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Funny you should mention this. I recently talked to a Seattle lawyer who
said one of his clients, a very well-known promoter of market seminars whose
probably written at least 3 (perhaps 4 books on trading) and who has most
likely equated the idea of a bear market with "Balogne", actively promoted
Nevada corporations and LLC's as a way to protect and shelter trading
income. This well known promoter helps his clients establish GP/LLCs and
Nevada corps for around 3-5K a pop (and maybe more by the time you add it
all up). When I asked this lawyer (who came across extremely well) if there
were benefits to Nevada corps he vehmenantly disagreed saying that he could
detain documents from a Nevada corp as easily as he could detain documents
of a corporation in another state. To him, Nevada corps offered little
additional protection and he implied the whole idea was a lot less valuable
then what was beig said to sell it. He went on to say that he has
repeatedly pleaded with his client to stop promotig this idea (because he
didn't want to have to defend it in court) but that his pleas have fallen on
deaf ears.
The point of this isn't who this lawyer represents but that someone with the
credibility this man has disagrees with this strategy as his client promotes
it (Neavada corp, General Partnership, LLCs).
I'd also think that to make this strategy worth while you've got to make
signifcant money. For people who make hundreds of thousands a year trading,
it might be viable. For someone making less than 50K it might not be as
viable due to the cost (tax reports -- one for each corporation -- the
General Partnership and each LLC at around $3-500/per, accountant fees,
lawyers fees, payroll?, cost of maintaining a business in Nevada and in
general, etc.) associated with maintaining a complex business structure such
as this one.
Food for thought.
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I agree. It depends what you are using it for and how you are using it. I
don't ever suggest it as a blanket cure all - nor for anyone with income below
certain levels. Also it is the double or sometimes triple insulation that
protects the assets, not necessarily the Nevada structure that works to effect
some of the results. Sometimes the structure will work in any state. Nevada
has its benefits, but it is not a one size fits all.
And I certainly don't align myself with the person I believe you are
discussing. There are many snake oil salesmen out there selling inappropriate
things for the wrong reasons. Since I am not certain who you are referring to
I can not comment on him and what he is doing.
One purpose of a Nevada Corp (C Corp - not S), as well as a C corp in any
other tax free state, though, might be to shift some of the income out of a
taxable state. This subject is far too complex to discuss on this forum, but
it is being done - legitimately. I am not endorsing it for all people in all
instances. I am just stating that it is being done in some cases legitimately.
Corporations in tax free states which lease equip. and lend money to other
corps/LLCs/FLPs in taxable states is one way (but not by any means the only
way) to do this.
Also, don't confuse the issues of the Nevada C corp (or other C Corps in tax
free states) with the multi level structure of a Corp, LLC, and a FLP. Each
accomplishes separate goals, and has its use for certain people in specific
instances. (ie there is a tremendous estate tax benefit to this structure and
the gifting of discounted valuations of the trading business to one's heirs
through an LLC/FLP structure).
Also by trading in an FLP and drawing a management fee into the LLC for
managing the trading business, you can retain the 60/40 nature of the capital
gains on commodities (and avoid SE tax on that portion), while controlling the
amount you want to subject to earned income/SE tax in the LLC. This can allow
you to establish a retirement plan or VEBA for traders, something which can't
be done on trading income without this structure. It is quite a useful and
flexible tool - but just one in the arsenal.
Ted Tesser CPA
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