 

[Sig]

An employee has W2-earnings with payroll tax deductions.
A single-member LLC, sole proprietor has no W2 earnings (from that business) and no payroll tax deductions. 100% of a sole proprietors earnings are subject to self-employment taxation. "Owner" is not another word for "employee". The same applies to "members" (and/or owners) of a multi-member LLC. And this is irrespective as to whether or not the self-employment income was actually paid out or not.

You call it or say whatever the hell you want. W2 earnings, those earned by an employee, are not the same as self-employment income. The IRS agrees on the federal level, the state level may be different.

Good day

I thought you were being pedantic about the definition of "employee". The tax implications of paying yourself as a W-2 employee or self-employed income are identical. If you own 100% of an entity and pay out $100k as self-employment income and pay both sides or fica taxes or you have the entity pay their side of fica taxes and pay you the rest under a W-2 the end result is identical. It's entirely a matter of which form you're filling out, so as a driver of business decisions it makes 0 difference.

If you want to argue about tax forms and if a person on a W-2 is an "employee" and a person who works for the LLC but pays themselves self employment income isn't, have at it. Most of us are more concerned about practical implications. And the practical implications are that both scenarios I listed are completely legal and in fact common, and if you are a W-2 "employee" or do exactly the same thing but pay out self-employment income is relevant only to folks like you who aren't actually doing anything and as you stated "exist to argue".

 

[tiddlywinks]

I thought you were being pedantic about the definition of "employee". The tax implications of paying yourself as a W-2 employee or self-employed income are identical. If you own 100% of an entity and pay out $100k as self-employment income and pay both sides or fica taxes or you have the entity pay their side of fica taxes and pay you the rest under a W-2 the end result is identical. It's entirely a matter of which form you're filling out, so as a driver of business decisions it makes 0 difference.

If you want to argue about tax forms and if a person on a W-2 is an "employee" and a person who works for the LLC but pays themselves self employment income isn't, have at it. Most of us are more concerned about practical implications. And the practical implications are that both scenarios I listed are completely legal and in fact common, and if you are a W-2 "employee" or do exactly the same thing but pay out self-employment income is relevant only to folks like you who aren't actually doing anything and as you stated "exist to argue".

You really do exist just to argue.

First off, W2 (employee) taxation and self employment tax are not the same.
Just as important, perhaps more so, employers can expense many payroll (W2) deductions and benefits, BEFORE determining distributive shares. Self employment income however is 100% taxable to the recipient, and that may include cost of certain benefits.

The member/owner of a single-member LLC, CAN NOT BE AN EMPLOYEE OF THAT LLC.
A member (owner or not) of a multi-member LLC, CAN NOT BE AN EMPLOYEE OF THAT LLC.

 

[Sig]

You really do exist just to argue.

First off, W2 (employee) taxation and self employment tax are not the same.
Just as important, perhaps more so, employers can expense many payroll (W2) deductions and benefits, BEFORE determining distributive shares. Self employment income however is 100% taxable to the recipient, and that may include cost of certain benefits.

The member/owner of a single-member LLC, CAN NOT BE AN EMPLOYEE OF THAT LLC.
A member (owner or not) of a multi-member LLC, CAN NOT BE AN EMPLOYEE OF THAT LLC.

At this point you're splitting hairs. W-2 and self-employment tax are dollar for dollar effectively identical if you're actually running a company. Sure, you may be able to expense the cafeteria plan or some other obscure corner of the IRS regs for a W-2 and not a self-employed, none of are going to impact the scenarios I described or really anywhere that people use LLC.
If you feel the need to declare victory then yes, I agree that a owner of an LLC "CAN NOT BE A (W-2) EMPLOYEE OF THAT LLC". For all intents and purposes, again as someone who's actually done this talking to someone who apparently hasn't, if you're a W-2 employee or not is functionally irrelevant. But why deal with practicalities when you can just be argumentative, right?

