Benefits for incorporating?

[Phoenix669]

Is it really worth it to incorporate your personal trading to tax shelter alternate income?

also are there any other benefits?

 

[new_trader]

I don't know Canadian tax law, but in the UK there are tax advantages to trading (in any profession) as a Private Limited Company. The bookkeeping and other formalities can be a bit tedius though. Also, in the UK you must have at least 2 Company directors or 1 Director and 1 company secretary to form a company.

One 'other' benefit I can think of is if you become successful with your trading you will have Company accounts registered for anyone who wants to inspect them. This is if you have grand plans to seek outside 'investment' money or venture capital to start a hugely successful fund of some sort. But you would be able to have your personal accounts audited if you wanted that anyway.

 

[fifty2aces]

No idea about Canada, but there are limitations to how much incorporating will help your tax situation in the UK. If you trade through a company, you'll only pay 30% tax on retained profits, but this money will belong to the company, not you. If you want to pay yourself (either salary, benefits, or dividends), you'll have to pay additional tax on top of the 30%. This means that generally, it's not worth incorporating for tax reasons alone.

 

[fifty2aces]

Also worth mentioning is that if you incorporate and make a loss (inconceivable, I know...), you probably won't be able to offset against any other (non-trading related) gains you make, for tax purposes.

 

[new_trader]

Also worth mentioning is that if you incorporate and make a loss (inconceivable, I know...), you probably won't be able to offset against any other (non-trading related) gains you make, for tax purposes.

What? A company is treated as a completely seperate entity to yourself even though it is your company. Think of it like a brother, sister or your child earning an income. You are related but any profit or loss is the companies, not yours. So I don't understand what you mean by "gains you make" ? The company makes the profit or the company makes the losses and company losses can be carried forward for future offset.

 

[fifty2aces]

What? A company is treated as a completely seperate entity to yourself even though it is your company. Think of it like a brother, sister or your child earning an income. You are related but any profit or loss is the companies, not yours. So I don't understand what you mean by "gains you make" ? The company makes the profit or the company makes the losses and company losses can be carried forward for future offset.

I know, that's the point I'm making - the company is a separate entity, so its losses can't be offset against your personal gains.

 

[new_trader]

I know, that's the point I'm making - the company is a separate entity, so its losses can't be offset against your personal gains.

But that is the whole point of incorporating isn't it? To seperate earnings so that profits are not added to your personal income and therfore you save on taxes....something you implied isn't worth doing!?

 

[luckyd1976]

In the US

In the US. UNless you trade round the clock at your desk. Incorporating right now isnt worth it. The IRS is cracking down on TRADERS big time! I know numerous people who got the IRS notification for lack of "real business and trade venture" and got all their trading(s) classified as a hobby. To many traders took every corp deduction and then some and now the IRS is pushing back. So if you're considering INC in the US be sure to file for Trader Tax Status and be ready to be able to prove that you have daily transactions.

Hint Hint Hint... Create or Buy a daytrading system! It doesnt have to be Wildly Profitable and it doesnt have to be a huge allocation of your account.

 

[fifty2aces]

But that is the whole point of incorporating isn't it? To seperate earnings so that profits are not added to your personal income and therfore you save on taxes....something you implied isn't worth doing!?

I had two points realted to that:

1) Since a lot of traders lose money, incorporating might be unwise, unless you expect to be consistently profitable.

2) Unless you intend to just allow money to build up in the company and never take any out (unlikely), you'll probably pay more tax as a company, since your company is taxed on company profits, then you are taxed again when you get the money out (either as salary or dividends).


(I have a law degree and specialised in tax - I'm not just pulling this stuff out of my ****! Obviously it would be wise for anyone considering incorporating to speak to a qualified tax adviser, rather than taking anonymous advice from an internet forum.)

 

[luckyd1976]

Surprised are some, how little tax savings there are in Incorporating. Fiftys right about the Double Taxation on the Salary/Earnings/Dividend Payouts.

For the US...
The REASONABLE deductions, health care write offs, retirement account fundings, Corp gifts and the CORP track record for raising more clients money are the main advantages to incorporating.

Does the UK have a form of Pass through entity like the US LLC's?

 

[fifty2aces]

A Limited Liability Partnership (not the same as a Limited Partnership) would probably be the closest comparison.

 

[new_trader]

I had two points realted to that:

1) Since a lot of traders lose money, incorporating might be unwise, unless you expect to be consistently profitable.

Why bother trading at all then

2) Unless you intend to just allow money to build up in the company and never take any out (unlikely), you'll probably pay more tax as a company, since your company is taxed on company profits, then you are taxed again when you get the money out (either as salary or dividends).

The OP asked from the perspective of earnings from an alternate income. Most people in the UK start paying 40% in tax after they earn around £40,000 OK? This means that any money earned over £40,000 will incur 40% tax.
Now assume a trader makes £10,000 as an alternate income. This would be added to their salary and so they will pay 40% tax on the £10,000 and will be left with approx £6,000 after tax. If they want to buy a new laptop, they would then be left with £6,000 -(cost of laptop)

Now, the trader decides to form a company to trade under. A company does NOT pay taxes on the 1st £10,000 of earnings. ie/ £10,000 is TAX FREE. So the trader makes £10,000 in their 2nd year of trading and gets to keep the lot. The trader buys a shiny new laptop through the company and they are left with £10,000 - (cost of laptop)

Now, lets do the maths.

