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Group:
I'd like to hear any comments or feedback on this entity
concept? I like to hear all sides
of an issue but here are some comments from one of my
correspondents on this subject.
He claims that the entity thing is much riskier and more
complex thatn the information
below suggests and which he puts in the same camp with
'offshore tax savings' which could
also result in jail time for some
folks. He doubts that one could gain the
advantages (which
could be disadvantages because of the SE tax) of trader status
by just using a different entity; especially one in which
everything passes through to your return. Maybe this is pretty
darned good advice, no? Anyway, thanks for any
additional comments.
Chas
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May 26, 2001
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<FONT color=#000080 face=Arial
size=5>Entity Structuring Services
Put your capital
in an entity!!! TradersAccounting.com advises clients on the most
advantageous entity structure for your trading activities. If you are
an investor or part-time trader, and are frustrated with the tax
code's restriction on deducting investor expenses, here is your
answer.
<FONT face=Arial
size=2>(1) Create a limited
partnership in your state of choice. You can register it in your home
state, or if you prefer, you can use a state such as Nevada that does
not have a state corporate income tax. After completing the IRS SS-4
form, you will be issued an Employer Identification Number (EIN). That
is the identifying number that the IRS uses for your new business. The
next step is to transfer your brokerage account, or some portion of
it, out of your personal social security number, and into the new
EIN.
<FONT face=Arial
size=2>(2) At this point, business
can begin and all "ordinary and necessary" business expenses incurred
in your business of money management are 100% deductible. Of course,
meal and entertainment expenses are subject to a 50% limit. It is very
exciting to offset trading gains with expenses you are currently
incurring, such as computers, training, subscriptions, meals with
fellow traders, and internet access.
(3) A
limited partnership is a "pass-through" tax entity. The partnership
itself does not pay taxes at the entity level. Rather, the taxes are
paid by the individual partners on their respective tax returns based
on their percentage of ownership.
<FONT face=Arial
size=2>(4) If you are in a high tax
bracket, you want to lower the income reported on your personal income
tax return. In such a case, you could set up a C-corporation and have
it act as the general partner of your limited partnership. The general
partner could own a significant portion of your limited partnership,
and hence, be responsible for a significant portion of the tax
liability.
(5) The
corporation is a taxable entity. If the corporation owns 40% of your
limited partnership, and the limited partnership earns $100,000, the
corporation would be responsible for $40,000 in taxable income. That
currently would be taxed at the lowest corporate rate of 15%. Compare
that scenario to not having a corporate general partner and having the
$40,000 added to your 31% individual tax bracket.
<FONT face=Arial
size=2>(6) The corporation and
limited partnership strategy is the most tax effective way to run your
trading business. We do not recommend that anyone file as a "trader"
on their personal return. The chances of audit are too high, and the
criteria to qualify are too steep. The safest and most effective way
to manage your trading capital is to place it in a limited
partnership, with a managing general partner that can either be a
corporation or something else, depending on your
circumstances.
Learn more:
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Learn more:
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size=2>TAX REDUCTION PLANNING
Learn
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PREPARATION
For more information,
please call our office at 1-800-938-9513.
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