How Traders Use LLCs to (Legally) Save $69,000/yr on Taxes
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- Опубликовано: 7 фев 2025
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Warrior Trading // Ross Cameron // Day Trade Warrior
Careful differentiating S Corp election for a C Corp vs S Election for an LLC.
They are the same.
However, a single member LLC that does not elect S must file on Schedule C of the 1040 personal return which would be subject to the 15% SE tax.
Also
Lots of people think incorporating in a particular state can be state tax favorable. Unfortunately, the income is supposed to taxed in the jurisdiction in which it was earned...
A K-1 distribution from an S Corp is taxed at your normal earned income rate when it flows through.
Generally, you have good ideas; we just need to be sure to continue to protect the public which you did nicely by recommending many times your listeners seek a qualified CPA.
Good stuff! Love the 401k and Roth ideas! (Also look up setting up a living trust and using a "back door 401k"
Do you have any tips for W2 earners whose primary income is w2 but they also make trading income close to the w2 income? My w2 income makes me ineligible for roth IRA account, so that option is off the table.
@@sumitomoO0O open a traditional ira for trading.
Good video, but just FYI, forming an LLC and electing S Corp status is often better than directly establishing an S Corp because LLCs do not require annual shareholder and board meetings or minutes. Non-compliance with these S Corp formalities can lead to loss of liability protection and state penalties.
Why would you give up a vacation that's fully tax deductible ❤
THIS IS AWESOME!! This is one of the subjects that's barely covered on RUclips... at least to the extent that it deserves. Thanks for this! ❤
1:50 1099 vs LLC
5:00 Tax efficiency: S-Corp > LLC
10:00 Taking a reasonable salary
15:00 S-corp makes more sense?
17:50 Setting up a ROTH IRA
Saving this video for 3 years later when im finally profitable😅
Me too.
Newsflash. You’ll never be profitable. 95% of retail traders lose money. But keep giving this guy views.
That’s an ape there!
After 4 years now I need to learn how to pay less taxes legally
@@The.Harsh.Truths why can't he be the 5%? Go doubt yourself in a corner.
For anyone coming in late to this video like me… Re the Solo 401(k) Ross talks about, there are $ limits AND % limits. 100% of W-2 comp is the employEE contribution max % subject to the annual $ limit ($23K in Ross’s example). 25% of W-2 comp is the employER match max % subject to the annual $ limit ($46K in Ross’s example). $23K + $46K = $69K
We asked, and you delivered Ross!! 🥳
Thank you so much for this more in depth explanation on tax and saving. This is a great episode. I'll watch it five times..
And hope you make more like this!
The other issue I didn't hear him mention is a brokerage will make you regoster as a professional trader if you try and setup your acct as an LLC or corp. Even if you are a newbie which means your trading fees are going to quadruple every month. So you better be making some serious profits before you do that or your going to be spending a whole lot on expenses if you are unprofitable
😮😮😮😮
Thats why I havent incorporated myself
Additionally, CS is telling me I need a minimum balance of $250k for corporate account.
Vital info
Not true - it requires some extra work, but watch some CPA’s / Tax Advisors videos to learn how to register otherwise.
Ross, it's 59 1/2 and you must have the roth ira for 5 years. good info, thank you.
Ross has been looking at my search history... I was literally looking up trading as an LLC vs S-Corp last night
Love your videos and your kind, teaching spirit Ross. May God continue to bless you and use your awesomeness to encourage, educate and to shelter every orphan and or needy person, among us, as if u were our beloved uncle.
Very interesting thanks for the advice. The problem is finding a CPA that actually knows the code for traders
Very good planning. I am a tax and financial planner/ CPA and I am in all support for this.
Thank you, Ross for touching the subject. I have been searching for a detailed explanation. This is amazing. No other video I have seen on the Internet covers it this way.
One thing to be csreful of here is that the amount you can contribute to the solo 401k is based on your overall compensation. You can generally only contribute up to 25% of your salary. So actually in your example of a 50k W-2, you can only do an employer match of 12.5k. However, you can do employee deferrals on top of this.
After tax contributions can be 100% of W2 box 1, or the annual limit, whichever is less.
Deferral?
@@shyamvai "Employee deferrals" are what the tax code calls 401k contributions by paycheck deduction.
