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FAKTOREN UND VORTEILE, DIE EINE HANDELSGESELLSCHAFT ZU BERÜCKSICHTIGEN Asset-Schutz von Gläubigern oder Prozessführern § 475 Wahlverfügbarkeit Steuerabzüge aus § 419 Pläne Steuerersparnisse aus Planungsstrategien Fringe Benefits Allowable Retirement Planning Jeder Trader ist einzigartig mit unterschiedlichen Bedürfnissen und unterschiedlichen Fakten, wie z Vermögenswerte und Schulden, familiäre Überlegungen, Wohnsitz usw. Ihre Handels - und Unternehmensstruktur muss individuell auf Ihre speziellen Gegebenheiten zugeschnitten sein. Eine 29-jährige Single-Scalper mit Gewinnen von 300.000 pro Jahr hat andere Bedürfnisse als ein 45-jähriger verheiratet Momentum Trader mit 3 Kindern und einem Vollzeit-Job. Eine THOROUGH-ANALYSE IST FÜR DIE ENTWICKLUNG DER RICHTIGEN STRUKTUR WESENTLICH. Die Einzelunternehmung ist die am häufigsten verwendete Form des Geschäfts in Amerika. Dies ist vor allem auf die Tatsache, dass es am einfachsten zu etablieren und zu betreiben ist. Es sind keine Regierungsanmeldungen erforderlich. Einige Lokalitäten können verlangen, dass Sie eine lokale Geschäftslizenz oder eine fiktive Namenserlaubnis erhalten, wenn Sie beabsichtigen, das Geschäft in einem anderen Namen als Ihrem persönlichen Namen zu betreiben. Diese Lizenzen oder Genehmigungen haben in der Regel nominale Gebühren (25-50) und für Handelsgeschäfte sind sie oft nicht relevant oder notwendig. Eine Person, die ein qualifizierter Händler ist und handelt über Maklerkonten in seinem individuellen Namen wird als alleiniger Eigentümer. Sie gelten auch als alleiniger Eigentümer, wenn Sie ein gemeinsames Konto mit Ihrem Ehegatten oder einer anderen Person haben und keine Partnerschaft oder andere Einrichtung geschaffen haben. Der Traderprofessor für steuerliche Zwecke ist die Einzelperson, die die handelnden Entscheidungen trifft. Einzelne Eigentümer melden ihre Einnahmen und Ausgaben auf Schedule C, die in ihrer 1040 Individual Income Tax Return enthalten ist. Trader abgeschlossen Schedule C anders als andere Unternehmen. Die Aufwendungen des Handelsgeschäfts werden auf Zeitplan C ausgewiesen. Das Einkommen bleibt Kapitalgewinn (im Gegensatz zum gewöhnlichen) Einkommen und wird somit in Plan D ausgewiesen. Die Ausnahme für diese Regel ist für Händler, die die 475 Mark-to-Market-Wahlen vornehmen. Wenn diese Wahl gemacht wird, dann wird Ihr gewöhnliches Einkommen aus dem Handel auf Formular 4797 berichtet. Ein Einzelunternehmen Inhaber ist erlaubt, Dollar-Dollar für seine Handelsausgaben abzuziehen. Sie sind von der 2-Schwelle für Investitionsaufwendungen befreit, auf die Anleger im Zeitplan A beschränkt sind. Sie können ein Büro in Ihrem Haus abziehen und Ausgaben für Abschreibungsausgaben kosten. Während alle Handelsaufwendungen vollständig abzugsfähig sind, gibt es bestimmte Beschränkungen für andere Arten von Geschäftsausgaben. Zum Beispiel kann ein Einzelunternehmer nicht die Kosten für die Gesundheit und Invalidenversicherung abziehen. Einer der Hauptgründe, so viele Menschen wählen Sie die Einzelfirma Form der Wirtschaft ist die einfache Bedienung. Als Ihr eigener Chef können Sie im Grunde tun, was Sie wollen, wenn Sie wollen. Sie müssen nicht auf Aktionäre oder Direktoren wie mit Konzernen oder Partnern wie mit Partnerschaften zu beantworten. Darüber hinaus gibt es keine Formalitäten wie Anteilseigner oder Vorstandssitzungen, Sitzungsprotokolle, jährliche Anmeldevorschriften usw. Wie oben erwähnt, sind Einzelunternehmen in Bezug auf einige der Aufwendungen, die sie abziehen können, eingeschränkt. Insbesondere für Trader, da Ihr Einkommen bleibt Kapitalgewinne in der Natur ist es nicht für Altersvorsorge Beiträge (z. B. IRAs, SEPs, etc.). Aus meiner Erfahrung, das Problem mit den meisten Einzelunternehmen ist, dass aufgrund ihrer informellen Natur Händler neigen dazu, zu vergessen, dass sie tatsächlich Unternehmen sind und nicht betreiben sie in einer geschäftlichen Weise. Das Fehlen eines schriftlichen Geschäftsplans, dokumentieren geschäftliche Entscheidungen und das Vermischen von geschäftlichen und persönlichen Mitteln - die Zahlung persönlicher Ausgaben aus dem Geschäftskonto kann einige der Probleme sein. Wenn zwei oder mehr Personen in einem Unternehmen zusammengeschlossen sind, wird eine Partnerschaft gebildet. Per Definition sind zwei oder mehrere Personen (oder Einheiten) notwendig, um eine Partnerschaft zu bilden. Das Hauptmerkmal einer General Partnership ist, dass es sich um eine informelle Vereinbarung zwischen den Partnern handelt. Auch hier gibt es keine Regierungsanforderungen erforderlich, um eine allgemeine Partnerschaft zu bilden - ein einfaches Handshake zu tun. Partnerschaften gelten für steuerliche Zwecke als quotenaktive Unternehmen. Das bedeutet, dass die Gesellschafterin als Körperschaft keine Steuern bezahlt. Eine Partnerschaftssteuererklärung wird nur zu Informationszwecken eingereicht, und jeder Partner erhält einen Zeitplan K-1, der jedem einzelnen Partner Einnahmen und Ausgaben zuweist. Jeder Partner zahlt seine Steuern auf der Grundlage der anteiligen Verteilung der Erträge und Aufwendungen (Profitsloss), wie auf der K-1 angegeben. Wie bei Einzelunternehmen sind allgemeine Partnerschaften einfach zu bedienen. Es gibt keine formalen Voraussetzungen für die Entscheidungsfindung. Das Management der Gesellschaft ist im Wesentlichen durch gegenseitige Zustimmung. Während die Partner die Vertragsbedingungen schriftlich festlegen können, ist dies nicht gesetzlich vorgeschrieben. Der einfachste Weg, um eine Partnerschaft zu sehen ist, dass es eine Einzelfirma unter zwei oder mehr Personen ist. Die wichtigsten Gründe, NICHT um eine allgemeine Partnerschaft zu bilden, sind die rechtlichen Auswirkungen und nicht die steuerlichen Erwägungen. In einer Personengesellschaft wird jeder Partner als Beauftragter des anderen Partners und der Partnerschaft angesehen. So ist jeder Einzelne in der Lage, das andere Individuum zu binden. Wie wirkt sich dies auf Traders aus Wenn zwei Einzelpersonen beschließen, ihr Geld zu bündeln und ein Brokerage-Konto zu eröffnen, das beide zum Handel berechtigt sind, wird jeder Partner an die Handelsentscheidungen des anderen Partners gebunden sein. Wenn Partner 1 einen Verlust verliert, ist Partner 2 aussergewöhnlich. Allerdings könnte die Situation noch schlimmer sein. Wenn Partner 1 das Margin-Konto abwickelt und das Konto einem Margin-Call unterliegt, kann Partner 2 den vollen Betrag des Margin-Aufrufs (nicht nur 50) zahlen und dies auch dann, wenn er keine Kenntnis von Partner 1 hat Maßnahmen. Allein aufgrund dieses Haftungsfaktors empfehlen wir keine allgemeinen Partnerschaften außer in sehr, sehr begrenzten Fällen. Wenn eine Partnerschaft zwischen zwei oder mehreren Personen gewünscht wird, ist die Kommanditgesellschaft in der Regel die bevorzugte Entität der Wahl. Limited Partnerships sind die bevorzugte Struktur für die Durchführung von Geschäften in Partnerschaftsform genau wegen der oben diskutierten Haftungsfragen. Kommanditgesellschaften bestehen aus einem oder mehreren Kommanditisten, deren Haftung auf die Höhe ihrer Partnerschaftsbeteiligung beschränkt ist, und ein persönlich haftender Gesellschafter, der eine unbeschränkte Haftung übernimmt. Um die Trennung der Haftung zu nutzen, wird die persönlich haftende Gesellschafterin in der Regel einen sehr geringen Prozentsatz des Eigentums an dem Unternehmen (vielleicht 1-2) ausgeben, um die Anfälligkeit für Gläubiger weiter zu reduzieren. Um eine Kommanditgesellschaft zu bilden, müssen Sie ein Organisationszertifikat in dem Staat einreichen, in dem Sie das Unternehmen bilden wollen. Partnerschaftsvereinbarung Limited Partnerships sind Kreaturen der Satzung. Alle Staaten haben Gesetze erlassen, die die Gründung von Kommanditgesellschaften zulassen. Ein wesentliches Merkmal von Kommanditgesellschaften ist, dass sie eine schriftliche Partnerschaftsvereinbarung erfordern. Diese Vereinbarungen regeln die Verwaltung und den Betrieb der Partnerschaft. Die Bestimmungen dieser Vereinbarungen bestimmen die Art und Weise, in der Partner zugelassen oder zurückgenommen werden können, die Methode der Gewinn - und Verlustrechnung und die Art und Weise, in der Entscheidungen getroffen werden. So sind sie etwas komplexer als allgemeine Partnerschaften, aber die Vorteile überwiegen bei weitem die Nachteile. Steuerliche Behandlung Die IRS erfordert die Einreichung einer informativen Rückkehr, aber incomeloss wird auf jeden Partner auf einer K-1 aufgeteilt. Als eine Durchfluss-Einheit, die Kommanditgesellschaft selbst nicht Steuern zahlen. Das den Partnern zugewiesene Einkommen behält den gleichen Charakter wie die Einkommensart der Partnerschaft. So, wenn das Handelsergebnis kurzfristige Kapitalgewinne für die Partnerschaft ist, wird es als kurzfristige Gewinne für die einzelnen Partner behandelt werden. Operation Das zentrale Merkmal der Limited Partnership ist, dass die Haftung der Kommanditisten für Schulden und Verpflichtungen der Partnerschaft auf ihre finanziellen Investitionen beschränkt ist. Diese Begrenzung ergibt sich aus der Trennung des Kommanditisten von der Kontrolle des Vermögenswertes. Die persönlich haftende Gesellschafterin ist unbeschränkt haftbar. Gemäß Satzung und in Übereinstimmung mit den Bedingungen des Partnerschaftsvertrags ist der persönlich haftende Gesellschafter für die Kontrolle der Partnerschaftsvermögen verantwortlich. Das heißt, die Komplementärin ist diejenige, die tatsächlich die Konten handelt. Die persönlich haftende Gesellschafterin kann entweder eine natürliche oder eine andere Körperschaft wie eine Aktiengesellschaft, eine Gesellschaft mit beschränkter Haftung oder eine Kommanditgesellschaft oder eine andere Körperschaft sein. Limited Partners müssen sehr vorsichtig sein, nicht aktiv an der Verwaltung der Partnerschaft teilzunehmen, oder sie könnten ihren Haftungsschutz verlieren. Da Kommanditgesellschaften erforderlich sind, um mit dem Staat registriert werden gibt es staatliche Berichterstattung Vorschriften und Gebühren, die von Staat zu Staat variieren. Wenn alle oder die meisten Mitglieder einer Kommanditgesellschaft Mitglieder derselben Familie sind, kann eine Family Limited Partnership (FLP) gegründet werden. FLPs sind nicht durch Gesetz, sondern durch die Bedingungen der Partnerschaftsvereinbarung definiert. Sie sind organisiert und werden genauso wie Kommanditgesellschaften betrieben. Die Unterscheidungsmerkmale von FLPs sind in den Bedingungen der Partnerschaftsvereinbarung und der Steuerstrategien, die sie verwenden können gefunden. FLPs werden am häufigsten für Nachlassplanung Zwecke verwendet. Hierzu gehören unter anderem die Fähigkeit, Partnerschaftsanteile (und Einkommen) an Familienmitglieder in niedrigeren Steuerklassen zu verschieben, die Möglichkeit, eine diskontierte Bewertung zu verwenden und die Vermögensschutzfunktion des quadratischen Orderquot. Mit einem FLP ein Elternteil kann Aktien der Aktie an Kinder und andere Familienmitglieder, die in einem niedrigeren Steuerklasse sind zu übertragen. Während die auf die Kinderaktien entfallenden Erträge mit dem Kindersteuersatz zu versteuern sind, bedarf es keinem entsprechenden Recht des Kindes, den Barwert der Aktien tatsächlich zu erhalten. CAVEAT: Hüten Sie sich vor der quotkiddie Taxquot, unter dem Einkommen über Schwellenbeträge werden bei den Eltern höhere Rate für Kinder unter 14 Jahren steuerpflichtig. Aufgrund der Partnerschaftsvereinbarungen Beschränkungen für die Übertragung der Partnerschaftsinteressen, wird oft argumentiert, dass die wahre Der Barwert der Anteile unter dem Wert der zugrunde liegenden Vermögenswerte liegt. Dies ist wichtig für Nachlassplanung Zwecke, wie es effektiv zulassen, dass ein Elternteil auf Kinder Vermögenswerte mit einem Wert größer als der Betrag diskontierten Minderheiten Partner bewerteten Wert übertragen. Aus Sicht des Asset-Schutzes ist der Ladeauftrag vielleicht das größte Merkmal von FLPs und Nicht-Family Limited Partnerships. Grundsätzlich kann der Gläubiger eines Kommanditisten zwar eine Partnerschaftsbeteiligung der Kommanditgesellschaft erwerben, doch allein macht der Gläubiger keinen Kommanditisten und gibt ihm keine Rechte eines Partners. Am wichtigsten ist, erhält der Gläubiger nicht das Recht, den Komplementär zu zwingen, eine Einkommensverteilung zu machen. Auch wenn der Gläubiger nicht tatsächlich Bargeld aus der Partnerschaft erhalten, kann es immer noch erforderlich sein, Steuern auf den ausschüttenden Anteil der Partnerschaftseinkommen zu zahlen. Gesellschaft mit beschränkter Haftung Gesellschaft mit beschränkter Haftung (LLC) sind im Wesentlichen eine Mischform zwischen Kapitalgesellschaften und Kommanditgesellschaften. Ähnlich wie Konzerne und Kommanditgesellschaften sind die Interessen der LLC-Mitglieder auf die Höhe ihrer Investitionen beschränkt. LLCs sind relativ neu auf der Entity-Szene haben ihr Debüt gemacht, wenn Wyoming das erste Statut im Jahr 1977 gegründet. Derzeit sind sie von fast jedem Staat zugelassen. Ein LLC hat die Wahl, entweder als eine Partnerschaft oder eine Körperschaft besteuert werden. Als Partnerschaft fließt das incomeloss zu den einzelnen Mitgliedern und wird über ihre persönlichen Steuererklärungen berichtet. Als Körperschaft gelten Körperschaftssteuersätze und Regeln. LLCs können entweder Single-Mitglied oder Multi-Mitglied in der Natur. Für steuerliche Zwecke der IRS missachtet einzelne Mitglied LLCs und einige Staaten nicht autorisieren. Der Effekt ist, dass, während eine einheitliche LLC Vermögensschutz genießen kann, wird es weiterhin als Einzelunternehmen besteuert werden, so dass die Einreichung eines Schedule C und in einigen Fällen eine Schedule SE, auf denen die 15.3 Selbständigkeit Steuer muss sein Berichtet und bezahlt. Ein Multi-Member-LLC wird mehr wie eine Kommanditgesellschaft besteuert, in der Einkommen in der Regel nicht der selbständigen Erwerbssteuer unterliegt. In dem Fall, dass die LLC Mitglied-verwaltet wird (im Gegensatz zu quotmanager-managedquot), kann das geschäftsführende Mitglied einer solchen Steuer unterworfen werden. Ein wesentlicher Unterschied zwischen LLCs und Limited Partnerships ist, dass, während ein Kommanditist seinen Haftungsschutz durch die Teilnahme an der Verwaltung der Partnerschaft verlieren kann, ist das Mitglied einer LLC die Teilnahme an der Verwaltung erlaubt. So kann eine LLC entweder quittiert werden Managedquot oder quotmanager managedquot. Das Management stimmt mit der Betriebsvereinbarung und den Landesgesetzen überein. Zwar gibt es einige Vorteile bei der Nutzung