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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
>
>Kenlow7@xxxxxxx wrote:
>
>> greene@xxxxxxxxxxxxxxx (Robyn Greene) wrote ...
>>
>> >>
>> P.S. Everyone's tax situation differs - and everyone should
consult with an
>> accountant/tax lawyer etc. before making important tax
decisions.
>> >>
>>
>> As my accountant has explained it to me, one significant
advantage
>> of incorporation (as an LLC, at least) is that all business
expenses
>> become deductible starting with the first dollar. If you
simply file
>> a personal (or joint family) return, you need to have business
expenses
>> exceed the IRS threshold of AGI before they are deductible (I
believe that
>> percentage is currently 2%).
>>
>> Obviously, you have to take into account the initial (and
annual) costs of
>> incorporation, but the breakeven is still fairly low.
>>
>> Ken
>
>
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