Many day traders who are new to the industry may be unsure of how to go about creating a start-up company, but Jessica Holcombe, a corporate attorney, told CBS News there are a couple of solid options.
Two types of businesses work well with a day trading setup: C-Corps and LLCs. But there are many differences to these organizations that are important to keep in mind, Holcombe said..
C-Corps are important if the goal of the company is to attract investors such as venture capitalists and do not want to deal with pass-through tax entities. In addition, C-Corps may make sense if the tax rate for the company will be lower than what it would be for other income, Holcombe said.
One lingering issue with C-Corps is the issue of being double taxed. The profits of the organization itself are taxed, and then the shareholders of the company are taxed on the profits, Holcombe writes. Business losses also do not offset taxes owed on personal income, which can be another drawback.
LLCs can be a wise decision if the company is expected to sustain losses, and this could be offset by regular income, she said. LLCs also avoid many of the compliance requirements which are demanded of corporations.
Deciding which route to go down can be difficult, thus one should think the decision through and consult an expert, as it may be a hassle to switch later on.
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