dieser Einheiten gibt es auch Nachteile. Da es sich bei der LLC um eine relativ neue Unternehmensstruktur handelt, haben sich in dieser Form der Geschäftstätigkeit nicht sehr viele Gerichtsverfahren über die steuerlichen und nicht steuerlichen Implikationen ergeben, obwohl die Gesetze in diesem Bereich stärker definiert werden. Während die Statuten die Satzung der Limited Partnership in vieler Hinsicht widerspiegeln, bestehen erhebliche Unterschiede. Daher müssen sorgfältige Analysen und Planungen auf Einzelfallbasis durchgeführt werden, um zu ermitteln, welches angemessen ist. Es gibt zwei Arten von Unternehmen: S-Corporations und C-Corporations. Alle Unternehmen, wenn organisiert beginnen als C-Corporations. Eine besondere Wahl kann mit der IRS auf Form 2553 Wahl der S Corporation Status für steuerliche Zwecke und haben ihre incomeloss über die einzelnen Steuererklärungen ihrer Aktionäre berichtet gemacht werden. Alle Unternehmen (beide C - und S-Gesellschaften) haben ähnliche Eigenschaften. Sie werden durch staatliche Statuten geschaffen und sind die einzige Geschäftseinheit, die als völlig getrennt und getrennt von ihren Eigentümern (d. H. Aktionäre) betrachtet und behandelt wird. Sie sind die komplexesten Strukturen zu formulieren und zu pflegen und fordern die meisten Formalitäten für ihre Fortsetzung und Gültigkeit. Obwohl komplexer als andere Formen der Geschäftstätigkeit, die Anforderungen sind keineswegs unüberschaubar und in der Tat, Unternehmen bieten die größten Steuervorteile für Unternehmen - vor allem Händler. C-Corps erhalten die breiteste Palette und die höchsten Limite der Steuerabzüge jeder Wirtschaftseinheit. Es gibt weit mehr Flexibilität bei der Gründung 419 Trusts, Ruhestandspläne, Abzüge Reise-und Unterhaltungs-und Seminarkosten, die Zahlung medizinische und pädagogische Ausgaben mit steuerlich abzugsfähigen Dollar und viele andere Vorteile, die entweder nicht verfügbar oder stark eingeschränkt in anderen Formen des Geschäfts. Der häufigste Nachteil bei C-Corps ist die Doppelbesteuerung. Das Argument lautet: Das Einkommen einer Körperschaft unterliegt als eigenständiges Unternehmen der Körperschaftssteuer und wird dann auf individueller Ebene wieder besteuert, wenn es als Gehalt oder Dividenden gezahlt wird. Dies ist nicht völlig richtig, weil es nicht berücksichtigen, dass die Gehälter von den Unternehmen Einkommen abgezogen werden, bevor die Körperschaft besteuert wird, so dass in dem Umfang Gehälter bezahlt werden gibt es keine Doppelbesteuerung. Dividenden sind jedoch von der Gesellschaft nicht abzugsfähig, jedoch können durch die ordnungsgemäße Planung und Durchführung von Unternehmensprogrammen Dividenden und Doppelbesteuerungen vermieden oder minimiert werden. Auch wenn das Körperschaftsteuer besteuert wird, ist der Körperschaftssteuersatz auf allen Ebenen niedriger als die einzelnen Steuersätze bei gleichem Einkommen. Vergleichen Sie den Körperschaftssteuersatz von 15 auf den ersten 50.000 von Einkommen, während der einzelne individuelle Steuersatz 15 auf den ersten 25.750 ist und danach Sprünge bis 28. Korporationen werden in allen Zuständen durch die Einreichung von Statuten und die Zahlung der erforderlichen Gebühren erstellt. Sie unterliegen den Gesetzen, die die internen Unterlagen des Unternehmens sind. Unternehmen sind mit Abstand die komplexesten zu verwalten aufgrund der Anforderung der jährlichen und besonderen Sitzungen der Aktionäre und Direktoren und die Anforderung, dass alle wesentlichen Entscheidungen in schriftlichen Beschlüssen dokumentiert werden. Diese Anforderungen sind keineswegs unüberschaubar und es existieren Unternehmen, die Unternehmen bei der Erfüllung dieser Anforderungen unterstützen können. Obwohl ein Unternehmen Geschäfte tätigen kann in jedem Staat des Landes gibt es komplexe Regeln für Nexus und Aufteilung der Einnahmen, die eingehalten werden müssen. Auch von besonderer Bedeutung für Trader, wenn 60 oder mehr Ihres C-Corps Einkommen aus dem Handel abgeleitet wird, kann als eine persönliche Holding-Gesellschaft und unterzogen werden, um eine 35 Steuersatz. Wenn Ihr alleiniges Geschäft Handel ist, sollte C-Corps nicht verwendet werden, ohne vorherige Beratung mit kompetenten Buchhaltungs - und Rechtsexperten, um Strategien zu implementieren, um dieses Ergebnis zu vermeiden. S-Gesellschaften sind in der Struktur, dem Management und dem Betrieb in jeder Hinsicht die gleiche wie die Besteuerung. Wo eine C-Corp einer gesonderten Steuersatzstruktur unterliegt, wird eine Unterkapitel-S-Körperschaft auf die persönliche Steuererklärung der einzelnen Gesellschafter besteuert. Die Durchfluss-Natur dieser Einheit macht es zu einem idealen Fahrzeug für den Handel. Da das Einkommen weiterhin Kapitalgewinne in der Natur ist, unterliegt es keiner Selbstbeschäftigungssteuer. Ein zweiter Grund für die Gründung einer S Corporation ist die des Vermögensschutzes. Jedermann, der den einzelnen Händler verklagt, würde allgemein nicht in der Lage sein, zu den Vermögenswerten der S Corporation zu gelangen. Auf der anderen Seite würde jeder, der die S Corporation verklagt, nicht in der Lage sein, an den Vermögenswerten des Traders außerhalb des Unternehmens zu gelangen, vorausgesetzt, das Unternehmen ist ordnungsgemäß gewartet. S-Korps, haben jedoch einige Einschränkungen. Zu den wichtigsten Steuerbeschränkungen gehören die Nichtabzugsfähigkeit von Invaliditätsprämien, die Begrenzung der Abzugsfähigkeit von Krankenversicherungsprämien für Aktionäre und die verstärkte Kontrolle der Beschäftigung von Familienangehörigen. Darüber hinaus kann es nicht mehr als 75 Aktionäre geben. Wie bei allen Kapitalgesellschaften ist es wichtig, dass die quotcorporate veilquot beibehalten werden. Wenn es von der IRS oder anderen Gläubigern nachgewiesen werden kann, dass die Gesellschaft nicht als eigenständige juristische Person geführt wird und nur der quotative Egoquot des Aktionärs ist, gehen die Steuervorteile und Vermögensschutzmerkmale verloren. Häufig wollen Händler das Anlageportfolio anderer verwalten. Die Gründe für ein solches Projekt sind zahlreich. Ein paar der am häufigsten zitierten Gründe sind: (1) Der Händler wurde von Freunden und Familienangehörigen aufgefordert, sein Portfolio zu verwalten, oder (2) der Händler wünscht, seine Rentabilität zu steigern, indem er eine Anreizgebühr erhält, die auf der Leistung eines Viel größeres Handelskonto. In solchen Situationen wird es immer so wichtig, dass das Unternehmen richtig zu strukturieren, um sowohl den Händler und Investor zu schützen. Der erste Hedgefonds wurde 1949 von Alfred W. Jones gegründet, der dem Fonds den Namen gab. Jones Hedgefonds war neuartig, um erstmals drei bisher verfügbare Instrumente zu kombinieren. Es verwendete eine private Partnerschaft als das gesetzliche Fahrzeug für maximale Flexibilität, verkaufte Aktien kurz und verwendet Hebelwirkung. Jones begründete, dass sowohl Long - als auch Short-Positionen in einem Portfolio die Rendite steigern und gleichzeitig das Risiko aufgrund geringerer Marktrisiken reduzieren könnten. Leverage könnte diese Effekte weiter verstärken. Während viele der privaten Investmentfonds heute heutzutage keine Absicherungsstrategien mehr nutzen oder dies in geringerem Ausmaß tun, wird der Begriff "quotquetge fundquot" auch heute noch verwendet. Für die Zwecke dieser Erläuterung wird der Begriff Hedgefonds verwendet, um jeden als eine Partnerschaft organisierten privaten Investmentfonds zu beschreiben und eine leistungsorientierte Gebührenstruktur zu verwenden (unabhängig davon, ob Hedging-Strategien zum Schutz gegen Marktrisiken verwendet werden oder nicht). Einige der besser bekannten Versuche zu definieren, was ein Hedge-Fonds ist: "Ein Investmentfonds, der Hebel verwendet und nutzt verschiedene Techniken des Hedgingquot. - George Soros quotA-Kommanditgesellschaft, bei der die persönlich haftende Gesellschafterin in der Regel leistungsorientiert bezahlt wird. Hat der Manager eines Hedgefonds viel mehr Flexibilität als ein traditioneller Geldmanager, und das ist wirklich das Schlüsselelement. - Michael Steinhardt. Eines der Hauptmerkmale von Hedgefonds ist ihre Fähigkeit, nicht-traditionelle Anlageinstrumente und - techniken zu verwenden. Hedgefonds sind leicht regulierte Pools von Anlagekapital, die keine oder nur geringe Einschränkungen hinsichtlich der Anlageklassen, der Anlagetechniken oder der Nutzung von Hebelwirkung aufweisen. Im Gegensatz dazu sind Investmentfonds stark reguliert und verfügen in der Regel nicht über die gleiche Bandbreite an Instrumenten (insbesondere Leverage und die Fähigkeit, kurz zu gehen). Hedgefonds bieten dem Geldmanagertrader ein effizienteres Vehikel für skillbasierte Anlagestrategien. Der typische Hedge-Fonds-Manager wurde seit vielen Jahren als Händler in einem Top-Wall-Street-Unternehmen oder Investmentfonds-Unternehmen gewertet, bevor er sich entschlossen, für sich selbst gehen durch den Start eines Hedgefonds. Hedge-Fonds-Manager dann in der Regel eine leistungsabhängige Gebühr mit Schwerpunkt auf absolute Renditen, zusätzlich zu festen Gebühren für die Verwaltungskosten. Daher investieren Anleger in Hedgefonds die Geschicklichkeit des Managers und nicht die Bewegungen der zugrunde liegenden Märkte. In den vergangenen fünfzig Jahren sind diese privaten Fonds vor allem aufgrund des Erfolges und der Bekanntheit von Fondsmanagern wie George Soros und Michael Steinhardt extrem populär geworden, verbunden mit der Tatsache, dass sie den Markt im Allgemeinen und viele der bekanntesten deutlich übertroffen haben Investmentfonds. Obwohl im Allgemeinen unreguliert, gibt es mehrere Bundes - und Landesgesetze, die bei der Strukturierung eines Hedgefonds berücksichtigt werden müssen. Der regulatorische Rahmen, der in der Regel Hedgefonds umfasst, umfasst Folgendes: Wertpapiergesetz von 1933: Die Beteiligung an Hedgefonds ist gemäß dem Securities Act von 1933 in der jeweils gültigen Fassung oder anderen Wertpapiergesetzen, einschließlich staatlicher Wertpapiere oder Blue Sky Gesetze, unter der Annahme des Fonds nicht registriert Ist strukturiert, um die Vorteile der anwendbaren Wertpapiergesetze zu nutzen. Stattdessen werden Hedgefondsinteressen in Abhängigkeit von der Befreiung von der Registrierung gemäß § 4 Abs. 2 des Securities Act von 1933 und der Regulierung D verkündet. Die potenziellen Käufer sind verpflichtet, darzustellen, dass es sich um quotenkreditierte Investoren im Sinne der Definition in Regulation D handelt und dass sie die Zinsen nur für Investitionszwecke erwerben und nicht für Wiederverkauf oder Vertrieb. Investment Company Act von 1940: Hedge-Fonds unterliegen dem Investment Company Act von 1940. Die Anzahl der wirtschaftlichen Eigentümer von Zinsen, für die Zwecke der Investment Company Act von 1940 in der geänderten Fassung, ist auf 100 oder weniger beschränkt, so dass für die Qualifikation Die Befreiung von den Bestimmungen des Investment Company Act. Bei der Festlegung der Anzahl der wirtschaftlichen Eigentümer müssen Hedgefonds von jedem Kommanditisten entsprechende Zusicherungen und Verpflichtungen erhalten und sich darauf verlassen, um sicherzustellen, dass der Fonds die Bedingungen für die Freistellung laufend erfüllt. Anlageberatergesetz von 1940: Einige allgemeine Gesellschafter von Hedgefonds wählen sich als Anlageberater (oder sind bereits Anlageberater) nach dem Investment Advisers Act von 1940. Andere sind nicht auf die Befreiung von den Registrierungsanforderungen des Gesetzes enthalten § 203 (b) (3), der von der Registrierung keinen Anlageberater befreit, der im Laufe der vorangegangenen zwölf Monate weniger als 15 Kunden hatte und bestimmte andere Anforderungen erfüllt. Die persönlich haftenden Gesellschafterinnen und Aktionäre unterliegen sowohl den im Investment Advisers Act enthaltenen Gebührenbeschränkungen als auch den strengeren Anforderungen des Anlegers. State Blue Sky Gesetze: Zusätzlich zu den Bundesgesetzen hat jeder Staat seine eigenen Statuten und Vorschriften (quotBlau Himmel Gesetze quot) für das Angebot und Verkauf von Wertpapieren in oder aus diesen Staaten oder Einwohner dieser Staaten. In vielen Staaten müssen Einreichungen vorgenommen werden, um eine Freistellung von der Registrierung zu erhalten. Während die Mehrheit der Staaten in irgendeiner Form das Einheitliche Wertpapiergesetz von 1956 übernommen hat und mehrere Staaten in irgendeiner Form den Revised Uniform Securities Act von 1985 angenommen haben, unterscheiden sich die jeweiligen Gesetze eines jeden Staates, und die Einhaltung eines US-Bundesgesetzes für den blauen Himmel muss Werden, bevor ein Angebot von einem in einem solchen Staat ansässigen oder dort ansässigen Unternehmen erbracht wird. Historisch gesehen wurden Hedgefonds für US-Investoren als Kommanditgesellschaften gegründet. In den vergangenen Jahren haben jedoch fast alle Staaten Gesetze zur Genehmigung der Gesellschaft mit beschränkter Haftung (LLC) als ein Unternehmen, das Haftungsschutz für Investoren sowie Durchflussbesteuerung gewährt hat, verabschiedet. Fonds können auch mit diesem Formular organisiert werden. Es wird empfohlen, dass der persönlich haftende Gesellschafter einer Kommanditgesellschaft entweder eine Körperschaft oder eine LLC strukturieren sollte, um so die persönlich haftende Gesellschafterin zu schützen. Es sollte jedoch darauf hingewiesen werden, dass aufgrund der Gesetze über Betrug und andere Wertpapiere Gesetze diese Haftung Schutz kann nicht absolut sein. Im sicher, youve gehört das Sprichwort, behandeln Handel wie ein Unternehmen. Die Einrichtung einer Handelseinheit richtig ist ein wichtiger Schritt, wenn Sie (oder planen) ein Vollzeit-Händler werden. Dadurch können Sie profitieren von vielen Vorteilen, die der typische Anleger keinen Zugang zu haben. Nach dem Lesen dieses Artikels haben Sie ein Verständnis von: Wie ein Handelsgeschäft Funktionen Was sind die Komponenten eines Handelsgeschäftes Welche Art von Aufwendungen können Sie abschreiben Sein wirklich ganz einfach, Hobby kosten Geld, Unternehmen verdienen Geld. Der Zweck eines Handelsgeschäftes ist, Gewinne wie ein gewöhnliches Geschäft zu erfassen. Der Unterschied ist, dass Sie nicht verkaufen ein Produkt oder die Bereitstellung einer Dienstleistung, daher die tatsächlichen Vorteile der Schaffung einer Einheit rund um Ihr Handelsgeschäft ist steuerlich. Forming Ihre Handelseinheit Die häufigste Art und Weise zur Einrichtung einer Handelseinheit ist als Limited Liability Company (LLC) in dem Staat, den Sie leben. Während Steuergesetze von Staat zu Staat variieren, bieten sie nicht einen erheblichen Vorteil bei der Einrichtung Ihrer Handelseinheit. Der Name muss nicht extravagant sein, da der Zweck Ihrer LLC ist, Ihr Handelskapital von Ihren persönlichen Investitionen zu trennen und so Ihre Haftung zu begrenzen, wie der Name sagt. Egal, in welchem ​​Zustand Sie Datei Ihr Unternehmen in, müssen Sie Ihre Artikel der Organisation zu entwerfen. Ein Dokument, das Folgendes enthält: Entitätsname Zweck Bekannte Geschäftsadresse Mitglieder und Prozentsatz des Besitzers Mitglied Signaturen In den meisten Fällen sind Sie das alleinige geschäftsführende Mitglied Ihrer Handelsgesellschaft. Ich empfehle die Überprüfung der Informationen bei IRS. gov über die Einrichtung einer LLC. Es ist auch wirksam, Ihre LLC als S-Corp besteuert Datei. Dies ist ausschließlich für steuerliche Zwecke, da es die Einteilungsprozess einfacher macht. Sobald Sie eine Entität angelegt haben, können Sie eine Mitarbeiteridentifikationsnummer (EIN) eintragen. Diese Zahl wird auf allen Steuerformulare und Handelskonten verwendet werden, wie dies ist, wie die IRS identifizieren Sie Ihre Handelseinheit getrennt von Ihrer persönlichen Sozialversicherungsnummer. Ihre lizenzierte Steuerfachmann wird in der Lage, Sie durch diesen Prozess zu gehen und beantworten alle Fragen, die Sie auf dem Weg haben. Ich würde überprüfen, um zu sehen, wenn sie Erfahrung mit Trading Steuerberatung haben, da es eine Menge von grauen Bereich in der aktuellen Gesetze. Sie qualifizieren sich für Händler Steuerstatus Dies ist die erste Frage, die Sie bitten müssen. Ich verweise Robert Greens Buch, Tax Guide for Traders, da dies der Industriestandard für Trader Steuerbuchhaltung geworden ist. Es gibt keinen objektiven Test zur Feststellung der Qualifikation der Kaufleute. Das IRS entwickelte die folgenden Kriterien, um festzustellen, ob du für den Status der Händlersteuer berechtigt bist. 1. Der Steuerpflichtige Handel muss erheblich, regelmäßig, häufig und kontinuierlich sein. Sporadischen Handel wird nicht ein Handel oder Geschäft. 