Capital gains question

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  • #3110783
    Notacpa…yet
    Participant

    Just to preface I plan on having a CPA assist me in my tax situation but I need one question answered first.

    I have made a very large sum of money in short term capital gains this year. To help avoid the tax I am considering starting a corporation to get the preferential tax treatment of 21%.

    My question is if I made the amount of money before starting the Corp will I be taxed at the individual income rate or if I start the Corp before year end will my gains be taxed at 21%.

    I approach any help I might get.

    #3110786
    Notacpa…yet
    Participant

    Appreciate* haha

    #3110990
    Recked
    Participant

    The stock sales will all be reported under your SSN, so you should anticipate all ordinary income on the short term capital gains. The IRS will compare the brokerage statement (filed with your SSN) to your tax return and this would create an automatic numbers matching audit.
    I am not sure I would recommend a Corp for this from tax purposes either.
    Just because the corp still has the lower tax rate, you still can't touch the money unless you receive it as income from the corp, either earned income, or dividend income. Based on the scenario you provide this would not be classified as a qualified dividend, so you are back to paying ordinary income tax, plus the corp tax on top.
    Double layers of taxation rarely makes sense for a tax savings strategy.

    End of year might be a good time to harvest losses, if you have any losing stocks.

    Just for clarity, what is your income tax bracket, and how much in gains are we talking about?
    You could try and move these gains to day-trader/ordinary income type situation, and possibly open some retirement contribution options… especially if you are already over the SE cap with W2 wages, etc.

    If you need someone to do your taxes let me know. It's sort of my thing.

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

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    #3111414
    monikernc
    Participant

    Because I think this is not the place to seek serious advice I will add to the absurdity that you can get married with a good prenup and/or give some to charity before year end. Up to you. In all seriousness, I urge you to get real advice from a CPA that is based on the full facts of your complete situation. Don’t ask people studying for an exam to guess based on a little info.

    AUD - 93
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    #3111753
    Tncincy
    Participant

    Key words “made the money already”. So trying to avoid tax consequence with forming a corp is a little late, but there are other options of how to use the money now. You might not be able to avoid the taxes.

    It begins with a 75
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