Professional Trader Status

[MP3Mike]

That's awesome info. I'm in Oregon with a 9% state income tax with very little deduction (about the first $50k or so). Being able to deduce that in full will move the needle. Any idea what to search on, or where to find out which states have this implemented?

This article shows that Oregon has implemented something:

These states offer a workaround for the SALT deduction cap

As Congress wrestles over changes to the SALT cap, nearly 20 states now offer workarounds for pass-through businesses. Here’s what filers need to know.

www.cnbc.com

 

[Chicagoguy]

That's awesome info. I'm in Oregon with a 9% state income tax with very little deduction (about the first $50k or so). Being able to deduce that in full will move the needle. Any idea what to search on, or where to find out which states have this implemented?

google "salt workaround oregon". I see a number of articles that show up. Orgeon did pass the law, so you can do the deduction if you have a partnership or S-corp. My CPA confirmed this will work and that numerous states are allowing this, so if you don't have another business, than creating a trading company or another business will definetely help

 

[generalenthu]

You are correct. The interest is written off as expense on the corporation side but it’s taxed as income on the personal side. Assuming you don’t have other income and are married, paying tax on the personal side is better up to about $204,000 ($178,150 marginal rate is 22% + $25,900 standard deduction vs. corp rate of 21%).

You will have to give yourself a small salary, and then the rest will be dividends.

IRS publishes a table of rates each month. Find it here.The rate you are charging yourself needs to be higher than what’s on the table. Type up a loan agreement between yourself and the corp, and just make sure the corp pays you interest each month/quarter.

Edit:

Based on my math, if you do it this way you keep your marginal tax rate at about 36% (21% corp + 15% dividend rate (20% over $501k). It still sucks but it’s better than paying 50%+ if you have another primary income.

I am actually looking into opening a corporation in Singapore as their corp rate is only 17% there. Maybe charge my C Corp for “trading consultation “ and move some money there as a insurance plan before we become a communist country lol

I think the problem with this is if you're in a state with taxes you'll get taxed at the state level twice, and in case of Virginia, it's a little over 11%.

Since it's a C Corp, the salt workaround is not applicable I believe.

That makes it a wash. I really want to do a C Corp vs an S Corp and have been petitioning my wife to move to Austin, but no dice so far.

 

[bballshinobi]

I think the problem with this is if you're in a state with taxes you'll get taxed at the state level twice, and in case of Virginia, it's a little over 11%.

Since it's a C Corp, the salt workaround is not applicable I believe.

That makes it a wash. I really want to do a C Corp vs an S Corp and have been petitioning my wife to move to Austin, but no dice so far.

that might be so. I live in Nevada so no state tax

 

[bballshinobi]

No, I was just talking about if you are planning to buy a house and will apply for a mortgage. Setting up a C Corp and making a loan to your C Corp won’t affect your mortgage eligibility in terms of income and/or debt to income ratio.

@BornToFly

Sorry I actually didn’t answer this correctly. The loan in question is actually the loan for the down payment from the brokerage to the corporation. @vikings123 was asking about taking money out for a down payment so I kinda confused myself and answered the two questions together lol. Taking out a loan under the corporation account won’t affect one’s personal mortgage eligibility.

 

[generalenthu]

@BornToFly

Sorry I actually didn’t answer this correctly. The loan in question is actually the loan for the down payment from the brokerage to the corporation. @vikings123 was asking about taking money out for a down payment so I kinda confused myself and answered the two questions together lol. Taking out a loan under the corporation account won’t affect one’s personal mortgage eligibility.

Now I am beginning to get interested in @BornToFly's jet.

Can the Corp actually make money and instead of retaining the cash and get penalized, loan it back to him to buy his jet?

Questions, questions.

 

[Chicagoguy]

I spoke with Corey from Anderson Advisors this week and it doesn’t seem there will be a huge savings doing the Wyoming LLC and C-corp for me. Corey mentioned that most of his clients that do this option save $25-40k/year by using business tax deductions (retirement accounts, medical reimbursements, computer and office expenses, etc). For myself, this wasn’t a real savings since I run all of these through my 2 dental offices.

For anyone else that has a separate business already, did you find any additional benefit creating the LLC/C-corp?

 

[UltradoomY]

I spoke with Corey from Anderson Advisors this week and it doesn’t seem there will be a huge savings doing the Wyoming LLC and C-corp for me. Corey mentioned that most of his clients that do this option save $25-40k/year by using business tax deductions (retirement accounts, medical reimbursements, computer and office expenses, etc). For myself, this wasn’t a real savings since I run all of these through my 2 dental offices.

For anyone else that has a separate business already, did you find any additional benefit creating the LLC/C-corp?

I did - the idea that a corporation S or C can't have a cash hold back is not real (IMO, Not Advice) AAPL is sitting on $250B
Just have to have an internal document as to what it is being saved for - in my case this will be *potential* real estate and actual business ventures as stated in our incorporating documents.
That in addition to being able to say we need to have *X* amount for a series X funding into SpaceX and or Starlink fits with what my legal counsel and tax advisor have mentioned.