2. Der Steuerpflichtige bemüht sich, die Schwankungen der täglichen Marktbewegungen zu erfassen und von diesen kurzfristigen Veränderungen zu profitieren, anstatt von langfristigen Beteiligungen zu profitieren. Wie Sie sehen können, ist die Kriterien ziemlich zweideutig, aber wenn Sie Day-Trading sind die Futures-Märkte zum Beispiel und sind ein Vollzeit-Händler und haben keine anderen wichtigen Einnahmequellen, um Ihr Leben zu bezahlen Sie qualifizieren ohne Frage. Wenn Sie ein Teilzeit-Händler sind, weil Sie eine andere Geschäftstätigkeit haben, kann das IRS Ihre Qualifikation für Händler-Steuerstatus prüfen. Was ist Mark to Market Accounting Mark-to-Market (MTM) bezieht sich auf die Prozedur, die Sie am Jahresende verfolgen, wenn Sie alle offenen Positionen zu Marktpreisen markieren. MTM gilt nur für Gewinne und Verluste aus Handelsgeschäften, die nicht für Geschäftsaufwendungen eines Unternehmers gelten. Sie müssen die MTM-Buchhaltung auswählen, die bei der Registrierung des Händlerstatus nicht standardmäßig aktiviert ist. Rohstoffe und Futures verwenden eine andere Steuer-Methode als Wertpapiere, die 6040-Regel. Das bedeutet, dass 60 zu der langfristigen Kapitalertragssteuer und 40 kurzfristig besteuert werden. MTM Buchhaltung ist nicht eine bevorzugte Methode für rentable Rohstoffe und Futures-Business-Händler, weil diese gemischte 6040 Rate ist deutlich weniger als mit Ihren gesamten Gewinnen besteuert zu den kurzfristigen Zinssatz. Was ist, wenn Sie ein Losing Year Business Steuerzahler sind der Nutzen der Nettoverluste Steuer Gesetze erlaubt. Diese Gesetze bieten die Möglichkeit, andor forward Business Verluste zurück zu tragen. Machen Sie ein Vermögen in einem Ohr und zahlen Sie Ihre Steuern dann verlieren ein Vermögen in den folgenden Jahren und tragen Sie Ihre Netto-Betriebsverluste, um große Rückerstattungen zu bekommen. Welche Aufwendungen können ein Trading-Unternehmen abschreiben Andere Vorteile der Gründung eines Handelsinstituts sind die Fähigkeit, Altersvorsorgepläne, Abzug von medizinischen und Krankenversicherungsprämien und Abschreibung von zusätzlichen Kosten wie Computerausrüstung, Reisen zu Messen und Bildungsmaterialien. Da Ihre Handelsgewinne und Verluste als gewöhnliche Gewinne und Verluste bei der Wahl der MTM-Rechnungslegung betrachtet werden, können Sie in voller Höhe gegen jede Art von Steuererklärungserlösen abziehen. Die Fähigkeit, Büro - und Bildungsausgaben und Abschreibungen auf Computer und Bürogeräte abzuziehen, ist ein Vorteil, der nicht dem typischen Investor zugewiesen wird. Der Unternehmer kann Zeitplan C für diese Geschäftsausgaben verwenden. Unabhängig davon, ob Sie sich entscheiden, eine Handelseinheit und eine Datei für den Händlerstatus einzurichten oder als Nicht-Kaufleute weiterzugehen, müssen Sie einen detaillierten Plan für die Zukunft entwickeln, wenn Sie erfolgreich sein wollen. Wenden Sie sich an Ihre Steuerfachangestellte Stellen Sie sicher, dass Sie mit einem lizenzierten Steuerfachmann, der gut vertraut ist im Händler Steuerrecht zu konsultieren. Ressourcen aus diesem Artikel: Detaillierte Informationen zu Trading Futures finden Sie auf der Seite Getting Started. Schaltfläche Link8221eminimindhow-to-Setup-Handel-Business-pdf8221 style8221download8221 window8221yes8221Download Artikel als PDFbuttonFar weniger wahrscheinlich für ein IRS-Audit ausgewählt werden (wenn ordnungsgemäß von einem Steuerfachmann vorbereitet). If selected for an audit, the typical IRS arguments against a taxpayer for having other interests and other sources of income are moot (if a proper separation of personal and corporate operations is maintained). Taxpayers who only have time to trade part-time use entities to get around this IRS bias. Retirement plans can sock away money now to grow without paying taxes each year on the income. The high-exposure Office in the Home deduction is replaced with a 119 rental allocation for renters or a 162 deduction for utilities, repairs and insurance expense allocations for homeowners. Meal expenses under 119 can be fully deductible. Child care or other employee perks are deductible under 125. Medical insurance can be partially deductible for some entities with employees or fully deductible for C-corps with employees. Medical expenses over and above what insurance pays for may be deductible for C-corp employees. Generally, expenses are quotmore justifiedquot when deducted by an entity in particular: automobile, travel and entertainment expenses. Generally, equipment depreciation and the related 179 deduction are more likely to be accepted quotas isquot when taken by an entity. Theres a limited amount of asset protection via quotthe corporate shield. quot More sophisticated structures using multiple entities can offer even stronger asset protection. If you can establish a presence of quotnexus quot in a low-tax or no-tax State, you can reduce your home State income taxes . As an employee of your own entity, you can skip paying quarterly estimated taxes, declare yourself a bonus in December and have the withhold taxes from that bonus retroactively apply to the three prior quarterly due dates. An entity may elect Mark-to-Market as soon as it is formed, whereas an individual must only elect in advance, between January 1st and April 15th. An entity may be terminated when it no longer serves its original purpose. Terminating an individual trader, on the other hand, is quite painful They cost money Often running several hundred to over a thousand dollars to establish and maintain annually. If tax returns are not professionally prepared the chances of audit are often actually increased, under the theory that an entity tax return is too complicated for an individual to accurately prepare himself. Office in the Home deduction is more complicated or prohibited outright, because the individual himself no longer runs the business, rather the entity does (but see the 119 deduction above). quotRequiresquot maintaining a separate set of books and records. Separate bank account and separate brokerage account are highly desirable. The paying of a salary is necessary for several of the employee related benefits, and therefore the amount of the salary is subjected to FICA tax. Medicare tax and Unemployment taxes. Care must be taken to comply with the employer tax laws for timely paying and filing quarterly payroll tax returns, Which is quotbestquot To decide which form of business organization is appropriate involves the consideration of such factors as the ease of creation, the liability of the owners, tax considerations, and the need for capital. Each form has advantages and disadvantages that indicate when it is most useful. The entities with highest likelihood of IRS audit are the sole proprietorship trader and the sole proprietorship trader that has elected mark-to-market . The IRS and Tax Court challenges here are often based on the amount of other, extracurricular activities that the individual may have going on in addition to his trading activities such as: employment at a quotday job, quot other investment portfolio activity, taking time off, other odd money making ventures, hobbies and social activities, etc. By placing your trading activities in a separate entity. such as a C-Corp. an S-Corp. a multi-member LLC or a Family Partnership that is dedicated solely to securities trading, you can effectively eliminate most of the extracurricular activity challenges the IRS might bring up. The quotoddsquot of being selected for IRS audit in the first place is lower for these other entities as well. The quotdownsidequot is higher compliance costs (State fees, CPA fees, Legal fees, Bank fees, etc.) and the time and effort with the formalities to properly maintain the entity. Due to inadvertent missteps, taxpayers can lose some of the tax benefits when these formalities are not handled timely, consistently and properly. This can happen when the owners just dont have the TIME, or DESIRE to handle the paperwork because they are spending twelve hours a day following the markets and trading Potential solution for traders who what to trade and not get bogged down with the bookkeeping and corporate functions: There are financial affairs managers that high-wealth individuals such as actors, ball players and other entertainment people hire to keep their corporations in proper order while they tend to their chosen trade or profession. And you can certainly hire such a management company. This same concept is something TraderStatus is looking to provide if the demand is out there. My current thinking is a Connecticut LLC formed with a TraderStatus designee and yourself as members, where all the day-to-day business (bill paying, payroll, pension compliance, government mailing, etc.) is taken care of right here, leaving you to trade without getting into the details of compliance yourself. This seems to have the potential of a win-win situation for traders who want the benefits of a multi-member LLC but dont have the time, knowledge or desire to bother with all the proper paperwork and overhead. Connecticut may also have preferential asset protection against charging orders under RULPA. If this is of interest, lets talk. Most full-time traders operate as sole proprietors : The most common of these entities, and the easiest one to operate your Trade or Business of Securities Trading in is the Sole-Proprietorship . The sole proprietor taxpayer likely already has several brokerage accounts, pays low non-professional real time quote fees, and files federal form 1040 for his taxes. All brokerage firms understand how to open accounts for sole proprietors (aka individuals). These are generally the easiest accounts to open and to fund and the fees charged are generally not any higher than for the other available forms of legal entity. With a sole-proprietorship your creditors (e. g. margin account loans) can make claims against both your trading business accounts and your personal assets. A sole-proprietorship is the only form of securities trading entity strictly prohibited from establishing a retirement plan (IRA, Keogh, Profit Sharing Plan, Money Purchase Plan, Defined Benefit Plan, Defined Contribution Plan, and so on) for yourself, although you can establish one for your employees, which could include your siblings, spouse, children or other relatives. A Securities Trader operating as a Sole Proprietor quotmerelyquot needs to add in a couple forms to his regular IRS form 1040: a schedule C and any number of these forms: Schedule D, form 4562, form 4797 and form 8829. Due to the complexity of trader status tax work it is oftentimes advisable that a professional (such as us ) be retained to plan and prepare all your compliance tax work. But many sole proprietors do their own taxes. Part-time traders and other special situations: IRS Publication 535 Business Expenses Deducting Business Expenses If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations. In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether: You carry on the activity in a businesslike manner. (aa) The time and effort you put into the activity indicate you intend to make it profitable, (bb) You depend on the income for your livelihood . (cc) Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), (dd) You change your methods of operation in an attempt to improve profitability, (ee) You (or your advisors) have the knowledge needed to carry on the activity as a successful business, (ff) You were successful in making a profit in similar activities in the past, (gg) The activity makes a profit in some years, (hh) and You can expect to make a future profit from the appreciation of the assets used in the activity. (ii) IRS Regulations - Activity not engaged in for profit defined 1.183-2(b)(1)-(9) In determining whether an activity is engaged in for profit, all facts and circumstances with respect to the activity are to be taken into account. No one factor is determinative in making this determination. In addition, it is not intended that only the factors described in this paragraph are to be taken into account in making the determination, or that a determination is to be made on the basis that the number of factors (whether or not listed in this paragraph) indicating a lack of profit objective exceeds the number of factors indicating a profit objective, or vice versa. Among the factors which should normally be taken into account are the following: Manner i n which the taxpayer carries on the activity. (aa) The expertise of the taxpayer or his advisors. (ff) The time and