Skip to main content

Author Topic: Using S-Corp for Tax Advantages

Z
  • Posts: 119
Using S-Corp for Tax Advantages
OP: February 26, 2014, 12:00:00 AM
While I know there are a few other threads that discuss a related topic of using corporate entity for the purpose of deducting capital losses greater than $3,000, I'm curious what others think of this concept:

Since I invest in the stock market with a swing-trading strategy that produces short-term gains, I’ve been considering possible tax advantages of establishing an S-Corporation/LLC to channel my investing through, in consideration of more favorable tax rates (long-term).

My concept is as follows: Incorporate and open a brokerage account in the corporation’s name. I would then act as a lender to the corporation for capital. I would have the loan setup to have annual/rolling payments due 1 year and 1 day from the date of investment (and report payments back on form 1099-OID). My corporation would be charged a significant interest rate that is commensurate with the returns my stock investing is generating - it would be a variable interest rate..

To make sure I’m being paid a proper salary through the S-Corp (per IRS requirements) I would pay myself the first $17,500 (401k contribution limit), and the company would provide a matching contribution of the remaining $33,500 - to the reach defined maximum contribution limit.

Would this work per IRS rules?

If not through the concept I’ve illustrated above, is there any other acceptable alternative (as deemed by the IRS) that would allow the same tax benefits?



Sent from my HTC6435LVW using Tapatalk

  • IP logged

c
  • Posts: 227
Using S-Corp for Tax Advantages
#1: February 26, 2014, 12:00:00 AM
Quote
  • IP logged




R
  • Posts: 484
Using S-Corp for Tax Advantages
#5: February 27, 2014, 12:00:00 AM
Of course with your own S-Corp or LLC you would be paying both sides of the payroll tax. That's 6.2% x 2 + 1.45% x 2 = 15.3%.
Unless the world ends (more or less) you will receive benefits for these taxes someday so it's not a complete loss.
Figuring out your social security benefit given number of quarters worked and amount of tax paid is pretty complicated and non-linear [three segment "curve"]
As you pass from one segment of the curve to the next, the amount added to your monthly check increases less per dollar of taxes paid.
That said, things will change and the current methods are probably irrelevant. Doubt returns will get better though.
  • IP logged

Using S-Corp for Tax Advantages
#6: February 27, 2014, 12:00:00 AM
I could be wrong here but I would think another advantage of the S-corp would be to elect mark to market for the s-corp which should make the taxes much easier.
  • IP logged




T
  • Posts: 6588
Using S-Corp for Tax Advantages
#10: February 28, 2014, 12:00:00 AM
If you are just trying to maximize your retirement contributions, why not just set up a SEP-IRA for your "home business"? You would save yourself a lot of headaches from having to set up an S-Corp.
  • IP logged

T
  • Posts: 6588
Using S-Corp for Tax Advantages
#11: August 25, 2019, 11:00:00 PM
With the usual caveat that I'm not a lawyer nor CPA so take this FWIW but an LLC may elect to be treated as an S Corp for tax purposes. The LLC does not become a S Corp, it just files Federal income taxes as if it is. Form 2553 must be filed with the IRS before March 15 of the filing year, though it's not hard to get that date extended. The LLC is then taxed that year and future years as an S Corp. Not all LLC's qualify; there are some restrictions. There's plenty of information on the web about this topic. For example see:

https://www.irs.gov/businesses/small-businesses-self-employed/llc-filing-as-a-corporation-or-partnership
https://www.nolo.com/legal-encyclopedia/why-you-might-choose-s-corp-taxation-your-llc.html
  • IP logged

  • *****
  • Hero Member
  • Posts: 605