@@headlibrarian1996100% of W-2 comp is the employEE contribution max % subject to the annual $ limit ($23K in Ross’s example). 25% of W-2 comp is the employER match max % subject to the annual $ limit ($46K in Ross’s example). $23K + $46K = $69K
There are much more deductions for an S Corp besides the things Ross mentioned, great video by the way. Your vehicles can be purchased (company vehicle) in the corp and completely deductible, including gas, insurance, tag, etc. Also, you can depreciate the vehicles for a further deduction. Corporate officers are also allowed a housing allowance, meal allowance, some entertainment allowance, etc. You don't have to be rich to pay little or no tax, you just have to do your research and be smart about it.
Thank you
that was extremelly informative thank you for sharing
Wow
If you work from home as a trader, a company vehicle will be highly scrutinized. Expenses must be reasonable for the particular business.
@@tomlorenz4344 Not anymore. The Chevron doctrine was just overturned by the Supreme Court. It's no longer up to the agency for interpretation. If it's allowed by the tax code, then so be it.
$12k is already the standard deduction for a single person…so none of those right offs help until your above $12k…what am I missing?
Your standard deduction is for your personal return. The LLC or Corp should have its own tax id number and separate tax return with separate business related deductions unaffected by your personal standard deduction.
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
i'm classified as a full time trader (trader tax status), sole proprietor . if you don't want to worry about qualifying, then corporation is the best option.
@@TeamMadcrewdoesn’t the corporation still have to satisfy the same Trader regulations to deduct any expenses?
@@VrbanacRVFortunately, no, the corporation does not have to qualify as a trader.
@@VrbanacRV nope
Thats correct- you have to make 900 to a 1000 trades in a year to qualify
If you trade futures you’re taxed at 60% longterm capital gains rate and 40% short term rate…up to top marginal tax rate.
Help
@@apoc1211 section 1256 gains is what he is talking about. Marked to market at the end of the year.
That's ridiculous and pure robbery.
Dont forget there is Rule 72(T), which allows you to take contributions before 59 1/2, but you must make them on a consistant basis that is approved by the IRS. So to get contributions for $3,000 a month with a seven figure account, would totally be do-able before 59 1/2.
Thank you so much Ross!! This is what I looking for in details ..Really no one giving these info like you doing as always .God bless you !!
Hands down the best vehicle is Roth IRA.. make sure you make the max contribution per year, even if you dont plan to trade yet.. built your ca[ital up cause once you lost the year, you cant go back to contribute..and if you really need money, you can withdraw your contribution out no penalty..
An S-corporation with passive income is subject to passive income tax rules - you failed to mention this. A corporation forfeits its S-corp status on passive income exceeds 25% for 3 consecutive years.
Genuinely appreciate your help with this 🙏
Operating expenses aren't deductible against investment gains unless you claim Tax Trader Status - which then subjects you to self-employment taxes.
This is why S corp is better
Don't forget in s-corp you can hire your kids, and pay them saraly without tax up $14k. Deductible from tax.
Asset protection?
Personal Legal Claims: If an individual shareholder faces personal legal claims (e.g., due to personal negligence or debt), their shares in the S Corp can be considered part of their personal assets. In such cases, creditors may be able to claim the shareholder's interest in the S Corp, but they typically cannot claim the assets of the S Corp itself.
now... if only I could make 100k a year instead of loosing it... LOL....
unless you are buying new computers and monitors every year, many of these deductions are only good every few to 5 years
This was great Ross .......just what I was looking for! More stuff along these lines would be fabulous! Thank you!
Too much hand waving for me. That home office expense as described will almost surely trigger an audit, plus it’s a highly bloated number. IRS will give you a standard deduction of $5/sq ft with 300 sf max, for a total of $1500. If you itemize, you can deduct up to 15% of the home expenses. Unless home expenses are $80,000 that $12 grand will look fishy. The $50,000 salary will still need to have the 15.3% social security and Medicare taxes paid one way or another. Also here in Florida we don’t have a personal income tax, but there is a corporate income tax of 5.5%. The one thing that might made sense is the solo 401k. Even then the 15.3% SEP must be paid on the employee part of the contribution. Even then, taxes are only deferred not avoided. Money taken from a 401k is taxed as ordinary income, whereas in an ordinary trading account there’s the opportunity for much lower long term capital gains tax rates. Also states often charge an annual fee just to have an LLC or corporation. In Florida it’s $150. Then there may be other local fees and license costs as well.
Do you have any tips for W2 earners whose primary income is w2 but they also make trading income close to the w2 income? My w2 income makes me ineligible for roth IRA account, so that option is off the table.
@@sumitomoO0O make sure to hold investments long right to have them taxed at the long term capital gains rate. Buy growth stocks that don’t pay dividends and hold them until your retirement and are in a lower tax bracket
I've been in business 21 years, I've never had an issue of deducting business expenses, including "home office" expenses. The vast majority of my home is taken by my business.