effort expended by the taxpayer in carrying on the activity. (bb) Expectation that assets used in activity may appreciate in value. (ii) The success of the taxpayer in carrying on other similar or dissimilar activities. (gg) The taxpayers history of income or losses with respect to the activity. (dd) The amount of occasional profits, if any, which are earned. (hh) The financial status of the taxpayer. ( does not have substantial income or capital from other sources ) (cc) Elements of personal pleasure or recreation. (jj) Practical thoughts - additional things to do to support your position that you or your entity truly are in a for-profit trade or business: Open a checking account for the business, separate from a personal use account Obtain a credit card for the business, separate from a personal use card Take a training class, attend a seminar, buy books on how to make the business profitable Set up a budget for the business andor a projection showing goals and profit ability in future years Document you plans, at least annually showing goals for the year to make the business profitable The Internal Revenue Service Frequently Asked Questions about trader status includes the following statement: quotBasically, IF your day trading activity goal is to profit from short-term swings in the market rather than from long-term capital appreciation of investments, AND is expected to be your primary income for meeting your personal living expenses. i. e. you do not have another regular job, your trading activity might be a business. quot Does this say you must be a quotfull-timequot trader No, it does not. It says that if you are a full-time trader that you might qualify to file under TraderStatus. Thats not to say that a part-time trader might not also qualify to file under TraderStatus. But this begs the obvious question: Do you want to be the lucky one arguing this fine point with an IRS auditor while shes shaking her head as she peers down looking at all your deductions Part-time traders or anyone seeking a more sophisticated approach to their trading, estate planning, asset protection and their taxes should seek to establish an insulating entity from which to operate their trading activity. An LLC or S-Corp for example, properly established, can be set up to trade securities full-time as its one and only business even if the individual himself has other conflicting activities (such as a full-time day job). A newly established legal entity may elect the Mark-to-Market method of accounting unencumbered by the restrictive quotApril 15 th deadline. quot For individuals who have missed the April 15 th filing date, forming a legal entity is an alternative to waiting until the following years April 15 th filing date. Most common is the use of pass-thru entities which themselves pay little or no tax, but rather pass-thru the net business activity which is then taxed to the owners in proportion to their investment interest in the entity. Note that while quotinvestmentsquot in stocks and securities is a quotdirty wordquot when it comes to the business of Securities Trading, it is just fine for an individual to have a direct active investment in a trading entity. More sophisticated tax planning may utilize entities that are taxed directly (the C-Corp, for example). Several of the Trader Status business expenses are reserved for creative (but fully legal) use of the C-Corp. The C-Corp may be your primary trading vehicle, or perhaps it might be a memberpart-owner of your LLC or Family Limited Partnership which allows you to split some of your annual profits off to the C-Corp to be sheltered by those special deductions, while the remainder is taxed at personal tax rates of the trader and other family members (including the children, in the lower tax brackets). A Securities Trader operating as an LLC andor corporation needs to file a number of tax forms besides his regular IRS form 1040. For example IRS forms 1065, 1120, 1120S etc. and any number of these forms: Schedule C, Schedule D, Schedule E, form 2106, form 4562, form 4797 and form 8829. Due to the complexity of preparing and coordinating all of these tax forms, it is imperative that a professional (such as us ) be retained to plan and prepare all your compliance tax work. IRS FAQ (circa 2005) I buy and sell stocks as a day trader using an online brokerage firm. Can I treat this as a business and report my gains and losses on Schedule C A business is generally an activity carried on for a livelihood or in good faith to make a profit. Rather than being defined in the tax code, exactly what activities are considered business activities has long been the subject of court cases. The facts and circumstances of each case determine whether or not an activity is a trade or business. Basically, if your day trading activity goal is to profit from short-term swings in the market rather than from long-term capital appreciation of investments, and is expected to be your primary income for meeting your personal living expenses, i. e. you do not have another regular job, your trading activity might be a business. If your trading activity is a business, your trading expenses would be reported on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship) instead of Form 1040, Schedule A, Itemized Deductions. Your gains or losses, however, would be reported on Form 1040, Schedule D, Capital Gains and Losses, unless you file an election to change your method of accounting. If your trading activity is a business and you elect to change to the mark-to-market of accounting, you would report both your gains and losses on Part II of Form 4797, Sales of Business Property. Corporation : (also see C-Corp and S-Corp below) This is the most formal of all business organizations: a state-chartered legal entity. It is owned by shareholders, whose losses are limited to the amount of their investment. A corporation may own real property and can sue or be sued in the corporate name. Shareholders are not personally liable for the corporations debts the corporations assets are protected from individual shareholders debts. There are three types of corporations, quotCquot, quotSquot and non-profit. The difference is in the way they are taxed: A quotCquot corporation pays federal and state income taxes on earnings when shareholders receive dividends, they are taxed again. An quotSquot corporation generally does not have to pay federal income tax its shareholders pay taxes on their share of the income on their personal tax returns. The quotSquot corporation therefore escapes the double taxation of a quotCquot corporation. Tax filing status varies according to type of non-profit. There are many filing types and the type must be determined when filling out corporation papers. Note: Foreign corporations (including companies headquartered in another state or country and doing business in your home state) have a separate tax obligation. Under IRS Code 7701 there are several quotlevelsquot of formality that I have seen misused by well-meaning quottax advisorsquot in recent years: the quotstatutoryquot corporation . where the State has recognized the entity as a corporation. Usually, corporations are created under corporate statutes of a particular State and this ends the matter for the Service. The Service will rarely interfere with the States determination that an entity is a corporation and that the entity is taxable as a separate entity. For example, a parent corporation and its corporate subsidiary are recognized as separate taxable entities so long as the purposes for which the subsidiary is incorporated are the equivalent of business activities or the subsidiary subsequently carries on business activities. Moline Properties, Inc. v. Commissioner, 319 U. S. 436, 438 (1943) Britt v. United States, 431 F.2d 227, 234 (5th Cir. 1970). That is, where a corporation is organized with the bona fide intention that it will have some real and substantial business function, its existence may not generally be disregarded for tax purposes. Britt, supra. To disregard the corporate entity requires a finding that the corporation or transaction involved a sham or fraud without any valid business purpose, or a finding of a true agency or trust relationship between the entities. G. C.M. 39326 (January 17, 1985) G. C.M. 35719 (March 11, 1974). the de jure corporation . A corporation may be found to exist, even though the States Secretary of State has not recognized such corporation. One such non-statutory corporation is a de jure corporation that exists where there has been full compliance, by the incorporators, with the requirements of an existing law permitting the organization of such corporation, but the entity is not a quotstatutoryquot corporation because the state has failed to recognize the entity as a corporation. A de facto corporation is a corporation existing under color of law and in pursuance of an effort made in good faith to organize a corporation under the statute. For example if the incorporators quotcrossed all the Ts and dotted all the Is, quot but the filing clerk lost the file, then that organization might qualify as a de jure corporation. the de facto corporation . A corporation may be found to exist, even though the states secretary of state has not recognized such corporation. One other such non-statutory corporation is the de facto corporation. For example, if the incorporators failed to sign one of the filing documents, then that organization would probably not qualify as a de jure corporation, but it might qualify as a de facto corporation. Not all states recognize either de jure corporations or de facto corporations. FYI: In law the term quotde facto partnershipquot has been used to refer to arrangements that should be regulated as if they are partnerships, because their substance is similar to that of partnerships although their form is not. The concept of quotde facto partnershipquot is used in some theoretical writings, and is also found in Alabama State Bar Op. 89-15 (Mar. 2, 1989), which advises that certain space sharing circumstances may create de facto partnerships the opinion is noted in Arthur Garwin, Suite Harmony: Protecting Client Confidentiality While You Share Space, 78 A. B.A. J. 88 (Mar. 1992). There is no judicial authority for enforcing the antipartnership rules against a de facto partnership. Whereas, a de facto partnership has no real meaning as a separate entity in tax law other than referring to domestic partners or a common law marriage between two people. expl: quotTheyve invited Joyce and her de facto to the party. quot a corporation by estoppel . In a case involving contract creditors contracting with a corporation that hadnt gotten its certificate filed, if theres no fraud by anybody, the contract is made in the corporate name, there was no individual guarantee from the shareholder then you have a corporation by estoppel, if not a de facto corporation. It takes a bit more to be a de facto corporation rather than by estoppel. If youre de facto, it operates against tort and contract creditors, but if youre by estoppel, it only applies to contract creditors who made a deal with you in the corporate name. the quotcorporation sole:quot A type of unusual corporation that an Exempt Organizations specialist may encounter from time to time is the quotcorporation sole. quot A corporation sole is a type of corporation that is controlled by only one person in a designated position whose successor automatically takes over on that persons death or resignation. The purpose of the corporation sole is to give some legal capacities and advantages, particularly that of perpetuity, to people in certain positions which natural persons could not have. The corporation is limited in the main today to bishops and heads of dioceses. Benefits: Ability to pay yourself or family members, as employees, earned income in the form of a salary from the corporation. This salary is subject to FICA (6.2 plus a matching 6.2) and Medicare tax (1.45 plus a matching 1.45) for a total tax of 15.3 of approximately 100,000 of your annual earned income (2.9 thereafter) which is credited to your ability to collect Retirement Social Security, Spouses Retirement Benefits, Disability, Family Benefits, Survivors Benefits, Medicare, Medicaid, amp Supplemental Security Income. These extra taxes may run up to approximately 15,000 per employee earning greater than 100,000.The salaries are tax deductible from corporate income in the year paid by the corporation (which generally must be the same year it is picked up as income by the family employee). One half of the above tax (6.2 plus 1.45) is tax deductible from corporate income when paid by the corporation. In lieu of salary, earned income may be paid as quotconsulting fees. quot These are taxed to the consultant (not to the corporation) for SECA purposes (similar to FICA and Medicare). Once quotearned incomequot is generated as per the above, you may receive (if desired and if structured properly) a tax deduction for payments made for health insurance and medical expenses, childrens day care, quotcafeteria plansquot and retirement plan contributions for yourself and family members. Detriments: Salaries paid to employees are subject to FICA and Medicare withholding taxes and the corporation must match these dollar for dollar as a additional corporate expense. The corporation may also be liable for Federal Unemployment tax, State Unemployment tax and Workmans Compensation insurance payments, and the added compliance expense associated with these overhead items. The UC taxes and the WC may cost several hundred dollars or more. The compliance costs may run from virtually zero to several hundred dollars or more. While it is often a good policy to follow is to quotzero-outquot the profits just before the corporations fiscal year-end. This entails a concerted effort in the 11 th month to compute the projected taxable income and to physically pay a salary-bonus to the owners. Keeping it legal . The most important thing to know about operating your corporation is that you need to leave a documented paper trail of all of your important business activities. Its extremely important to keep the business and affairs of the corporation separate from the personal affairs of any stockholder, director or officer. This means setting up a separate bank account in the name of the company, maintaining separate records, and keeping separate books for accounting purposes. Directors need to hold periodic meetings, and shareholder must meet once per year to elect directors. Meetings can take place in person at your home, at a restaurant over a fancy dinner meal or by telephone. Be sure to make a written record of the items discussed and actions approved at the meetings in your corporate minute book (part of your quotcorporate kitquot usually obtained when the corporation is formed). Alternatively, you can sometimes get away with just having all the directors (or a majority of the stockholders) sign a statement approving corporate actions. A commonly cited ground for piercing corporate liability shields involves failure to respect corporate formalities. Inadequate capitalization is frequently mentioned as a ground for piercing a corporate liability shield. Buy-Sell Agreements are needed to govern the assignment and transfer of ownership interests. Generally, a stockholder is free to sell or transfer shares to anyone. However, with small corporations where the stockholders act more like partners and each is integral to the success of the company, you may wish to consider placing restrictions on the transfer of shares. Stockholders sometimes enter into such buy-sell agreements which give the terms for when and how shares can be transferred or sold. A typical buy-sell agreement would state that if one stockholder seeks to sell shares to any third party, the other stockholders have a right of first refusal that is, the other stockholders may purchase those shares at the same price. Only if the other stockholders do not purchase those shares can a stockholder sell to a third party. Each corporation must obtain a federal tax identification number using form SS-4, which use is similar to that of an individuals social security number. In addition, state, county and city business licenses may also be required. Please check with your city and county to see which type of licenses are needed. Out-of-State entities. Summary: Incorporating in Nevada or Delaware may not be the best for a small business. 