What Forming an LLC Can Do for You as a Trader

If you’re new to being a full-time active day trader, there are a lot of decisions you have to make. One such area you have to consider is taxes. You make every purchase and sale that you do at the time that you do to maximize the amount of money you make. Shouldn’t that same principle apply during tax season?

As an active trader, there are a few options you have when it comes to taxes. One option that can save you money and insulate you from other problems is forming a Limited Liability Company. This may sound like a complicated process beyond the scope of your abilities, but it’s not. It’s something that can be done with as few as two employees, and it comes with a whole host of benefits. Here are a few of them:

Save on Taxes

If, as a full-time active trader, you don’t set up a business entity for yourself, you’ll be considered a sole proprietor. That means, essentially, there will be no difference between you as an individual and you as a trader, which can come with a lot of liability.

Meanwhile, trading business that have at least two members have the option to be taxed as an LLC partnership. These are considered to be a pass-through entity, meaning that while the LLC files its own return, the income or loss from the trading will flow to the members and be reported on the members’ individual income tax returns. Additional benefits include LLC members being allowed to take distributions of capital from the LLC without having to pay payroll taxes and trading income not being subject to self-employment tax.

Insulate From Liability

As the name would indicate, forming an LLC can help shield you from liability. So, if you’re a member of an LLC, your personal assets are likely to be protected. And the legal liabilities will be limited to the assets held by the legal entity in most states. This means that any lawsuit will have to come after the LCC and its holdings rather than you as an individual. And creditors won’t be able to claim the assets of an individual to pay back the loan amount. However, please be sure to check with an asset protection attorney within your state for clarity on your state specific laws.

Less Scrutiny, More Flexibility

Forming an LLC can save you from the level of scrutiny that you would normally face as an individual trader. The IRS is militant when it comes to scrutinizing the trades of independent traders but tends to have a more hands-off approach when it comes to legal entities. They believe that since you’ve gone through the trouble of forming the entity, you’re far more likely to fulfill strict trading requirements during transactions.

If you’re an active trader looking for form a Limited Liability Company, but you’re not sure where to start, Traders Accounting can help you. We have three different business entity packages to choose from based on the needs of your business. Depending on the package, you’ll get such benefits as bookkeeping services, mark-to-market coaching, a home office deduction, free first-year federal and state tax returns and more. Call 800-938-9513 to learn more today.