Day trading as a corporation? What are the benefits vs. trading stocks as an individual?
December 21st, 2009
Friend and I are pooling money together to open trading account. We are trying to weigh the benefits of opening an individual trading account with an online firm or forming a Corp/LLC and trading as a partnership? Can anyone offer insight?
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Tags: day trading, insight, money, Open Trading, partnership, trading stocks
Personal Account Trading:
All your gains will be taxed at short-term capital gains rates. This would be the same as your ordinary income tax, except you’re not paying into social security or medicare.
Your ability to write off expenses and losses will be limited. For example, if at the end of the year you loose more than what you made, you are limited in the amount you can write-off on your taxes.
Corporate Account Trading:
You would now be self-employed. Your stocks are now treated as "inventory." All transactions are taxable at corporate income rates. Any profits you take from the corporation will be taxed at ordinary income rates + you will need to pay double social security & medicare (corporation pays half and you pay half).
As an S-Corp, the corporation might be free from Federal Income taxes. If you pass the profits on to the shareholders as dividends, the shareholders would have the very low tax on dividends instead of the very high short term capital gains tax.
But you really need to consult with the IRS about that.
Form a team. Employee the services of a CPA and Attorney. There is more cost now but later there advice can be invaluable. Basically if you have a S-Corp it needs to manage something, like an LLC or LP. If the LP uses cash to buy securities, then the S-Corp could manage the LP. Maybe the S-Corp manages the LLC who manages several LP’s. The cash comes back up to the S-Corp and is safer. Like I said - chat with an attorney or CPA.
Why would you want to pool money together to open an account to begin with? You should want full control of your trading. You will a freindship over this one.