1. You may ultimately pay more fees, since your home state wants their share and youll have to pay a Registered Agent. 2. Its not that much quicker to form than in most other states. 3. Yes, their courts are pro-business, but that doesnt mean that they are anti-consumer. 4. Yes, you can be anonymous, but how important is that for a trader 5. True, there are no DE or NV state taxes, but there will be in your home state. Forming your C-Corporation outside of your regular state of residence is a sophisticated method of reducing or eliminating State income taxes. Unfortunately there are far too many quotbucket-shopsquot out there touting this as legitimate tax planning to individuals who pay anywhere from 2,500 to 9,000 for a quotpersonalized analysisquot that always ends up with them owning a one-shareholder Nevada C-Corporation (These type of bucket shops also work out of Delaware) There are good reasons to incorporate in Delaware or Nevada, but it shouldnt cost any more than 1,000 to incorporate anywhere plus maybe a quotregistered agent feequot which here at TraderStatus we try to avoid, rather than push on you as an additional revenue generator. Form your corporation with our assistance. But do out-of-State corporations make sense for the one entity C-Corporation used for trading securities The answer for most traders is a resounding quotNO. quot The big reason is that you will have to qualify to do business in your home office and that process takes as much time and money as your out-of-State filing, thereby doubling your costs right off the bat Then you probably need to pay 200 to 500 a year for the out-of-State resident corporate agent, file papers and fees annually in two States, and all for what If your trading business operation takes place in your home office, for example, you still must pay home-state income taxes on this income. Unless you are large enough to actually open an office in Nevada or Delaware and perform substantial operations there rather than performing those activities in your home-state then Nevada and Delaware tax havens are a waste of your time and money. Once you are making good money on a consistent basis, then it is possible that an out-of-State entity will be legally beneficial to you. Typically this is done in conjunction with one or more additional entities formed in your home-state. Also see: Avoid California Double Taxation with an Out-of-State Entity There can be some limited level of asset protection against charging orders un der RULPA based on which state you form the entity in. Use of a statutory close corporation ma y offer similar benefits. You are well advised to see a local attorney if asset protection is what you are seeking. Dont be mislead. Sure, most anyone can form a corporation in a tax-haven State such as Nevada. And if you leave all the money there while severing all connections with your own State of residence it wont necessarily be taxed by your home-state (though it would then have the potential of being assessed punitive federal tax rates). But if you want to USE the money yourself, you need to take it out of the corporation A salary, consulting fee, management fee, or administration fee paid to yourself would be taxed by your residence State. A loan from the corporation to yourself can be attacked as a sham transaction. A loan in excess of 10,000 must carry a fair market interest rate and that interest expense might not be deductible to you, while it is taxable to the corporation A loan with the full rate of interest generally cannot exceed much more than 250,000 because of the punitive quotaccumulated earning taxquot which in effect forces the corporation to pay taxable dividends to the shareholders, making it taxable by the resident State, and double taxed by the IRS There are several common punitive tax implications that owners of trader status C-corps need to be wary of . double taxation on gains (first on the corporate side and again when paid out as dividends to the shareholders). the accumulated earnings (AET) tax of 39.1 on top of the regular corporate tax rates that range from 15 to 39. the personal holding company (PHC) tax of 39.1 on the corporations quotundistributed personal holding company income. quot the personal service corporation (PSC) tax of 35. disallowance of losses under the quotclosely held C corporation at-risk rules. quot disallowance of losses under the quotclosely held C corporation and personal service corporation passive activity loss rules. quot the IRS can reallocate the income and deductions of a personal service corporation (with disastrous effects) back to its shareholders if it was formed or availed of for the principal purpose of tax avoidance. Defined as - if any one shareholder saved more than 2,500 in taxes as a result of forming the corporation rather than operate as a sole proprietorship. the IRS may disregard the corporate entity and allocate the income to the shareholders under the quotassignment of income doctrine quot by showing that the incorporation amounts to an anticipatory assignment of all of the controlling shareholder-employees income to the corporation - if the service-performer employee is controlling the income received by the corporation. the IRS may reallocate income from a corporation to its shareholder-employees by completely disregard the corporate entity as a sham if the corporation does not have enough trading activity and the proper documentation, books and records to show that it carries on a legitimate trading business as a corporation. the IRS specifically reserves the right to reallocate income under provisions in effect before the reallocation rules were enacted. In fact, the proposed regulations provide that these other rules can apply even to corporations that pass the 2,500 safe harbor test described above. for more on this, see this web site link . quotCreativequot ideas such as having the corporation buy you a luxury automobile to cruse in, or a house to live in while you quotsafeguardquot the corporate computers and software are faulty too due to the concept of quotnexus. quot What this means is the corporation holds assets that are located in a State other than Nevada, and as a result quotnexusquot (see the national nexus web site ) is formed giving your residence State taxable income and the ability to find you, audit you and blow apart the little out-of-state tax-haven scheme. Also see this 110 page PDF file by Ernst amp Young about State Income Tax developments. Another ploy being touted is to have two differentseparate securities trader businesses (not a bad idea in itself). One business operation is your own personal Schedule C sole proprietorship or an LLC and the other business operation is run out of a C-Corp. After paying a small fortune for consulting advice you are then told to simply make all your gains within the corporation and taxed there -- and have all your losses reported on your Schedule C where they can shelter other income, such as your spouses W-2 wages. Another similar strategy is to convert the C-Corp into an S-Corp and to have all the losses in this M2M S-Corp while you have the gains in your non-M2M Schedule C, so that you can tax-shelter those gains by using up prior year capital loss carryforwards. I cant help but to wonder who is smart enough, ahead of time, to be able to make all the winning trades in one brokerage account and to have all the tax-benefit loss trades in the other brokerage account. If theres any genius out there who can accomplish that feat, why not just open the account to use for the winners to begin with and then not open any account for the losers Why buy losers to begin with, if you know about it before hand Why not just save all the trading money youd have lost with this crazed scheme being promoted at the high-priced expert tax trader seminars While Out-of-State entities are not necessarily all theyre cracked up to be, there are situations (such as in California) where the State has the gall to impose double taxation on their residents. For example, in CA an LLC is subject to a quotfeequot of approximately 0.1 on gains, with an 800 annual minimum. CA S-Corps pay 1.5 on gains, with an 800 annual minimum. For these instances an Out-of-State entity can make sense. See the link Avoid California Double Taxation with an Out-of-State Entity below, for what we can offer you to completely eliminate these CA fees and taxes. Corporation taxed as a C-Corp. Additional Benefits: A limited amount of Federal income tax savings by shifting up to a maximum of approximately 250,000 of taxable income to the lower corporate tax rates. A limited amount of State income tax savings by shifting up to a maximum of approximately 250,000 of taxable income to a State that does not tax corporate profits. A fiscal year-end other than December 31, 200X may be chosen. This can allow maximum year-to-year flexibility in deferring recognition of income. Additional Detriments: Because the tax attributes are not passed through, it is imperative that each year an accounting be taken before fiscal year-end to make sure the taxable income remaining within the corporation is the desired amount. Fiscal year-end bonuses need to be paid out prior to ending your taxable year. Caution . When considering year-end bonuses, the old quotbonus out all the cash at year-endquot trick can sometimes backfire due to any number of reasons including: a failed Sec 179 election, personal withdrawals or switches of operating funds, the purchase of a deductible automobile for the trading business and so on. Corporation taxed as an S-Corp. Additional Benefits: By availing yourself to the little know rule known as IRS Regulation 1.1366-1(b) you might be able to convert capital losses in old long-term dog stocks youve been holding into usable fully-deductible ordinary losses. Additional Detriments: The corporation must file a timely Federal election on form 2553 generally by the 15 th day of the 3 rd month of the year of the election. If this is not the 1 st year of the corporation, there are additional C-corpS-corp complications that need to be addressed. Rev. Proc 98-55 offers some relief against the stringent time frame of this election period. Most State recognize the Federal S-corp election, but other States require that their own additional election to be filed. There are many other tricks and traps with the complicated structure of the S-Corp. Some States do not treat a federally recognized S-Corp in the same fashion as does the IRS. An ongoing relationship with a CPA is really required to keep things on track, more so that with many of the other entities discussed on this web page. B Corporation. Additional Benefits: A certification given by B Lab to businesses that pass a socially responsible certification process. B Corporation is not a legal form and has no legal on income tax significance. A B Corp can be structured legally as a C corporation, an LLC, or a sole proprietorship. A company can be certified as a B Corporation without ever incorporating as a benefit corporation. Benefits Corporation. Additional Benefits: A benefit corporation is a legal form that became law in Maryland on October 10, 2010. Legislation similar to that in Maryland will become law in Vermont in July 2011 and was recently passed by the New Jersey legislature. An entity may be a benefit corporation under Maryland law without being a B Corporation. The Maryland law does not require that benefit corporations be certified as a B Corporation. Rather, it requires that benefit corporations social and environmental performance be assessed by an independent third party that makes publicly available or accessible the following information: The factors considered when measuring the performance of a business. The relative weightings of those factors. The identity of the persons who developed and control changes to the standard and the process by which those changes were made. The key difference is that the law requires a third party assessment, whereas a B Corporation is a certification. General Partnership : Two or more parties share business profits and assets by mutual agreement. Each partners actions are legally binding. For federal income tax purposes, a partnership includes a syndicate, group, pool, joint venture or other unincorporated organization by means of which any business, financial operation, or venture is carried on and which is not a corporation, trust, or estate. Tax Court has determined that a partnership exists when the economic benefits enjoyed