Entity Tax-Advantaged Solutions For Traders
May 06, 2015 at 4:15 pm EST
Forming an entity can save traders significant taxes and simplify tax filings. Join Green NFH CPA and entity tax expert Robert A. Green CPA as he explains the following:
- Wash sales: By trading in an entity, security traders can reduce Section 1091 wash sale losses with individual investments and IRAs since the entity has a separate taxpayer ID. Keep an eye out for Section 267 related party transaction rules.
- Section 475 MTM: A new entity can elect Section 475 MTM within 75 days of inception and it can revoke the election in a subsequent tax year if that’s helpful.
- Employee-benefit plans: Those who qualify for “trader tax status”(business treatment) are better off trading in an entity vs. individual accounts as a Schedule C sole proprietor. The entity looks much better to the IRS and it also unlocks additional tax savings from employee-benefit deductions (health insurance and retirement plans). Learn how to maximize employee-benefit deductions.
- Best entities: Learn the best choice of entity for different situations. An S-Corp is best for maximizing employee-benefit deductions; otherwise, a partnership tax return works well. A C-Corp is inappropriate as a trading vehicle, but okay as a management company. In some cases, having a trading company and a management company is helpful.
- Costs: Learn about the low costs for forming and operating a trading entity. Tax savings is far greater than cost.
- Timing: Mid-year is an excellent time to form a trading entity. It breaks the chain on wash sales in your individual taxable accounts and there’s plenty of time to maximize employee-benefit plan deductions for the entire year.
4 stars. Very good trading tax expertise. Especially for the issues short sellers face.