Have a Tax Question? Ask a Tax Expert
Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.
The purpose of the S-Corp election (& it is a tax election that a regular C-Corporation makes not a separate type of corporation) is to pass-through the income to the owners to be taxed at the individual level. The items of income maintain their character as they are passed through; so short-term capital gains are passed through & are taxes as short-term capital gains on your individual tax return.
You would not be restricted as to how you take profits, although you would have to deal with the owner's compensation issues in terms of the income; in other words would you be taking a salary subject to social security taxes, which of course is counter productive to what you're trying to do.
How about the Sole Propritorship, from what I understand this does not protect your personal assets, but social security taxes would not be an issue, right?
As far as your assets being protected if they are within an S-Corp let me ask you this "Would you allow yourself to be forced into bankruptcy while at the same time holding assets in your S-corp?" Since everything in terms of income, etc. is passed through to you for tax purposes, whether distributed or not, as an S-Corp., which you control, tends to be viewed as an extension of you; for example the S-Corp. stock that you hold, which in the circumstances that you describe, would be subject to any of your obligations & it would be valued based upon the assets of the S-Corporation, so in that way the assets could be exposed to your personal liabilities.
A sole proprietorship is operating as an individual.
Would you allow yourself to be forced into bankruptcy while at the same time holding assets in your S-corp?
I'm not sure
I gues it would depend on the situation
You are kind of going at the problem in reverse. The idea would be to isolated the risk area in a corporation, such as a professional corporation, in order to protect your personal assets.
I guess my question is then, in your opinion, is it worth it to run a business with stock trading?
Ok, I see what you're trying to say
In that case anything I do as a Psychologist I would definately do it under a corporation
However, as a stock trader it probably is not necessary, however, I thought trading under a corporation would be better for tax purposes.
However, the best & most cost effective way of protecting your assets as well as defending against any potential liabilities from your professional practice is through professional liability insurance; in this day & age, it is really a necessary expense of any professional practice; to operate "bare", is not prudent as just the cost of defending against any potential malpractice suit can wipe you out these days; that goes for any professional, CPAs, attorneys, health care professionals, etc.
I do have professional liability insurance.
No. Trading securities in any type of a corporation would offer no real tax benefits unless you were talking about serious money & leaving it the corporate entity, funding retirement plans, etc.
Make sure your professional liability insurance is adequate, covers defense, etc.
Ok, I will double check the insurance. I think you have answered my questions about the Trading. Thanks for your time.
From a practical standpoint it is very difficult to protect any personal assets that you maintain CONTROL over.
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