by the co-owners results not from mere co-ownership of the assets, but from the pursuit together of a common goal. (Bergford 1993, Bussing 1988, Alhouse 1991) Unfortunately some other web sites purporting a specialization in taxes for daytraders suggest that traders form so-called friends and family partnerships or hedge funds without first having a thorough understanding of all the appropriate tax rules. A further discussion regarding the legitimacy (for income tax purposes) of a partnership where each partners share of gains and losses is based on his own individual performance, rather than the groups aggregate performance is found here. Here at TraderStatus we advise traders on how maximize their tax savings while complying with the law the way it is written and applied, but not based on quotmaking up our own lawquot because it helps sell you more services. Benefits: Can be easy to form. In some locations a simple hand-shake creates the partnership. Partners may not get paid a quotsalaryquot or quotwages. quot In lieu of salary, earned income may be paid as quotconsulting feesquot or quotguaranteed payments to partners. quot These are taxed to the partner (not to the partnership) for SECA purposes (similar to FICA and Medicare). Once quotearned incomequot is generated as per the above, you may receive (if desired and if structured properly) a tax deduction for payments made for health insurance and retirement plan contributions for yourself and family members. Detriments: Can be difficult to form properly. A partnership is like a marriage, and therefore a quotprenuptial agreementquot generally known as a quotbuy-sell agreementquot should be drafted by your own local attorney if there is any chance the partners may disagree, become disabled or die, leaving the survivor to contend with named or unnamed beneficiaries. Every partner is jointly and severally liable for the acts of the other partners. Beispielsweise . if one partner provides capital only (as a silent partner) and the other partner does the actual trading and due to a bad turn in the market a margin call results in a complete wipe out of the account - the brokerage could go after the silent partner account to restore the deficiency. The ease of formation of a general partnership is actually a disadvantage, because co-participants may find themselves with joint and several liability and mutual agency powers even though their arrangement with respect to the business has not been clearly documented. Family General Partnership : A General Partnership whos partners are comprised of family members. The purpose of which is usually to attempt to legally shift taxable income away from higher tax brackets, into lower brackets. This is much less expensive to form and to operate than a Family Limited Partnership. Other benefits and detriments are basically the same as for the General Partnership. Limited Partnership (LP) : Originally designed to attract INVESTORS who invest capital but, by definition, do not take part in day-to-day operations. As a result the Limited Partners liability is limited to their investment in the partnership. There must be at least one General Partner (often holding at least 1 equity interest in the partnership. The General Partner manages the business (does the trading) and has unlimited personal liability. This is much more expensive to form and to operate than would be for a General Partnership. State quotblue skyquot laws may cause additional complexity. Losses allocated to a Limited Partners may need to be recharacterized from fully deductible quotordinary lossesquot to deferred quotpassive lossesquot under treasury Regulation 1.469-5T which states that he will be denied ordinary loss treatment unless he meets at least one of the following three tests: The individual participates in the activity for more than 500 hours during such year (700 hours per year in certain cases) The individual materially participated in the activity (determined without regard to this paragraph (5)) for any five taxable years (whether or not consecutive) during the ten taxable years that immediately precede the taxable year The activity is a personal service activity and the individual materially participated in the activity for any three taxable years (whether or not consecutive) preceding the taxable year or Limited Liability Limited Partnership (LLLP): Sim ilar to a Limited Partnership, except that the liability of all partners in a limited liability limited partnership is limited to the amount of their investment in the firm. An LLLP is a limited partnership that registers in the LLLP form. The LLLP form primarily is used to convert an existing limited partnership previously created under state law. It also is used as an alternative to forming an LLC in those states that allow foreclosure of an owners business interest, and forced liquidation of the business, by the owners personal creditors. Colorado, Delaware, Florida, Georgia, Maryland Nevada and Texas (and possibly others) recognize the LLLP. Family Limited Partnership (FLP) : A Limited Partnership whos partners are comprised of family members. The purpose of which is usually to attempt to legally shift taxable income away from higher tax brackets, into lower brackets and to offer some level of legal asset protection. This entity is also used in more aggressive estate planning by transferring equity ownership from a parent (the General Partner) to children or grandchildren at rates that are discounted 10 to 20 due to the limited rights conveyed to Limited Partners. More aggressive discounting that is usually audited by the IRS has gone as high as 40 to 50 or so. Other benefits and detriments are basically the same as for the Limited Partnership. The basics principals of a FLP may also be had by forming a Family Limited Liability Company. This is much more expensive to form and to operate than would be for a Family General Partnership. Pursuant to the recent 2003 Tax Court case, Estate of Albert Strangi v. Comm our Attorneys have provided this list of steps to take to secure that FLP assets stay out of your estate: Personal use assets, such as a personal residence, should not be held by the FLP. Assets to support your lifestyle should be retained outside of the FLP Multiple family members should contribute assets to FLP. FLP assets should be recorded in the name of the FLP, not held as nominee. More than one person should hold voting interest. A trust with an independent trustee should be a partner. Annual financial statements should be given to partners. Capital accounts should be properly maintained. Ownership percentages should be adjusted for any capital moved in or out. Distributions should be made pro-rata. Do not pay personal expenses from the FLP. Do not commingle personal assets and FLP assets. Avoid partner loans. Make all federal and state filing in a timely manner. Charitable Family Limited Partnership (CFLP) : A Family Limited Partnership that makes a deductible charitable contribution of a partnership interest to the charity of their choice. Though not usually used for Securities Trading, the CFLP can be a good supplemental estate planning tool. See leimbergsoftwarecharflps. html for more detailed information. Other benefits and detriments are basically the same as for the Family Limited Partnership. This is much more expensive to form and to operate than would be for other forms of Partnership. Limited Liability Partnership (LLP): Similar to a Limited Partnership generally with the exception that the General Partner does not have unlimited personal liability. A partner in a registered Limited Liability Partnership is not individually liable for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of the partnership business by another partner or a representative of the partnership not working under the supervision or direction of the first partner at the time the errors, omissions, negligence, incompetence or malfeasance occurred, unless the first partner: 1) Was directly involved in the specific activity in which the errors, omissions, negligence, incompetence, or malfeasance were committed by the other partner or representative or 2) had notice or knowledge of the errors, omissions, negligence, incompetence or malfeasance by the other partner or representative at the time of occurrence. Family Limited Liability Partnership (FLLP): This is a limited liability partnership (LLP) in which most of the partners, are related. All partners must be natural persons or persons acting in a fiduciary capacity for natural persons. Family-owned firms may benefit from the use of the family limited liability partnership (FLLP) form. Limited Liability Investment Company or Hedge Fund: Generally, an quotinvestment companyquot is a company (corporation, business trust, partnership, or limited liability company) that issues securities and is primarily engaged in the business of investing in securities. For our purposes here this basically means a quothedge fund. quot Investment companies are regulated primarily under the Investment Company Act of 1940 and the rules and registration forms adopted under that Act. Investment companies are also subject to the Securities Act of 1933 and the Securities Exchange Act of 1934. For the definition of quotinvestment company, quot you should refer to Section 3 of the Investment Company Act of 1940 and the rules under that section. An investment company invests the money it receives from investors on a collective basis, and each investor shares in the profits and losses in proportion to the investors interest in the investment company. The performance of the investment company will be based on (but it wont be identical to) the performance of the securities and other assets that the investment company owns. Some types of companies that might initially appear to be investment companies may actually excluded under the federal securities laws. For example, private investment funds with no more than 100 investors and private investment funds whose investors all have a substantial amount of other investment assets, quotaccredited investors, quot are not considered to be investment companies - even though they issue securities and are primarily engaged in the business of investing in securities. This may be because of the private nature of their offerings or the financial means and sophistication of their investors. For additional information on these types of private investment funds, please refer to this link on hedge funds. Hedge funds generally rely on Sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 to avoid registration and regulation as investment companies. To avoid having to register with the SEC the securities they offer, hedge funds often rely on Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933. In the past, to be exempt from U. S. taxes, the investment fund could be managed in the United States but had to conduct the 10 functions known as the quot10 commandmentsquot through its offshore office. These functions consisted of: communicating with shareholders, communicating with the general public, soliciting sales of its own stock, accepting new subscriptions, maintaining principal corporate records, auditing its books of account, disbursing certain payments, publishing or furnishing the offering and redemption price of shares, conducting director and shareholder meetings, and making redemptions of its own stock. Under current law fund managers can decrease costs and shift jobs back to the United States. However, many predict U. S. fund managers with non-U. S. investors have moved slowly to remove all offshore administrative functions because non-U. S. investors still may fear that investment in a U. S. fund without an offshore office could potentially subject them to U. S. taxes. Limited Liability Company (LLC): This is a form of business organization combining the features of a corporation and a partnership (or sole-proprietorship). An LLC is similar to a Corporation but without finance restrictions that require capital and surplus accounts and the need for a board of directors to manage its operations. Also, like the shareholders of a corporation and the limited partners in a limited partnership, the owners of an LLC (called quotmembersquot) are not personally liable for the LLCs debts the members losses are limited to the amount of their investment. Unlike limited partners, members of an LLC can take part in day-to-day operations. Like an quotSquot corporation and a limited partnership, an LLC does not have to pay federal income tax its members pay taxes on their share of the income on their personal tax returns. Two basic versions of the LLC exist: the one member LLC and the multi-member LLC. Be aware that a one member LLC (unless a proper election to be taxed as a corporation is made) is disregarded or ignored for IRS tax purposes. It is generally a wise move to form a multi-member LLC, rather than a one member LLC. Most LLC statutes provide that members may appoint managers and officers to run the day-to-day affairs of the business, or that the members may reserve management to themselves. To assure that the members are actively involved, the use of managers or officers is not desirable. The securities trader must be alert to the passive loss rules which under treasury Regulation 1.469-5T states that he will be denied ordinary loss treatment unless he meets at least one of the following seven tests: The individual participates in the activity for more than 500 hours during such year (700 hours per year in certain cases) The individuals participation in the activity for the taxable year constitutes substantially all of the participation in such activity of all individuals (including individuals who are not owners of interests in the activity) for such year The individual participates in the activity for more than 100 hours during the taxable year, and such individuals participation in the activity for the taxable year is not less than the participation in the activity of any other individual (including individuals who are not owners of interests in the activity) for such year The activity is a significant participation activity for the taxable year, and the individuals aggregate participation in all significant participation activities during such year exceeds 500 hours (700 hours per year in certain cases) The individual materially participated in the activity (determined without regard to this paragraph (5)) for any five taxable years (whether or not