 

[tiddlywinks]

At this point you're splitting hairs. W-2 and self-employment tax are dollar for dollar effectively identical if you're actually running a company. Sure, you may be able to expense the cafeteria plan or some other obscure corner of the IRS regs for a W-2 and not a self-employed, none of are going to impact the scenarios I described or really anywhere that people use LLC.
If you feel the need to declare victory then yes, I agree that a owner of an LLC "CAN NOT BE A (W-2) EMPLOYEE OF THAT LLC". For all intents and purposes, again as someone who's actually done this talking to someone who apparently hasn't, if you're a W-2 employee or not is functionally irrelevant. But why deal with practicalities when you can just be argumentative, right?

How can W2 earnings and self employment earnings be "effectively identical", when one is able to be expensed by an employer BEFORE calculating distributive amounts, and the other is 100% taxable to the "employee"/member/owner/individual taxpayer/whomever?

For all intents and purposes my opponent does not have experience in the topic he is debating. Albeit, I declare victory.

 

[Sig]

How can W2 earnings and self employment earnings be "effectively identical", when one is able to be expensed by an employer BEFORE calculating distributive amounts, and the other is 100% taxable to the "employee"/member/owner/individual taxpayer/whomever?

For all intents and purposes my opponent does not have experience in the topic he is debating. Albeit, I declare victory.

Let's do an example. LLC A and B both have $100.

LLC A pays as a W-2, paying the employer portion of 7.65% of FICA and withhold the employee 7.65% so the recipient ends up with the $100 less 15.3%, or $84.70 that they pay ordinary income tax on. The LLC has $0.

LLC B pays out self-employment income. They pay out $100. The recipient is responsible for paying 15.3% in self-employment taxes and is left with $84.70 that they pay ordinary income tax on. The LLC has $0.

Can you explain why these are functionally different? Using real numbers please.

I'm also curious why you'd claim I don't have experience in this area when I've listed my experience as an LLC owner who devoted 100% of my work to that LLC and you so far have avoided the question as to if you've ever had any experience owning and operating an LLC?

 

[tiddlywinks]

Let's do an example. LLC A and B both have $100.

LLC A pays as a W-2, paying the employer portion of 7.65% of FICA and withhold the employee 7.65% so the recipient ends up with the $100 less 15.3%, or $84.70 that they pay ordinary income tax on. The LLC has $0.

LLC B pays out self-employment income. They pay out $100. The recipient is responsible for paying 15.3% in self-employment taxes and is left with $84.70 that they pay ordinary income tax on. The LLC has $0.

Can you explain why these are functionally different? Using real numbers please.

I'm also curious why you'd claim I don't have experience in this area when I've listed my experience as an LLC owner who devoted 100% of my work to that LLC and you so far have avoided the question as to if you've ever had any experience owning and operating an LLC?

You have gone completely off course and off topic with that silly $100 example.

The whole point of an LLC in the U.S. is that it's a pass-through entity. Meaning you don't have double taxation, capital gains or dividend tax, you simply count the money earned by the LLC as ordinary income on your personal income tax. As it currently stands an LLC isn't really a tax shelter, it's just a way to get the limited liability of a corporation without the double taxation of a C-corp. The proposal would turn them into a massive tax shelter, such that pretty much everyone with half a brain will set one up and direct all their income through it. Which is why it's a complete non-starter.

While the above post you made is partially correct, even your $100 example negates it's minimal value.

The topic of the thread is how Trump's tax plan could affect professional traders. If the entity is not set up in such a way to engineer tax savings from the entity structure, there is no point in using an entity for a trading business. The owner(s)/member(s) of LLCs whether a single member or a multi-member, can not be employees of that LLC. More and most important,... profits, losses, credits, and deductions, (from trading less business operation expenses and allowable benefit costs), are what pass-through the entity to members, shareholders, individuals, goats, emus, or whatever you want to call them.

Now, I am done with this conversation. It is last trade day of the month tomorrow, and my subS trading entity has a month-end payroll, and a Q1 distribution to shareholders.