Entities & Retirement Plans For Traders

06 Mar

Mar 06, 2014 at 4:15 pm EST

Hosted by GreenTraderTax. Presented by Robert A. Green, CPA & Darren Neuschwander, CPA, Managing Members of Green NFH, LLC.

This Webinar will cover these important points:

* If you qualify for trader tax status (business treatment), we recommend an entity. Investors only need an entity to avoid wash sales in their IRA accounts.

* Trading gains are not earned income, so traders need to form an entity to create compensation required for health insurance and retirement plan deductions. (One exception: members of futures exchanges have earned income.)

* Choose an entity structure favorable to your family situation and resident state. Register out-of-state entities in your home state. Offshore entities don’t provide tax relief.

* S-Corp tax returns maximize health insurance and retirement plan contribution deductions versus underlying compensation — income tax savings versus payroll tax cost.

* Partnership tax returns with 50/50 spousal ownership require a higher administration fee* paid to the trader spouse to achieve target health insurance and retirement plan deductions. (Read our Jan. 14 blog.) While 1/99 trader/non-trader ownership may be attractive tax wise, it’s generally unfeasible. *Potential solution for 50/50 HW partnership returns. Pay administration fees during the year and if you need more cash flow, the husband and wife can reinvest capital to finance ongoing fee payments. Consult with us about your administration fee agreements and payment schedules.

* General partnerships and LLCs should consider S-Corp elections by March 15, 2014.

* An individual 401(k) retirement plan is generally the best plan for small-business traders. It has an elective deferral of $17,500, which is 100% deductible and a 20% deductible profit sharing plan. Plus, it has a $5,500 100% deductible catch-up provision for those over age 50.

* High deductible defined-benefit plans are an excellent choice for business traders generating high income consistently. They can deduct up to $210,000 per year.

* S-Corps require formal payroll tax compliance, but there are low-cost and easy options like paychex.com.

* Partnership tax returns use administration fees reported on 1099-Misc. While tax compliance is easier and more flexible, achieving target self-employment income (SEI) often requires greater cash-flow payments for compensation and that may be a burden.

* S-Corps should have entity-level retirement plans and partnerships should have individual-level plans.

* Health insurance plans can be individual policies whether using an S-Corp or partnership tax return structure. In both cases, health insurance premiums are an AGI deduction on the individual return. Entity group policies are possible, too.

* Rather than elect S-Corp status, entities filing partnership tax returns may consider adding a C-Corp as an owner to handle the health insurance and retirement plan deductions, and also avoid higher individual tax rates. 

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