{"id":71376,"date":"2018-09-07T18:43:12","date_gmt":"2018-09-07T18:43:12","guid":{"rendered":"http:\/\/tradertaxcpa.com\/?p=71376"},"modified":"2020-07-16T14:52:48","modified_gmt":"2020-07-16T18:52:48","slug":"trading-entities","status":"publish","type":"post","link":"https:\/\/www.tradertaxcpa.com\/index.php\/2018\/09\/07\/trading-entities\/","title":{"rendered":"Trading Entities"},"content":{"rendered":"

This past tax season we had a chance to chat with a lot of Traders.  One of the frequent questions we received is,  \u201cDo I need to incorporate my trading entity\u201d? Potentially a Partnership, LLC, S-Corporation, or C-Corporation?  The quick answer is \u2014- IT DEPENDS<\/strong>.  Each traders situation is completely different the next.<\/p>\n

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Some traders worry that trading as a sole proprietor might be viewed negatively in the eyes of the IRS and could even trigger an audit.  The audit rates for individual tax returns for FY 2016 was 1 in every 120 households.<\/p>\n\n\n\n

Some traders,  have full time, W-2 jobs, worry that the IRS will disallow their trader status if they don\u2019t trade through an entity. There are even some traders who believe that the only way to get the benefits and deductions allowed with trader tax status is by incorporating their trading business.<\/p>\n\n\n\n

Since there seems to be a lot of questions surrounding trading through a corporation, let\u2019s take a look at the pros and cons of incorporating your trading business. In the process, I hope to show you when it makes sense and when it doesn\u2019t.<\/p>\n\n\n\n

First of all, you do NOT need to incorporate your trading business in order to get the benefits of trader tax status<\/strong>. You get just about every tax deduction (except for a few I\u2019ll talk about later) as a sole proprietor trader as you would trading through a corporation. All a sole proprietor means is that you are filing a Schedule C with your Federal 1040 to claim your trading expenses. A sole proprietor is the default taxation method for all traders, unless you formally incorporate. So from a tax perspective, trading as a sole proprietor or trading through a corporation are about equal (with the exceptions below).<\/p>\n\n\n\n

Let\u2019s talk about the negatives of incorporating your trading business and then we\u2019ll finish up with the positives and why a trader might chose to incorporate their trading business.<\/p>\n\n\n\n

CONS<\/strong><\/p>\n\n\n\n