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!!!
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.
...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.