Tax question - Is it possible to structure personal trading account into a fund like vehicle for tax purposes?
I know this is an amateur question (I am only familiar with real estate taxation) but have been very curious about this. Right now, I have my personal trading account and currently pay the typical ordinary income tax on profits. I max out my retirement contributions to help with the tax but wondering if anything can be done to optimize how my non retirement accounts are structured. Is it feasible it is to create a fund like vehicle where one could continue to build up the portfolio and get taxed only upon distribution.
Any comments appreciated.
I don't think so, no. A fund prepares tax docs at the end of each year, reporing short- and long-term gains, so you would be liable for your gains anyway. But you could set up a C-corp that is taxed at 21%, regardless of short- or long-term gain (all corporate capital gains and regular net income are subject to 21% rate). With active trading, that would substantially reduce your short-term capital gains tax (which for individuals is equivalent to the ordinary tax rate). However, when you distribute your "dividends" you will owe taxes on that. But if you were to use that C corp to facilitate short-term trading over the long-term it could payoff.
Thanks @real_Skankhunt42" for your thoughts. So if I am in a zero income tax state I guess the C-corp would make sense but if I was in say CA the double taxation might be tough. Do you know if there are any requirements to make annual distributions btw a C-corp and S-corp (or risk of retained earnings tax)? Or could that be up to the corporation?
I suck at tax and when I go over these things my head hurts. My accountant is on vacation for a couple weeks and hopefully can get his take soon.
There is no minimum distribution but I do think that corporations set up just for trading have some sort of maximum amount of money that can be used (something like $250k).
I guess it depends on what you are looking to do with the money. If you plan on distributing a lot on a regular basis, yeah, the double taxation is going to hurt. OTOH, if you are trading as if this is going to be an active trading account for the long-term, then setting up an IRA or 401k (self-directed) would make more sense. Depends on what you plan to do with the funds.
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