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FYI & FWIW,
This is NOT the same Docteur of "Dockers has left the building" fame.
----- Original Message -----
From: THE DOCTOR <droex@xxxxxxxxxxxx>
To: Patrick White <spy@xxxxxxxxx>
Cc: omega list <omega-list@xxxxxxxxxx>
Sent: Monday, March 29, 1999 3:29 PM
Subject: Re: Tax advantages of incorporation ...
> Just a word of caution. I work for the CBOE and do lots of public
> seminars. I have met a great many people who have tried to claim trader
> status ... I have never met anyone who has successfully survived an
> audit. No One. Tesser's book is considered a farce in the community. I
> heard a story last week, at a seminar in Arizona, of a very active
> investor who didn't survive the audit because they entered their orders
> over an electronic system .... by definition the system was not to be
> used by professionals .. such as RAE's at CBOE where I work. The
> acknowledgment of using a "nonprofessional" system means he failed the
> audit.
>
> Be very careful ... I've met a lot of people who say they file. I'm
> yet to meet anyone who survived an audit as an off floor user.
>
> Patrick White wrote:
>
> > I didn't catch that he was trying to incorporate using an LLC
> > until I saw it at the bottom of the last message. For those of
> > you not familiar with an LLC, it is a Limited Liability
> > Corporation. Basically it was created as a hybrid of a
> > partnership and a regular corporation to emphasize the benefits
> > of both entities. An LLC has limited liability, as the name
> > implies, yet is also a pass-through entity (like a partnership)
> > for income and losses. Pass through means there is no double
> > taxation on earnings. Because of this many of the Big 6
> > accounting firms have switched from partnerships to LLCs, so they
> > could enjoy the same benefits of being a partnership, but with
> > limited liability from litigation.
> >
> > If you form this type of entity, I think it has favorable
> > handling for self-employment tax too, (like maybe none) but I'm
> > not sure what the specifics are. (been out of bean counter school
> > too long).
> >
> > Alternatively, if you qualify as an active trader (based on
> > number of trades made in the year) under the broad rule Ted
> > Tesser lays out in his book, you can take off all your expenses
> > from the first dollar, without having to fool with the
> > corporation thing. If you are a longer term trader who doesn't
> > make say over 100 trades per year, you may want to investigate
> > the LLC further. Your accountant likely won't understand this
> > because it is based on court cases, not on what they get taught
> > in school, or from the IRS code.
> >
> > By the way, most accountants aren't really working for you. They
> > actually should be advocates for you to help you limit your
> > taxation as much as possible. Most are more concerned with
> > getting sued or being audited, so they advise caution, when they
> > should be a little more helpful. Most of the H&R Block types
> > don't have a very thorough knowledge of the tax code, so they
> > don't know enough to try to save you money - they just are paper
> > pushers. Let the IRS prove that the deductions you took aren't
> > justified. Just make sure you have everything documented in
> > writing that you are deducting.
> >
> > Patrick White
> >
> > >That advantage has to be balanced against other considerations -
> > including
> > >taxes. Once you incorporate - you become an
> > employee/shareholder of your
> > >corporation. When you pay yourself a salary - you have to pay
> > payroll taxes -
> > >15.3% (employer and employee shares) on the first dollar of
> > income. You may
> > >also have to pay state/federal unemployment taxes. Without
> > knowing your
> > >personal situation - unless you'll be spending an awful lot of
> > money on business
> > >expenses (you are correct about the 2% limit) - and not making
> > that much money
> > >for a while - the numbers probably won't work out. Run some
> > hypothetical (but
> > >realistic) numbers scenarios by your accountant - and see how
> > they work out.
> > >Robyn
> > >
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