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The unanswered question in what you posted is how you get the cash
out of the corp. You pay less tax now, but to get the $$ out you have
to do it as a dividend, which you pay tax on again at ord. income
rates. I guess if you think your rate is going down someday, you
could save the div. and distribute later, but 15% added tax to defer
income??
Generally, the easier way I know of it being done is to claim trader
status and deduct all exp as business expense, but claim cap gains as
cap gains at reduced rate. So net bus income is always
negative...no self employment tax...and you get the benefit of lower
cap gain rates. cap gains are not subject to self employment tax.
Chris
--- In realtraders@xxxx, "charles meyer" <chmeyer@xxxx> wrote:
> Accounting, Tax Preparation & Tax Strategies for Active
Traders.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
>
>
>
>
>
> Click above for more information
>
>
>
> What have you deducted today?
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> You Trade...We'll do the Rest May 26, 2001 8:09 AM PDT
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> Entity Structuring Services
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> 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.
>
> (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.
>
> (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.
>
> (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.
>
> (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: TRADER STATUS
>
> Learn more: TAX REDUCTION PLANNING
>
> Learn more: ACCOUNTING AND TAX PREPARATION
>
> For more information, please call our office at 1-800-938-
9513.
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