@@JohnSmith-rv2mk they’re perfectly legit in many circumstances, what’s encouraged in the video is dubious
How does the IRS know where you’re trading from (on the internet)? If you use a VPN can you claim you were trading from a different (lower tax) state? How bout if you rent a server there to route your traffic thru?
I have an LLC in Delaware for trading thank you for the information .
s-corps don't protect you from personal liability or bankrupty...... because, WHO owns the company? It's you personally as the shareholder, so your shares are worth something (assets-liabilities of the s-corp)
Great explanation 2 mins in and I finally have my answer . Just pay regular taxes at the end of the year until I make too much money 😂 thanks
Exactly what I keep thinking
Well, interesting concept, but your Solo 401k is still taxed when you take money out, then you have to pay SEP on the employee part (Regardless). So essentially you are only saving on home office. Willing to save for-real ---> move to PR and enjoy Act-60, else keep paying as everyone else.
The employer match is limited to 25% of the reasonable compensation. so you'd need to pay yourself 180k or so in W2, to get 45k employer contribution and 23k on employee contribution. it's not like you can just divert all of the business cash to 401k.
Exactly…and my understanding is a 25% max total including employer and employee contribution. If you paid yourself $50K then you would be limited to $12,500 total IRA contribution.
This is awesome, thanks for sharing this. I’m from Boston and you totally look like you’re from Vermont! Love it!
Deducting anything involving a home office was decreasing the value of our home.
Thanks for the comment!
This is a great introduction to the various facets of taxation for people that undertake the difficult profession of trading. No matter what though, remember it is not a viable defense in an audit situation to say, "But Ross said so!" Please people, consult a licensed tax professional and understand that the IRS (through legislation and voluminous legal precedent) ultimately hold you responsible for your own tax return.
Rock on!🤟
WOw... GREAT INFO. Thank you for sharing these nuggets of GOLD!
Valuable information. Thank you Ross.
Needed this, thank you brother. This is phenomenal information 🔥
This is great. Thanks, Ross! 👍
I needed this info!
Thank you so much Ross for sharing your knowledge and wisdom. Much appreciated
Ross should have mentioned moving to Puerto Rico where you don't pay tax on capital gains
Thanks, this was a very good video. This information is Gold.
Charles Schwab requires min $250k for LLC or Inc.
Wrong advice, I think. Generally, operating expenses of the LLC can be deducted from the business income, but not directly from capital gains.
Remember traditional 401k is not Tax Free as indicated in the video, it's TAX DEFERRED, meaning you pay taxes later when you take a distribution, at the rate of that time.
He described the Roth IRA as having tax free distributions, which is true.
Does this conplicate things if working a full time job as well? Or just more eyes? 👀👀👀
You cannot make contributions to an IRA with unearned income.
Two items of note...first, solo 401k contributions in an S-corp are limited to 25% of the salary you take. In your example you took a salary of $50,000; thus, your solo 401k contribution would be limited to a maximum of $12,500. Second, you said the contributions to the solo 401k were tax free. Not true, they're tax deferred until you take a distribution unless you're contributing to a ROTH account in which case the taxes are not deferred but are paid right away.
Very well taught, great information, thanks
Thanks Ross for the awesome video.
Could you please do another video on how to trade with IRA account?
Thank you very much, yhis is engaging yet detailed.
Why not a Roth IRA? You can trade futures like the emini contract but you do it through a custodian, no taxes on earnings
Absolutely. In non tax accounts- trade as much as you want
You Sir are the best! 🙏
What if you are in the red for the year, and cant pay yourself with an S corp, and still work a full-time w2 worker
Errr..just thinking of the regulatory shenanigans about s-corp makes my head hurt. State annual renewal, payroll service, fed and state quarterly filings..
No one should worry about s corps or llc until your buisness turns profit or you need a legal entity for payment processor it's just a way of lowering personal liability and you can file the paperwork at through your state and state website save money.
Starting an LLC or S Corp after reaching profitability or needing liability protection is sensible, but early formation has benefits too. An LLC offers liability coverage and simpler management, while an S Corp can lower self-employment taxes for higher income. Consulting a professional ensures you choose the best fit as your business grows.
THANK YOU 🙏🏼 for covering this topic in trading. Will save it for when I get there 😊 sharing it with others.
Yes! Thank you for sharing your knowledge ross
The rent deduction to a business is an income to an individual…
IRS Section 1256
If 10% of the cost of the house is $12,000 then the whole cost would be $120,000? This would not be reasonable for most people?
