The Benefits of Using LLCs for Traders to Save $69,000/yr on Taxes Legally

by | May 11, 2024 | Traditional IRA | 11 comments

The Benefits of Using LLCs for Traders to Save ,000/yr on Taxes Legally




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As a trader in the financial markets, one of the biggest challenges you may face is the hefty tax burden that comes with your profits. However, many traders have found a way to legally save thousands of dollars on taxes by forming limited liability companies (LLCs).

LLCs are a popular business structure for traders because they offer a number of tax advantages that can significantly reduce their tax liabilities. One of the key benefits of forming an LLC as a trader is that it allows you to take advantage of pass-through taxation. This means that the profits and losses of the LLC are passed through to the individual members, who report them on their personal tax returns. This can result in substantial tax savings, as LLC members may be able to deduct business expenses and losses that would not be available to them as individual traders.

For example, let’s say you are a trader who earns $200,000 in profits in a year. Without an LLC, you would be subject to a tax rate of up to 37%, resulting in a tax bill of $74,000. However, by forming an LLC, you may be able to deduct expenses such as trading software, subscriptions, home office expenses, and other business-related costs. This can reduce your taxable income to, say, $150,000, resulting in a tax bill of only $47,000 – a savings of $27,000.

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In addition to pass-through taxation, forming an LLC can also provide traders with protection against personal liability for business debts and lawsuits. This means that if your trading activities result in a lawsuit or financial loss, your personal assets are shielded from creditors. This can provide peace of mind and allow you to focus on growing your trading business without the fear of losing everything in a legal battle.

Furthermore, forming an LLC can also allow traders to take advantage of retirement savings opportunities that are not available to individual traders. For example, as an LLC member, you may be able to set up a solo 401(k) or SEP IRA and make tax-deductible contributions to save for retirement while reducing your taxable income.

Overall, forming an LLC can offer traders a host of tax advantages and legal protections that can help them save tens of thousands of dollars each year. If you are a trader looking to reduce your tax burden and protect your assets, consider forming an LLC to take advantage of these benefits. It is always recommended to consult with a tax professional or financial advisor to determine if forming an LLC is the right choice for your individual circumstances.

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11 Comments

  1. @wma79351

    That's why we need flat tax!!!

  2. @UsefulElectrons-ni1fq

    Where does the business get its initial finances to trade with

  3. @uniquecintron3119

    So you start the s-corp but your trading isn't profitable how do you assign s salary when it's in the red

  4. @jimnycricket2322

    I need someone to make this in list form for me

  5. @allanultimate

    Hey ross im new to your channel but im wondering if you could go over this information but trading with a Prop Firm under an LLC, could this still work under that ?

  6. @StevenStawiarski-sb1bx

    Why not a Roth IRA? You can trade futures like the emini contract but you do it through a custodian, no taxes on earnings

  7. @brandonnguyen1486

    Can we still do this if we trade while at our day job that pays the bills, meaning I just day trade for a side hustle?

  8. @MrJupton1

    Not sure, but something to considered…. A "full time trader" under I R S classification have to meet certain requirements. IE Number of trades etc… Worth checking out before declaring sub chapter S status and being able to deduct biz expenses. If you don't meet their requirements deductions and biz expenses are a mute point. Just saying Worth verifying

  9. @MrJupton1

    Efing Great Video! Great Info Ross!

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