Tax Reduction Analysis and Planning for Active Traders

We are in the business of reducing your taxes. In conjunction with Tax reduction analysis, our tax reduction strategy specializes in utilizing legal entities for your trading business, significantly reducing the risk of an audit while lowering your tax. Reduction analysis specific to your situation will enable us to make recommendations on a proper course of action, and then help you implement the strategy.

Tax Reduction Strategy: Two Available options for Active Traders:

(1) File as a Trader in Securities on your personal 1040 tax return and deduct all business expenses on your Schedule C. We strongly advise you to not do this. To this date, the IRS has still not offered a hard and fast ruling on the criteria that they use to determine whether or not you have a legitimate trading business.

Therefore, your tax return will always be in jeopardy of being disallowed. In addition, the risk of audit for Schedule C filers is ten times higher than with entity returns. Lastly, there are significant tax reduction strategies only available to individuals who are using a legal entity for their trading capital.

(2) Experienced tax reduction advisors will agree: place your trading capital in an entity structure. In most cases, you would either set up a C corporation or an LLC for your trading business. A C corporation is a distinct taxable entity, separate from yourself. It offers the widest range of tax strategies and fringe benefits for its owners and employees.

The C Corporation is a good entity choice for new, part-time traders who have a full-time job. Another great benefit of using a C corporation is that it has a marginal tax rate of 15% for the first $50,000 of profits. So, instead of adding your trading profits to your personal tax return, where, according to tax reduction advisors, it would likely be taxed at 27% or higher, you are able to reduce it to 15%.

An LLC is popular and very beneficial for active traders. The LLC allows you to capture all of your business expenses and start-up costs. It also allows you to take money out of your trading account each month to live on, without paying payroll taxes! And, for the most advantageous tax benefits, your LLC can sponsor a 401(k) plan and funnel your trading profits as tax deductible contributions into your own self-managed retirement plan.

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