I am thinking of setting up a single member LLC that only does trading (stocks) and doesn’t have any other activities, it is taxed as passthrough. I can’t seem to find a clear cut answer to some of my questions.

Trying to figure out if it is worth trading stocks through an LLC vs without one. I know the brokers charge you for professional real time quotes if you are an LLC but is there any advantage that outweighs that cost? Primarily:

  1. Do I have to pay self employment tax for the capital gains?

  2. Can I contribute to a SEP plan?

  3. Does the LLC qualify for the 20% QBI deduction?

  4. Can I write off business expenses (e.g. traveling to a conference on investing, buying books on the topic or attending classes)

I appreciate your input.

Thank you

  • Komorbidity@alien.topB
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    11 months ago
    1. Yes - you would need to take it a step further and file as an S-Corp. It can classify your earnings on capital as gains which would be a non-wage distribution. You may have to pay yourself a “reasonable” wage before taking non-wage distributions.

    2. Generally yes, in fact I think anybody self-employed can to SEP but there exceptions or limits/rules depending on your exact situation

    3. Generally yes it available to LLC but again there exceptions and you have to qualify

    4. Yes, “ordinary and necessary” as the saying goes.

  • Dakota_Plains@alien.topB
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    10 months ago

    If you are thinking about doing this as a business and charging others for your services, you will need to first acquire the appropriate securities license(s) - perhaps something like Series 7 & 66 as well as register with the proper authorities - one or more states and maybe FINRA or SEC. Your would be service income (ordinary income) to you and capital gains tax rates do not apply to your services. As a legit business providing services to others, you should be able to claim ordinary & necessary business expenses on your Schedule C. Don’t forget to include E&O insurance as one of your expenses.

    You can’t go into a business and trade for just yourself (so no license required) and pay yourself a wage as a single member LLC (if you file a Schedule C). If you want to receive a W-2 paycheck, you’ll need to choose to be taxed as an S-corp or C-corp. You should be able set up a SEP under any type of entity. You don’t pay self-employment tax on income from capital gains as it is not “earned” income.

    You have a lot going on in this post. Start with the proper license(s) and registration(s). Good luck!