consecutive) during the ten taxable years that immediately precede the taxable year The activity is a personal service activity and the individual materially participated in the activity for any three taxable years (whether or not consecutive) preceding the taxable year or Based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous, and substantial basis during such year. A web site devoted to provided everything you can imagine about LLC formations: llcformations LLC taxed as a Sole Proprietorship: All States except Massachusetts allow LLCs to be formed having only one member. Per IRS guidelines these are quotdisregarded entitiesquot for most tax related purposes. Benefits: Nothing really over an individuals sole proprietorship. Perhaps some level of legal protection is available by having the assets held in the name of the LLC. The tax forms used are form 1040, Schedule C, and Schedule D or form 4797. Arguably, a somewhat lesser standard of material participation could be required for a member of disregard LLC than would be for a sole proprietorship, (Gregg v. U. S. 112900). Detriments: Extra paperwork and confusion, basically for nothing. LLC taxed as an Entitys Disregarded Entity: All States except Massachusetts allow LLCs to be formed having only one member. Per IRS guidelines these are quotdisregarded entitiesquot for most tax related purposes. LLC taxed as a Partnership: Most States allow LLCs to be formed with two or more members. The IRS has quotcheck the boxquot regulations that default to taxation as a partnership. The tax form used is form 1065. Tax Court has determined that a partnership exists when the economic benefits enjoyed by the co-owners results not from mere co-ownership of the assets, but from the pursuit together of a common goal. (Bergford 1993, Bussing 1988, Alhouse 1991) Benefits: Members may not get paid a quotsalaryquot or quotwages. quot In lieu of salary, earned income may be paid as quotconsulting feesquot or quotguaranteed payments to memberspartners. quot These are taxed to the member (not to the LLC) for SECA purposes (similar to FICA and Medicare). Once quotearned incomequot is generated as per the above, you may receive (if desired and if structured properly) a tax deduction for payments made for health insurance and retirement plan contributions for yourself and family members. LLC taxed as a C-Corporation: Most States allow LLCs to be formed with one, two or more members. The IRS has quotcheck the boxquot regulations that allow the LLC to elect to be taxed as a corporation. The tax form used is form 1120. Benefits: A limited amount of Federal income tax savings by shifting up to a maximum of approximately 250,000 of taxable income to the lower corporate tax rates. A limited amount of State income tax savings by shifting up to a maximum of approximately 250,000 of taxable income to a State that does not tax corporate profits. Ability to pay yourself or family members, as employees, earned income in the form of a salary from the corporation. This salary is subject to FICA (6.2 plus a matching 6.2) and Medicare tax (1.45 plus a matching 1.45) for a total tax of 15.3 of approximately 100,000 of your annual earned income (2.9 thereafter) which is credited to your ability to collect Retirement Social Security, Spouses Retirement Benefits, Disability, Family Benefits, Survivors Benefits, Medicare, Medicaid, amp Supplemental Security Income. These extra taxes may run up to approximately 15,000 per employee earning greater than 100,000. The salaries are tax deductible from corporate income in the year paid by the corporation (which generally must be the same year it is picked up as income by the family employee). One half of the above tax (6.2 plus 1.45) is tax deductible from corporate income when paid by the corporation. In lieu of salary, earned income may be paid as quotconsulting fees. quot These are taxed to the consultant (not to the corporation) for SECA purposes (similar to FICA and Medicare). Once quotearned incomequot is generated as per the above, you may receive (if desired and if structured properly) a tax deduction for payments made for health insurance and medical expenses, childrens day care, quotcafeteria plansquot and retirement plan contributions for yourself and family members. LLC taxed as an S-Corporation: Most States allow LLCs to be formed with one, two or more members. The IRS has quotcheck the boxquot regulations that allow the LLC to elect to be taxed as a corporation. Taking that a step further, the corporation may then elect to be taxed under Subchapter S, thereby allowing most items to be passed through the corporation and taxed much the same as would be done with a partnership. The tax form used is form 1120S. Benefits: A Sole proprietor or a single member LLC generally files on Schedule C, which because it always shows losses, can be subject to audit under the quothobby lossquot rule as well as other audit programs that are run from time-to-time. A single member LLC that elects to be taxed as a corporation does not file Schedule C, but rather files form 1120. Such a corporation that elects to be taxed under Subchapter S would file an 1120S and then pass most items through the corporation to the sole-owner who in turn would report the numbers on his own form 1040, Schedule E. A limited amount of State income tax savings by shifting up to a maximum of approximately 250,000 of taxable income to a State that does not tax corporate profits. Ability to pay yourself or family members, as employees, earned income in the form of a salary from the corporation. This salary is subject to FICA (6.2 plus a matching 6.2) and Medicare tax (1.45 plus a matching 1.45) for a total tax of 15.3 of approximately 100,000 of your annual earned income (2.9 thereafter) which is credited to your ability to collect Retirement Social Security, Spouses Retirement Benefits, Disability, Family Benefits, Survivors Benefits, Medicare, Medicaid, amp Supplemental Security Income. These extra taxes may run up to approximately 15,000 per employee earning greater than 100,000. The salaries are tax deductible from corporate income in the year paid by the corporation (which generally must be the same year it is picked up as income by the family employee). One half of the above tax (6.2 plus 1.45) is tax deductible from corporate income when paid by the corporation. In lieu of salary, earned income may be paid as quotconsulting fees. quot These are taxed to the consultant (not to the corporation) for SECA purposes (similar to FICA and Medicare). Once quotearned incomequot is generated as per the above, you may receive (if desired and if structured properly) a tax deduction for payments made for health insurance and retirement plan contributions for yourself and family members. Detriments: None except that this is a convoluted setup up and S-Corps in general have many traps for the unwary. The IRS might someday challenge this whole set-up as a step-transaction having no valid business purpose if they thought theyd be getting more taxes by doing so. UPDATE: in October 2001 the IRS has given its blessing to our quotLLC taxed as a C-corp taxed as an S-corpquot proposal. Proper, formal books and records are a quotmustquot as this must show every sign of being a bona-fide business set-up. This is a very sophisticated tax planning technique, best not attempted without careful consideration given to it. Series LLCs: Delaware and several other State have started to allow these specialized LLCs to be formed. It is said that they offer better asset protection than regular LLCs. Any Partnership (from above) electing out of subchapter K : Benefits: Allows two or more parties to formally and legally pool their resources in the joint venture style of partnership entity to trade securities as investors (but not as traders), yet remain independent with respect to their tax filings. Regs. 1.761-2(a)(2). Detriments: Requires extra paperwork and bookkeeping (mostly at the partner level, requiring the filing of form 1040, and a detailed Schedule D) as compared to a Partnership not electing out of subchapter K and just sending a Sch K-1 to each partner to include on their own Sch E as part of their form 1040 tax filing. If the Partnership return gets audited, you can bet that each partner will get looked at too. This is, in effect, a partnership tax return and two or more sole proprietorship tax returns. Therefore the tax compliance costs are higher than would be for just having a regular partnership or just having individual sole proprietorships. International Business Company (IBC) This is a corporation formed in a non U. S. country that is usually exempt from tax in the country where it is formed -- but it may not conduct any business in that country. For U. S. tax purposes, an IBC is generally treated the same as foreign corporation. U. S. persons who form and own a foreign corporation or an IBC may elect to be treated as a partnership or as a corporation by filing Form 8832 within the prescribed period of time. A single owner IBC may elect to be taxed as a corporation or as a disregarded entity. Benefits: Allows. Controlled Foreign Corporation (CFC) This is a foreign corporation owned by United States persons that own directly, indirectly or constructively 10 or more of the voting power and more than 50 of the equity. The so-called quot10 United States shareholdersquot Benefits: Allows. Passive Investment Holding Company (PIHC) Passive investments include, but are not limited to, certificates of deposit, commercial paper, accounts receivables, notes, stocks, bonds, and other business investments. Such investments produce income that is generally subject to state income tax. A Passive Investment Holding Company (PIHC) is an effective tool to centralize passive investments in a separate entity where they can be more effectively managed. It can also serve as a state tax shelter for the income produced by these assets. Under the typical scenario, a corporation forms a subsidiary in a tax friendly state. The passive investments are transferred tax-free to the newly formed subsidiary. The operating company does not report, except in states that require unitary or combined reporting, the income produced by the passive investments because they are owned, managed and controlled by the subsidiary. As for the PIHC, it escapes state taxation in its state of operation because it is set up in a low or no tax state or a state that does not tax income from passive investments. Suggested states where to locate the PIHC include Nevada, which has no income tax Delaware, which exempts holding company income from corporate tax when the companys sole activity in the state is the maintenance and management of passive investments or Michigan, where a deduction is allowed from the Single Business Tax base for dividends and interest. The result of this strategy is that the operating company will significantly reduce their state taxable income through the exclusion of the passive investment income. The PIHC, in addition to avoiding tax in its home state, is not subject to tax in the operating companys state because it has no physical presence there. The net effect of this corporate structure has been the production of quotnowherequot income that escapes income taxation in most states. The PIHC strategy is complicated and difficult to implement. Therefore, the assistance of a competent tax advisors and competent outside legal counsel should be sought, to assist in the development and implementation of this strategy Passive Foreign Investment Company (PFIC) If a foreign corporation is a passive foreign investment company or mutual fund, special rules apply. The U. S. shareholders are required to report their share of the income of the foreign investment company on their tax return each year, or to pay a penalty on any deferred income from the foreign investment company. Any shareholder of a passive foreign investment company are required to file Form 8621 for each such fund. (In a few cases, a foreign company might be a foreign personal holding company without also being a passive foreign investment company, but thats an unlikely circumstance.) If more than 50 of the foreign corporation stock is owned (directly or indirectly) by 5 or fewer U. S. persons, then the corporation will be a controlled foreign corporation. Those shareholders who own 10 or more of the stock are required to file Form 5471 each year with their tax return. If the foreign corporation has any quotsub-part F incomequot, the U. S. shareholders who own 10 or more of the stock will be required to include that income in their personal tax return even though it is not distributed by the corporation. The simplest explanation of quotsub-part F incomequot is that it includes passive investment income and certain types of income derived from buying or selling goods or services to or from a related person or entity. Those promoters who advocate the creation of a foreign corporation as way to avoid taxes on investment income are either ignorant of the U. S. tax rules relating to controlled foreign corporations or they are scoundrels who are not concerned about the problems they may be creating for U. S. persons. If a foreign grantor trust or partnership is a 10 or greater shareholder of a controlled foreign corporation, then the grantor of the trust or the partners will be treated as shareholders of the foreign corporation. If such a trust or partnership owns any stock of a passive foreign investment company, it will need to file Form 8621. rpifsoffshoretaxotcorp. htm Detriments: Requires filing a QEF election to avoid punitive tax rates. IRS releases final Mark-to-Market regulations for PFIC on April 29, 2004 T. D. 9123 Active Foreign Reinsurance Company (as popularized beginning in 1999 by Moore Capital Management) If a foreign corporation is an active business then the passive foreign investment company or mutual fund, special rules do not necessarily apply. Ordinarily, hedge fund investors pay either the 39.6 percent rate for ordinary income on their profits or the lower long-term capital gains rate (if a QEF election is made), depending on how frequently securities are traded, plus an extra 3.8 percent surcharge stemming from the Affordable Care Act. But if they put money into a Bermuda-based reinsurer and have it invested in the hedge funds, any profits go to the reinsurer, which doesnt owe tax on them. That allows the investors to defer taxes until they sell their stake in the