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!!!
You'll need to sign in or create an account to connect with an expert.
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.
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.
@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
Thank you!!
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
wagsyardsolution
New Member
kirbyfred
New Member
rickmjonesperez
New Member
laurie9916
New Member
s0u1ma7e
New Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.