 

[Chicagoguy]

I did - the idea that a corporation S or C can't have a cash hold back is not real (IMO, Not Advice) AAPL is sitting on $250B
Just have to have an internal document as to what it is being saved for - in my case this will be *potential* real estate and actual business ventures as stated in our incorporating documents.
That in addition to being able to say we need to have *X* amount for a series X funding into SpaceX and or Starlink fits with what my legal counsel and tax advisor have mentioned.

Which account has the shares/cash in it when doing this? Corey said that the Wyoming LLC will have the trading funds and then I’d move enough funds into the C-corp to maximize deductions. Are you instead transferring all of your funds in the C-corp and leaving it all there? If so, I need to ask Corey about this.

Also, when did you open your LLC/c-corp with them? Do you feel like the help and info from Anderson advisors has been worth it?

 

[UltradoomY]

Which account has the shares/cash in it when doing this? Corey said that the Wyoming LLC will have the trading funds and then I’d move enough funds into the C-corp to maximize deductions. Are you instead transferring all of your funds in the C-corp and leaving it all there? If so, I need to ask Corey about this.

Also, when did you open your LLC/c-corp with them? Do you feel like the help and info from Anderson advisors has been worth it?

All assets in the Corp - I have additional businesses that are their own entities - S corp for a manufacturing Company, LLC for a trailer park, etc.

I have not consulted with Anderson. I chose my own lawyers here in Florida and have been using the same CPA for my business for a couple of decades

 

[BornToFly]

I talked with Corey from Anderson today. This is what I understood....

You setup a Wyoming LLC, and then transfer your bank accounts, trading accounts, etc., into the LLC. The LLC does the options trading (for simple math, lets assume $20m account). At the end of the year, you decide how much money goes to you, and how much goes to the C-corp.. So if you made $10m, $1m can go to you, and $9m to the C-corp. Because you are the only owner of the C-corp, there is no $250k retained income limit. (That applies to Corporation with multiple owners so that everyone gets their share of the growth in dividends every year). The C-corp pays 21% tax on the $9m after expenses are taken out, leaving $7.1m post tax. The next year the C-corp lends the remaining $7.1m back to the trading LLC and charges a reasonable interest rate. The LLC trades with the original $20m + $7.1m on loan. If you make $15m that year, pay yourself $1m again, and send $14m to the C-corp + the interest on the $7.1m loan from the first year and pay 21% tax on the total income. Now loan $18m (all the money in the C-corp) back to the trading LLC and trade with $38m. To eventually take money out of the C-corp, pay yourself a dividend and pay long term capital gains.

Basically you wouldn't want to take the full dividend every year. But if you can let the money compound for a while paying 21% corporate tax instead of ~40% income tax you come out way ahead quickly.

 

[generalenthu]

I talked with Corey from Anderson today. This is what I understood....

You setup a Wyoming LLC, and then transfer your bank accounts, trading accounts, etc., into the LLC. The LLC does the options trading (for simple math, lets assume $20m account). At the end of the year, you decide how much money goes to you, and how much goes to the C-corp.. So if you made $10m, $1m can go to you, and $9m to the C-corp. Because you are the only owner of the C-corp, there is no $250k retained income limit. (That applies to Corporation with multiple owners so that everyone gets their share of the growth in dividends every year). The C-corp pays 21% tax on the $9m after expenses are taken out, leaving $7.1m post tax. The next year the C-corp lends the remaining $7.1m back to the trading LLC and charges a reasonable interest rate. The LLC trades with the original $20m + $7.1m on loan. If you make $15m that year, pay yourself $1m again, and send $14m to the C-corp + the interest on the $7.1m loan from the first year and pay 21% tax on the total income. Now loan $18m (all the money in the C-corp) back to the trading LLC and trade with $38m. To eventually take money out of the C-corp, pay yourself a dividend and pay long term capital gains.

Basically you wouldn't want to take the full dividend every year. But if you can let the money compound for a while paying 21% corporate tax instead of ~40% income tax you come out way ahead quickly.

This is fantastic and checks all the boxes.

I mentioned a similar plan to a CPA I was looking to retain, and he said the only hitch is if we're operating out of Virginia where I am based, VA may claim an interest down the line and would levy a significant penalty.

I am not sure if you're in a no income tax state, but that complicates things a bit with tax certainly at the Corp level and to the extent money is taken out, at the personal level.

An alternative could be to pay your self a salary and pay state tax on it, which may provide some air cover.

 

[BornToFly]

This is fantastic and checks all the boxes.

I mentioned a similar plan to a CPA I was looking to retain, and he said the only hitch is if we're operating out of Virginia where I am based, VA may claim an interest down the line and would levy a significant penalty.

I am not sure if you're in a no income tax state, but that complicates things a bit with tax certainly at the Corp level and to the extent money is taken out, at the personal level.

An alternative could be to pay your self a salary and pay state tax on it, which may provide some air cover.

I believe that if you pay yourself a salary, there is an additional self employment tax of 15.3% (your contribution to social security, etc).
That is why I will send 10% of the trading income to the LLC, and the 90% I don't need to the C-corp. Then if I have a big expense and need more, I would just pay myself a dividend.

