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Level 3

Which is the best choice for my stock market activity? Forming a "one-person S-corporation" or doing it as self-employed?

Hello,

 

I have been considering to fully transitioning to stock market trading as my source of income. I learned about the tax advantages of S corporations, and I'm wondering if it will be beneficial for me to conduct my market trades by forming a Delaware or Nevada S corporation.

 

My understating is that an S corporation would help by decreasing the FICA tax to 50% assuming I take 50% of the total trading profit as salary and the remaining 50% as distributions. For instance for a total of $100,000 profit in a year, my FICA tax would be 15.3% x $50,000 = $7,650. However, without an S corporation, my FICA tax would be 15.3% x $100,000 = $15,300. So there is a saving of $7,650. Thus, as long as the "other" costs associated with running an S corporation are less than $7,650, I should be saving money in the long-run.

 

Is my hypothetical analysis correct? Am I missing anything important? I'm still learning about S corporations, so any insights into my situation would be very highly appreciated! Thanks a lot!!!

4 Replies
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Level 20

Which is the best choice for my stock market activity? Forming a "one-person S-corporation" or doing it as self-employed?

Ok ... so you want to take profits off a Sch D where it is taxed as capital gains  maxed at 20% for long term  sales  and put it on an S-Corp so you can pay SE taxes plus a higher federal tax rate ?  Just to take a few expenses ? 

 

May I highly recommend you have a talk with a local tax professional to get a handle on this subject matter. 

Level 3

Which is the best choice for my stock market activity? Forming a "one-person S-corporation" or doing it as self-employed?

Thank you! I will be having a consultation soon. But just to add to my original post, I'm exclusively doing options trading, so the tax is short-term 30%, and my understanding was that the federal corporate tax rate is 21%? So this lower tax rate plus the savings from the FICA tax was the reason I started to think about S corporations.

Level 20

Which is the best choice for my stock market activity? Forming a "one-person S-corporation" or doing it as self-employed?


@Rnkhch wrote:

...my understanding was that the federal corporate tax rate is 21%?...


That is the tax rate for C corporations. S corporations are pass-through entities (to their shareholders) and do not generally pay federal income tax. This is one reason why it is critical that you have that consultation (as @Critter suggested).

 

In the meantime, the following are a few resources for you.

 

https://www.irs.gov/taxtopics/tc429

 

https://greentradertax.com/business-traders-maximize-tax-benefits-with-an-s-corp/

 

https://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp

Level 3

Which is the best choice for my stock market activity? Forming a "one-person S-corporation" or doing it as self-employed?

Thank you!!