Let's say you're a senior analyst at a SM hedge fund. You have a solid year and get paid 150k base + 850k bonus. How is the bonus taxed? Are you paying top-bracket income tax on this? Or do they structure it so you can pay capital gains tax instead?
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Generally, your bonus will be ordinary income, and taxed at the appropriate rate for federal and your state/city. Occasionally they will set up a LLC in your name and give you a K-1 so you can get the capital gains tax rate, but this is fairly uncommon for junior levels (Citadel is a notable exception, KG hates the idea of his employees paying taxes). Note that if you are trading short term, the tax benefit is not much (mostly limited to social security and payroll taxes for your employer, and only if your non-K1 income is less than 140k), unless you are getting considerable capital losses from somewhere to deduct against your income.
Could you please expand on the citadel point? How does it work? He does this for everyone from PM to analyst to asso (and for all groups at citadel?)? Seems genius -- very interested, thanks lol.
Never heard of a fund opening an LLC in ur name so u can get cap gains -- does citadel actually do this? Any other exceptions?
The Citadel point makes zero sense given that their gains are 99.9% short-term and thus taxed at the regular income tax rate anyway.
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