Should I form a business for my short term investment activities

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Should I form a business for my short term investment activities

I am employed but also spend large amount of time on
trading/investment activities. I am looking to offset some expense as
well as use business accounts from banks. What type of business
model should I look for sole proprietorship, LLC, US Virgin Islands,
etc? Will I be subject to self-employment tax?

Asked on January 28, 2018 under Business Law, Illinois

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

LLC or limited liability company is generally the best choice for the self-employed and small businesses:
1) As the term implies, it limits your personal liability for business debts  and obligations. You are still liable for anything you personally guaranty, for certain "fiduciary" taxes (sales tax and payroll tax, if appropriate), and you *personally* (not as the business) commit a wrongful act (e.g. if you personally defame someone, you can't hide behind the LLC), but it is still considerable protection. This makes it better than sole proprietorships.
2) It gets "pass through" tax treatment, so not only is there no "double taxation" as its profits drop to and are taxed only once with your personal income, but early reports are that you will get benefits under the new tax plan. This makes it better than any entity not getting pass through treatment, like a C-corporation.
3) Yes, you will pay the self-employment tax, but if you are self employed or own your own business, in one way or another, you will pay that tax: the employer share of the tax (that's what the self-employment tax is: the portion fo payroll taxes paid by the employer for the non-self employed) has to come out of your money, since you are the employer.
4) Simple, with little paperwork requirements: easier and more informal than, say, any corporation, C- or S-corporation.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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