Traders have unique tax issues on state and local income tax returns for business entities and individuals. Moreover, state and local tax regimes vary significantly. The preferred business entity for a trader is an S-Corp pass-through entity, which is free of entity-level federal taxation. Some states and cities subject S-Corps to taxation. (Read our recent blog post: A Few States Tax S-Corps: Traders Can Reduce It.)
In my five-part series “Trader Tax Battle Of The States,” I focus on state and local tax systems for S-Corps, LLCs, and partnerships. I mention basic information about individual income tax, estate and inheritance tax regimes. The numbers listed below are the states ranking by population.
NV enacted a Commerce Tax (CT), and the first fiscal year-end for this new tax regime is June 30, 2016. Per the CT sites below, “CT is imposed on businesses with a Nevada gross revenue (GR) exceeding $4,000,000 in the taxable year.” There are two exemptions applicable to a trading or investment company:
- “Passive entities are exempt if 90% of income is portfolio income, including capital gains from the sale of real property, gains from the sale of commodities traded on a commodities exchange and gains from the sale of securities.”
- Also exempt: “Intangible investments entity if it only owns and manages intangible investments, such as investments in other entities, bonds, patents, trademarks. Intangible investments include, without limitation, investments in stocks, bonds, notes and other debt obligations.”
NV does not have an individual income tax regime.
NV does not have an estate or inheritance tax system.
NV is one of the best states for traders.
42. New Hampshire:
NH has an 8.5% Business Profits Tax (BPT) “assessed on income from conducting a business activity within NH. Every business organization, organized for gain or profit carrying on business activity within the state is subject to this tax. However, organizations with $50,000 or less of gross receipts from all their activities are not required to file a return,” per Taxpayer Assistance – Overview of New Hampshire Taxes.
NH includes trading gains in gross receipts.
If you expect net trading gains of more than $50,000, forming an entity for your trading business in NH is unwise, since NH does not tax individuals on capital gains.
NH also has a 0.75% Business Enterprise Tax (BET) assessed on the Enterprise Value Tax Base (EVTB). The base is the “sum of all compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise, after special adjustments and apportionment,” per above NH site.
NH has a limited individual income tax regime: A 5% tax on interest and dividend income, and no taxes on wages, capital gains, and other personal income.
NH does not have an estate tax or inheritance tax.
This blog post completes our five-part series “Trader Tax Battle Of The States.”
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