Total assets of trader not trading under a company:
Total assets =1 laptop + (£50,000 - income tax - cost of laptop)

Total assets of trader under a company:
Total assets =1 laptop + (£40,000 - income tax) +( £10,000 - cost of laptop)

(I have a law degree and specialised in tax - I'm not just pulling this stuff out of my ****!

Really!? :-0

I ran my own Private Limited Company in the UK for 6 years...beat that.

Booklearned people...

 

[fifty2aces]

I apologise in advance for quoting a source (so typical of booklearned people...), but the starting rate (0% on the first £10000) no longer exists.

Marginal starting rate relief was available from 1 April 2000 and ended on 31 March 2006. Most UK companies could claim marginal starting rate relief if their profits were at an annual rate of between £10,001 and £50,000.

HM Revenue & Customs: Welcome to the Marginal Rate Relief Calculator for companies

 

[Adamus]

You don't have to make a decision until you know whether your tax year was profitable or not. In fact you have 9 months or so, up to January after the tax year. Shouldn't have to theorise.

 

[wildkactus]

incorporating for tax alone is not a good idea, but when it's part of your entire wealth strategy then it becomes a great option.

IMO asset protection and privacy are more important then any tax benefit that comes with a good incorporation strategy, also look at offshore incorporation as part of this.

 

[cu20052003]

Hi

There are quite a number of companies here in the UK, profitable or not wanting to register their HQ elsewhere in the EU, eg. Rep of Ireland.

In Ireland, the tax rate is 20 per cent. Just to add in my 5 pence worth, why not register a company elsewhere ( Isle of Man or the other dependencies of the crown ) instead?


S K

incorporating for tax alone is not a good idea, but when it's part of your entire wealth strategy then it becomes a great option.

IMO asset protection and privacy are more important then any tax benefit that comes with a good incorporation strategy, also look at offshore incorporation as part of this.

 

[cu20052003]

Adding another 2 pence worth of opinion

For those who wants no hassle may try paper trade and then go into Spread Trading instead! Tax free and it is not even self-employment status that you are into!

However, there a word of caution, that Spread Trade can be viewed by some as even worse than gambling or betting! The spread can kill!

S K

There are quite a number of companies here in the UK, profitable or not wanting to register their HQ elsewhere in the EU, eg. Rep of Ireland.

In Ireland, the tax rate is 20 per cent. Just to add in my 5 pence worth, why not register a company elsewhere ( Isle of Man or the other dependencies of the crown ) instead?


S K

 

[deco101]

Good thread here....

Personally I see incorporatings as a long term goal, I aim to build up a a company who engages in the financial business (Options, CFDS, different markets, Property). and I will run it. It will pay me a salary.

So incorporating for tax reasons only is short sighted in my opinion.

I have a company already as im an IT contractor over time the focus of the company will change.....

 

[cu20052003]

Hi, fellow IT chap

Are you having any interest to join in? I am inviting persons who might be having IT developing background and also trading experience as well.

I am not doing any more IT contractor work as I want to concentrate fully on this project and of course some trading ( and Energy related ) project.

If you are, you can contact myself by sending a private email. Anyway, this invite is limited to 4-5 in the initial stage - expandable to a max of 10 persons. That is why I had explained that it can be a partial open source as the patentship would be group-based ( with myself owning 40% of that patent ) and that I will be doing the coordination and data inputs!

I am trying to get data feeds from a few sites free of charge. But do remember that the software does not work 100% ( there is no such thing as a Holy Grail in Trading )! The thing that might be developed would conform only 90% as we input our own trading general methodologies into building the various good systems. However, the individual persons having their own access to this system can RETUNE it to suit their own flavour of trading!

S K

Good thread here....

Personally I see incorporatings as a long term goal, I aim to build up a a company who engages in the financial business (Options, CFDS, different markets, Property). and I will run it. It will pay me a salary.

So incorporating for tax reasons only is short sighted in my opinion.

I have a company already as im an IT contractor over time the focus of the company will change.....

 

[cu20052003]

Hi, to All having the plan to incorporate

It is by no means a bad thing to incorporate. But the point is to lessen the tax burden and to make more money through profits from the trade. So, if you have the plans to get a license to register a spread bet company ........ well, by all means carry on!

S K

Are you having any interest to join in? I am inviting persons who might be having IT developing background and also trading experience as well.

I am not doing any more IT contractor work as I want to concentrate fully on this project and of course some trading ( and Energy related ) project.

If you are, you can contact myself by sending a private email. Anyway, this invite is limited to 4-5 in the initial stage - expandable to a max of 10 persons. That is why I had explained that it can be a partial open source as the patentship would be group-based ( with myself owning 40% of that patent ) and that I will be doing the coordination and data inputs!

I am trying to get data feeds from a few sites free of charge. But do remember that the software does not work 100% ( there is no such thing as a Holy Grail in Trading )! The thing that might be developed would conform only 90% as we input our own trading general methodologies into building the various good systems. However, the individual persons having their own access to this system can RETUNE it to suit their own flavour of trading!

S K