Thanks I am using hypothetical numbers. What is fair?
Lets say a trader made 1 Million this (I am NOT that trader and will accept it and happy to pay tax as well). What is fair salary. Most traders who work for major firms don't make that much either. Even if they make that much their bosses are NOT going to give them more 5% on top of base salary as bonus.
Most Hedge fund charge 20% of profits from their clients and of that 20% only few (very few) give like 5% of 20% as bonus to that trader or trading group a bonus on top of base salary. Many traders rely on that bonus.
Point is Trading profits are cyclical. Just because if a trader make 1 M in a year then all of sudden fair salary will NOT be $500k (I think) as there are losses as well.
Based on what I read audit and penalty risk is high if you don't pay yourself at least as high FICA max limit. I am assuming IRS mostly concerned with FICA tax which has cap of like $142800 this year. This is if you making big $$ in your business. These days every one has become day trader and most traders loose money. Very few traders make more than $100K in a year. Very Very Very few trader make more than 1 million in a year. Even then they don't make that much year after year consistently.
Just because your NOT paying yourself very high salary does NOT mean your NOT paying any tax. You still have to pay investment tax at same rate as your tax bracket aka ordinary income.