I just can't decide if the whole C-corp thing makes my life more complicated than I want it to be....

 

[dmvevguy]

I believe that if you pay yourself a salary, there is an additional self employment tax of 15.3% (your contribution to social security, etc).
That is why I will send 10% of the trading income to the LLC, and the 90% I don't need to the C-corp. Then if I have a big expense and need more, I would just pay myself a dividend.

I just can't decide if the whole C-corp thing makes my life more complicated than I want it to be....

Not to throw a monkey wrench, but def check out "Qualified Retirement Plan." I pay an arm and a leg to an actuary, benefits administrator who handles all the IRS crap, etc. etc. but, essentially, you could put more into a "cash balance plan" and "profit sharing" and life insurance policy which is all expensed from the business.

A bit above my head, but if you're making > 500k/year in a S-Corp/C-Corp, you could put away around $220-250k into that retirement plan vs. the traditional 401k/SEP IRA. Helps if you have a wife as an employee, which means you can add her and do the same thing (an extra 220-250k).

I'm no financial / tax guru, so def talk to your advisors/CPAs/tax attorneys!

 

[Chicagoguy]

I did sign up for Anderson Advisors trader package for $5k and will create the LLC and C corp. Have my on boarding today, I'll keep you guys updated, for those that are interested.

I have 2 dental offices which have most deductions already run through, so I'll see where the savings ends up being at the end

 

[strago13]

I did sign up for Anderson Advisors trader package for $5k and will create the LLC and C corp. Have my on boarding today, I'll keep you guys updated, for those that are interested.

I have 2 dental offices which have most deductions already run through, so I'll see where the savings ends up being at the end

I just had my chat with Corey this afternoon -- apparently a lot of you are signing up for this.

The only quibble I have with @BornToFly 's post is that he mentioned you could charge interest -- Corey didnt confirm that for me. But everything else he listed above is accurate.

Is everyone else doing this mainly to save on taxes only? aka compound and grow, then pay taxes years down the line? It sounds like I can deduct, internet, electricity, some mortgage interest, and home office from the C-Corp and pay my wifes 401k as a starter.

 

[generalenthu]

Are any of you in states with income tax? Did it change the calculus with incomes getting double taxed, at least to the extent you want to dividend them out of the C corp?

 

[BornToFly]

I just had my chat with Corey this afternoon -- apparently a lot of you are signing up for this.

The only quibble I have with @BornToFly 's post is that he mentioned you could charge interest -- Corey didnt confirm that for me. But everything else he listed above is accurate.

Is everyone else doing this mainly to save on taxes only? aka compound and grow, then pay taxes years down the line? It sounds like I can deduct, internet, electricity, some mortgage interest, and home office from the C-Corp and pay my wifes 401k as a starter.

I'm still trying to get convincing answers. I think you have to charge some reasonable level of interest if you are loaning C-corp money to the trading LLC. My thought is to charge the lowest interest possible to myself, because I assume the interest payment will be taxable income. The WY LLC I'm creating with Anderson is taxed as a Partnership. Fidelity Business Account application asks if the LLC is taxed as a Partnership, C-corp, S-corp, or Sole proprietorship. I don't get why my trading account wouldn't be a C-corp. But I think the first LLC is what will hold all other LLCs you own because of the laws in WY that protect your LLCs from anyone who sues you for something. I wanted to make a C-corp who purpose was to buy and sell rare Art, real estate, etc., so that I had a reason to have a lot of cash in the Corp (even if I never bought Art in the end). But I was told that those are forms of passive income, and a C-corp has to be engaged in active business activity (consulting, management, business). I will have to push harder because I would think that if you are buy property and renting them out, that is active income.

 

[Chicagoguy]

I'm still trying to get convincing answers. I think you have to charge some reasonable level of interest if you are loaning C-corp money to the trading LLC. My thought is to charge the lowest interest possible to myself, because I assume the interest payment will be taxable income. The WY LLC I'm creating with Anderson is taxed as a Partnership. Fidelity Business Account application asks if the LLC is taxed as a Partnership, C-corp, S-corp, or Sole proprietorship. I don't get why my trading account wouldn't be a C-corp. But I think the first LLC is what will hold all other LLCs you own because of the laws in WY that protect your LLCs from anyone who sues you for something. I wanted to make a C-corp who purpose was to buy and sell rare Art, real estate, etc., so that I had a reason to have a lot of cash in the Corp (even if I never bought Art in the end). But I was told that those are forms of passive income, and a C-corp has to be engaged in active business activity (consulting, management, business). I will have to push harder because I would think that if you are buy property and renting them out, that is active income.

Corey mentioned the Corp needs to be engaged in "active" business. Holding money in the c corp to buy properties or art, like you mentioned, doesn't seem to work. I still need to find out what interest rate is reasonable to charge to the partnership.

 

[hotgrips]

I was told you have to request the day-trader status before a certain date (4-15-2022), to put it into effect way down the road in time (2023 tax year). You have to request it in writing (of the IRS) and then wait before you can employ it (the mark to market trading which avoids the wash sale rules) Do I misunderstand or have I been misinformed by my CPA?