Are you able to depreciate the equipment over several years or just the year the equipment is purchased?
Thank you ima get onto that. I started a teaching class and i Want to make it into a llc but i only would pull out no more than $600 but it wouldnt be frequently been trading for 6 months and only had about 6 payouts
Thank you so much for the info you shared 🎉👊👊
Ross leaves out the fact you have to get a virtual address/virtual office for your LLC when trading in these types of broker accounts. The cost outwegihs any benefits if your trading income is less than $100,000. It sounds too good to be true.
Great Information! Thank You!
Should worry about making money trading first. If you setup your account as a rollover ira and contribute 6k a year a winning trader hypothetically can grow that in no time and all tax is deferred. Many youtubers make more money via RUclips and subscriptions than trading. I might fact check your llc foot example too.
Okay. You earned another subscriber😊
Thanks for the contents!
Nowadays, how much may tiny 1-person Delaware company maintenance cost for a savy "boring" plan?
can you make a video about Mark-To-Market as well
Efing Great Video! Great Info Ross!
Do we need to file for Day Trader Tax status in the S corp? Or is just setting up the S corp all I need to do. Also did you do the S corp in Delaware?
Thanks Ross love the video well explained!! Thank you 🙏
I was hoping you would touch on deductions as a sole proprietor. Aren't the same deductions allowed, proportionately?
Thanks for the knowledge and thoughtful content.
hey ross! how much do you need to make annually for it to be worth creating a llc/scorp or how long would you need to be consistently profitable? im on the verge of profitability and want to make sound financial decisions
I just subscribed this video is absolutely fantastic !!
Awesome, thank you!
Great video. Thanks! What allows u to set up as an scorp or LLC. I tried a few weeks ago and everyone had a large amount needed to start that type of account. 250k plus
Love your channel, man. Helps a lot
Great information - thank you
Capital gains is not business income. It is impossible to use for 401k distribution
This from Google Gemini:
No, capital gains from an S corporation cannot be directly used to fund contributions to a 401k for the S corporation owner.
There are two main reasons for this:
* Contributions must come from earned income: Contributions to a 401k can only be made from an employee's salary or wages, which is considered earned income. Capital gains, which are profits from the sale of capital assets, are not considered earned income for retirement plan purposes.
* S corporation distributions are not considered wages: Distributions from an S corporation to its owner are considered a return on investment, not wages. This means they cannot be used to fund contributions to a 401k.
My understanding is that you can do 401(k) contributions if the primary purpose of the business is Trading and investing. As always, it’s a good idea to consult CPA and even get a second opinion because different CPAs can have different opinions.
@@DaytradeWarrior 👍
I am not sure this makes sense, the solo 401K would only work if you aren't already contributing the max $23000 per year through your normal day job. Would be great to work this up assuming someone has a day job that they are earning the majority of the living income on.
Re: Solo 401(k). Might want to double check the rules about having an employer match in your solo 401K.
Much needed content, thank you!
Awesome video-great info- thx. Ross
Hi, did you grow the $18,000 Roth Ira at minute 19:20 of the video with furhet contributions or with 33,233% returns from $18,000 to $6M ? Did you reach $18,000 in 3 years, given the $6,000 yearly maximum contribution? Thank you!
What is the solution for trading for non-resident LLC owners? Can you do a video regarding this?
Also, what I see is that you can take the home office and other related expenses if you are a 475f marked to market trader. Why do you say you need a business entity like s-corp/llc for this reason?
Thank you for sharing. Love this video!!!
I thought for 1099 you pay self employment tax instead of ss & medicare. Which is actually a lot higher.
Hi. Have you covered this topic: Day trading and Social Security benefits? For instance, how does a person age 62, earning profit from trading, simultaneously receive his Social Security benefits? Btw, notice I didn't say that the trader is over age 67. Thanks !
QUESTION: Ross, Great Video but how to overcome the higher amount of data fees charged by brokerages once you establish a entity trading account (corp). The data fees (level 2 etc) is small or free for individual trading account but for a entity trading account brokerages charge nearly $1000 a month for the same data. HELP!
Wouldn’t that be an expense that you can write off too?
If i hadn't subscribed previously (actually I had) I'd certainly subscribe after this episode. Many thanks!
I disagree! I trade as a sole proprietor and I enjoy trader tax status AND the ability to right off fees and business costs. I also do not have to pay payroll tax which I would have to do in an LLC or S corp.
401k is ax deffered and not that not paying tax on that
the real question is how he made $5M in one year...
this is GOLD!!!