If you set up a company offshore with 0% tax, would you have to pay tax on that company's income in the country you reside in? Probably a bad question because it probably depends on your country of residence... lets assume it's the US. If you could do that and then pay yourself a small income which is then taxed at the country's rate that would mean you could live pretty much anywhere regardless of the tax rate and allow your trading account to grow as fast as possible.
Understanding yourself is just as important as understanding markets.
In your U.S.-based example, the foreign company would receive PFIC treatment, which eliminates tax deferral advantages of the setup that you've described.
Glossing over some of the finer details: as a shareholder of such company, your excess distributive share of the income would be subject to taxes at the highest brackets - and effectively more - unless you make certain elections. Such elections would require you to realize those gains annually either as ordinary income or otherwise and therefore eliminate the means of deferral.
And besides, the administrative costs of operating such a foreign company are nontrivial unless you're talking about 7 figures in investment capital.
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I use TurboTax Home & Business. After using HR Block for years, and dealing with several rounds of mistakes, I moved to E&Y which is not cheap. They made a lot of mistakes also (my taxes are very complex, not only because of trading but because I file in several states for other reasons). I realized that in the end I was just paying these folks to be a very bad data entry clerk and it was taking me a lot of time. Finally, I decided to do it myself using TurboTax. The first year was a bit of a nightmare, but each year has become easier. I keep everything well filed, and I document my previous year taxes in an Excel spreadsheet. So, when I start my next year taxes I have the previous year as a reference. I also recommend the desktop version as it's much quicker and easier to navigate (instead of waiting for the Intuit servers response time on the final days of filing...).
The big advantage of this, is that not only I have much more confidence on the final result of my taxes, but now I understand much better the tax implications of my different investments.
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Is the following correct for basic futures tax calculations (60% at 15% and 40% at 35%) I have attached a spread sheet with the respective formulas in place
RT Total $5.10
long term tax 15.00%
short term tax 35.00%
profit per tick $12.50
gross - commission $7.40
gross profit % 59.20%
before tax $7.40
after tax $5.70
business profit % 45.58%
Interesting way of looking at it, but yes the Math looks correct. You could also add in a per lot infrastructure/hardware/computer/whatever cost. It should be noted that both Short Term & Long Term tax rates are not fixed and are dependent on total income. The numbers you reference are pre-2013. Max rates are currently 39.6% and 20% giving a max blended 60/40 income tax rate of 27.84% rather than 23%. I say income tax rate because you could also be subject to 3.8% investment tax if your total income is high enough.
When evaluating my trading costs I don't consider tax's but I do look at my total expenses for the year, divided by the number of lots I trade and then add that to my commission rate, to get a better representation of my true cost per lot.
Disclaimer. I'm not an accountant, I'm a trader, hence this is only my understanding and while I believe it to be accurate it may be incorrect.
I'm in the UK and the way I did it was to run the trading account as a corporate company. This enabled me to do the initial investment (deposit) as giving back the dividends that I've paid myself over the years and as a result I'm not paying any tax until my company returns my directors loan. Of course it all depends on your individual circumstances.
I'm having some success with the ES futures - I need to improve my consistency, but it's probably safe to say that I'll be paying taxes on my profits this time next year. I've browsed some of the online tax information that's available at Green Tax Trader, and Traders Accounting, and most of what I've seen seems to focus on pure equities trading, i.e, stocks. There's not a lot of detailed information about futures contracts and the Section 1256 tax benefits. Don't get me wrong - they all mention the tax advantages of the 60/40 rule - but I haven't been able to answer a simple question ....
If I'm an individual futures trader, trading only 60/40 Section 1256 vehicles like the ES or 6E, is there actually any benefit to securing trader status, or incorporating as a business, to be taxed as a corporation instead of as an individual?
I understand the advantage if you're trading stocks or options, which could be taxed as high as 39.6% (or higher). You want to get into that lower corporate tax structure. But if you're only trading Section 1256 contracts, then you won't be paying more than (roughly) 28% ... which is lower than the corporate rate. So is there any reason for a futures-only trader to incorporate?
I understand that incorporating opens up the possibility of business deductions - but things like health plans and retirement plans come with their own restrictions and rules. Is there sufficient advantage to these deductions, to counter the loss of liquidity that comes with these features? (Or put more simply: is it easier/better just to have a big trading account full o' cash that you draw from as you need it, rather than pay yourself a salary, set up an HSA, 401(k), etc, and all the strings/hassle/red tape that comes that approach?)