reinsurer. Meanwhile, the money grows tax-free and the savings add up. Example: Investing 100 million in a hedge fund that returns 10 percent annually for five years and paying the top marginal ordinary income rate on profits results in an after-tax gain of 50 million. If a Bermuda reinsurer holds the same investment, the gain is 77 million. Benefits: Allows. Virtually unlimited deferral of income tax on the trading income and then when it is taxed, the tax rate is the preferential long-term capital gains rate. Detriments: The IRS considers some offshore reinsurance arrangements as nothing more than tax shams, either because they arent selling enough insurance or because the insurance they reported selling was outright phony. The IRS has stated that they quotwill challenge the claimed tax treatment, quot but the IRS has rarely if ever done so. Tax lawyers and insurance executives have said that they are unaware of any company thats been targeted by the IRS. DELAWARE PASSIVE INVESTMENT COMPANIES Delaware Passive Investment Companies are special purpose companies that, if properly structured and operated, can help achieve a variety of corporate objectives including but not limited to minimization of state and local income taxes and franchise or capital stock taxes. They can also be used to improve oversight and protection of intellectual property gain the benefit of Delawares large and stable body of corporate law improve procedures for allocating the cost of capital to members of the corporate group and bolster compliance with corporate investment policies. Qualified Electing Fund (QEF) In general, a U. S. taxpayer that invests in a PFIC may make a QEF election to include in gross income each taxable year the income of the PFIC. Benefits: Allows. Long-term tax treatment for the PFICs net long-term capital gains, rather than being taxed at the highest ordinary tax rate under the PFIC rules. (regardless of the tax bracket the U. S. taxpayer may be otherwise entitled to be subject to) The Revocable Living Trust Benefits: Allows traders to actively trade and protect their estate in the case on death or incompetence. Without a Living Trust assets more easily could come under the scrutiny of the Probate Court and, especially for unmarried couples . be subject to challenges by family members. Detriments: More complicated and expensive than a will alone. The need for a backup or pore-over will is still needed to cover those assets left out of the trust. IRA, self-employed 401k or other Retirement Plan s: Benefits: The earnings within an IRA or other retirement plan are generally tax deferred or even tax-free. Click here for much more info on Single-Participant 401k and Self-Employed 401k Detriments: Retirement plans are restricted on what they may use their funds for. To make matters worse, as new types of retirement plans are developed, the IRS Code amp Regs are not always conformed to include every type of plan. Earnings in an individual retirement account are generally exempt from tax. Certain investments result in the IRA having taxable income which is called quotunrelated business taxable incomequot (UBTI). UBTI is income from a trade or business regularly carried on by the IRA which is not substantially related to the exercise by the IRA of its tax-exempt purpose. It appears that any trade or business would be unrelated to the IRAs purpose. When annual UBTI exceeds 1,000 form 990-T must be filed and a tax paid. Estimated taxes are paid in advance using form 990-W amp form 8109. An example of what might constitute UBTI is an IRA that becomes a partner in a partnership where the partnership is in the business of Securities Trading. The IRAs share of this income is UBTI subject to tax. Therefore it could be argued that the earnings of an IRA or other retirement plan are actually UBTI if the IRA or other retirement plan is actively trading securities, swing trading or day trading since these types of activity are the Trade or Business of Securities Trading. Similarly, debt-financed property e. g. quotMargin Accountsquot could result in UBTI. Generally IRAs are prohibited from maintaining margin accounts, but the possibility of an IRA receiving income from debt-financed property is easily made possible when the IRA invests in a Securities Trading partnership or LLC. Additionally, IRS Code Sec 4975 lists various quotProhibited Transactionsquot which subject the plan or account to a 15 excise tax and can even result in a retroactive disallowance of the plan or account resulting in a premature total distribution of the assets to the beneficiary. The general rule is that the IRA or other Retirement Plan may not currently benefit an owner or beneficiary of the plan or account. Therefore it could be argued that, for example: if a brokerage account for an IRA was maintained at the same brokerage as a Securities Traders account and the assets within the IRA were used to secure credit for the IRA or for the other non-IRA plan, that a prohibited transaction has occurred. Bottom Line: Consider avoiding actively trading within an IRA or other retirement plan on your own. Should you trade to the extent that you are operating a Trade or Business, the gain would be subject to tax. Rather, consider investing in securities within the account. A few trades are certainly fine, but keep it well below the threshold of a Trade or Business especially if you have a taxable Trader Status tax return that could be used for a direct comparison as to what constitutes a Trade or Business. Before you trade extensively in your retirement account, see a tax professional who is familiar with trade or business UBTI and is an expert in trader status taxation. Steps can be taken to minimize negative tax exposure with the proper planning methods. IRA, self-employed 401k or other Retirement Plan deductions : To gain a deduction to a retirement plan for yourself you generally need to create earned income, income that is subject to SECA or FICAMedicare taxation. As a sole proprietor, a trader does not generate earned income directly from his trading gains. Earned income may be generated by paying a salary to your spouse or children and then a retirement contribution may be made based on that earned income paid. But that leaves you without a contribution made for yourself. A sole proprietor may not pay himself a salary. The use of a separate entity (or a spouse) can create the required earned income. A C-Corp or S-Corp, for example should hire the trader to work for it, making the wages paid subject to FICAMedicare. The corporation then would create a retirement plan. A multi-member LLC or Partnership may pay for services rendered to it by the trader in the form of a quotguaranteed payments to partners, quot which is subject to SECA taxation. The member or partner would then create a Keogh plan or other retirement plan. For 2003 SECA or FICAMedicare taxation is 15.3 on the first 87,000 earned by an individual plus 2.9 for anything beyond that. For 2004 SECA or FICAMedicare taxation is 15.3 on the first 87,900 earned by an individual plus 2.9 for anything beyond that. For 2005 SECA or FICAMedicare taxation is 15.3 on the first 90,000 earned by an individual plus 2.9 for anything beyond that. For 2006 SECA or FICAMedicare taxation is 15.3 on the first 94,200 earned by an individual plus 2.9 for anything beyond that. For 2007 SECA or FICAMedicare taxation is 15.3 on the first 97,500 earned by an individual plus 2.9 for anything beyond that. For 2008 SECA or FICAMedicare taxation is 15.3 on the first 102,000 earned by an individual plus 2.9 for anything beyond that. Generally for 2004 through 2008 the maximum annual contribution available for . a self-employed 401(k) or single-participant 401(k) Profit Sharing plan is usually 15,50020,500 up to 46,00051,000 . for 2008 this was 15,50020,500 up to 46,00051,000. for 2007 this was 15,50020,500 up to 45,00050,000. for 2006 this was 15,00020,000 up to 44,00049,000. for 2005 this was 14,00018,000 up to 42,00046,000. for 2004 this was 13,00016,000 up to 41,00044,000. an IRA 408 is 4,0005,000 plus 4,0005,000 for a spouse with no earned income. a SIMPLE IRA 408(p) is 10,00012,000 by employee plus 10,000 by the business. a SEP 408(k) is 25,500. a Keogh defined contribution 44,000 in a paired plan. a 415(b)(1)(A) Keogh defined benefit plan is 175,000 (170,000 for 2006). While you can form as many retirement plans as you wish, generally there is an overall annual contribution limit of 44,00049,000 unless a defined benefit plan is established. For most traders, if your broker offers it, the self-employed 401(k) is the best way to go. PDF file to calculate your own maximum contribution For 2004 most traders would need from 140,000.00 to 147,424.10 in earned income from their trading entity (or a spouse) to maximize their 401(k)Profit Sharing plan deduction at 41,000 (44,000 for those over age 49).The self-employment tax on that would be from 0 to 14,848. The federal income tax savings (using a 28 tax rate) would be 11,480 to 12,320. So you are basically able to sock away money onto a tax-deferred plan for little net difference in your annual tax bill. To maximize only the 401(k) component to 13,000 16,000 for 2004 most traders would need from 13,517.03 to 17,216.29 in earned income from their trading entity (or a spouse).The self-employment tax on that would range from 0 to 2,433. The federal income tax savings (using a 28 tax rate) would be 3,640 to 4,480. So you are basically able to sock away money onto a tax-deferred plan while the IRS puts some money into your pocket Profit Sharing amp 401(k) contribution limits (and catch-up 401(k) contributions for those over 49 years of age): 2002: 29,000 11,000 1,000 2003: 28,000 12,000 2,000 2004: 28,000 13,000 3,000 2005: 28,000 14,000 4,000 2006: 29,000 15,000 5,000 2007: 29,500 15,500 5,000 2008: 30,500 15,500 5,000 2009: 32,500 16,500 5,500 2010: 32,500 16,500 5,500 2011: 32,500 16,500 5,500 2012: 33,000 17,000 5,500 2013: 33,500 17,500 5,500 IRA contribution limits (and catch-up 401(k) contributions for those over 49 years of age): 2002: 3,000 500 2003: 3,000 500 2004: 3,000 500 2005: 4,000 500 2006: 4,000 1,000 2007: 4,000 1,000 2008: 5,000 1,000 2009: 5,000 1,000 2010: 5,000 1,000 2011: 5,000 1,000 2012: 5,000 1,000 2013: 5,500 1,000 Avoid California Double Taxation with an Out-of-State Entity: California, as is the case all other States, is able to impose taxation on your gains under the concept of quot nexus. quot In a nut shell nexus is created when an entity has a legal presence within the boundaries of the State(s). Nexus can be avoided if you carefully structure your business affairs to avoid any legal presence within the State. By properly using an out-of-state entity in such a way as to avoid a legal presence in CA (we show you how) you can avoid or reduce the CA double taxation on LLC and S-Corp gains. Dont think of this as a questionable tax evasion scheme, structuring your business to maintain nexus in another state is legal and proper. You do need to carefully document your business operations because if not, nexus might be established in CA in addition to the other state, making your gains at least partially subject to CA taxation. But dont be mislead simply forming a solely-owned Nevada S-Corp or C-Corp does not, in and of itself, change your CA nexus. As a California resident, your entity would likely be deemed to be a quotforeign corp. quot under State of CA laws. You must have nexus outside of CA, and preferably no nexus from within CA at all to avoid CA taxation. CA is aggressively pursuing these Nevada tax scams. Typical argument : What about a trading business which can be based from anywhere Lets say you have a home-based operation based outside of Nevada but that you incorporate in Nevada and set up nexus in Nevada. Lets say it is a one-person corporation. Do you have to register to do business in your home state where you are doing the trading out of your home Absolutely Why Because you are physically doing the work out of your home. You are not soliciting orders for the Nevada based office rather you are actually placing your orders, closing the transactions and collecting the money all at once This is the category most traders fall into A small portion of the above is Copyright 2002 Nevada Corporate Planners, Inc. All Rights Reserved and are reprinted here for example and educational purposes only. California Law in 2000. Learn why it is imperative for all California traders to carefully form new non-related pass-thru entities if the one you are using was formed before 2000. Similarly, learn why every CA sole-proprietor trader must form a pass-thru entity now . Become a client today California S-Corps are subject to an 800 minimum tax and a gains amp profits tax . California trader LLCs are subject to an 800 minimum tax and a gains amp profits tax . Most California non-trader LLCs are subject to an 800 minimum tax an d a gains amp profits tax, or a tax on gross sales, whichever is greater. Corporations that elect to be an S corporation for federal purposes on or after January 1, 2002. and have a California filing requirement are deemed to make the California S election on the same date as the federal election. Therefore, it is no longer required for file form FTB 3560 to elect. For new corporations that qualify or incorporate after January 1, 2000. the minimum tax is 0.00 for the first tax year, but is measured based on income for the year and is subject to estimate requirements and 800 minimum tax for subsequent years. S corporations must pay at least the minimum tax and any applicable QSSS annual tax each year. An S corporation that is the parent of a QSSS must pay the 800 annual tax for each QSSS The California Secretary of State requires corporations to file an Annual Statement of Officers. This filing requirement coincides with the date of incorporation. When a corporation fails to meet this filing requirement, the California Secretary of State notifies the Franchise Tax Board to assess and collect a 250 penalty. We may also impose an additional 150 for this collection action. New California Law in 2002. manager-managed LLCs in CA may need to comply with the 25102(o) filing requirements potentially within 30 days of formation or the 25102(f) filing requirements . Member-managed CA LLCs can avoid this complexity, so this is generally an issue for manager-managed tradinghedge funds. Colin M. Cody, CPA, CMA TraderStatus LLC 6004 Main Street Trumbull, Connecticut 06611-2400