In December of 2017, President Trump signed the Tax Cuts and Jobs Act. This was a huge piece of legislation that affects a lot of areas. It includes new tax brackets, increased standard deduction and elimination of personal exemptions, and much more. But what does this all mean?
Here at Prime Corporate Services, we want to make sure you understand the new tax reform and understand how to take advantage of and protect yourself against these laws.
To start, we want to explain the suspension section 212, and what that means for investors. Section 212 of the tax code has been suspended from January 1, 2018 – to at least 2025. What that covers are your itemized deductions. Operating as an individual in self-employment eliminates the ability to take advantage itemized deductions.
(I.e: Internet bills, phone bills, power bills, gas and mileage)
Trading as individual categories you with the IRS as “Default tax status”. The large majority of W-2 filers will fall under the Default Tax Status. Falling under the Default tax status umbrella not only eliminates your ability to take itemized deductions, but it also subjects you to capital loss limitations, and short term capital gains with restrictions on our ability to offset our tax liability. For investors under the default tax status, you can no longer write off expenses directly related to investments.
(I.e: subscriptions, newsletters, buys and holds, brokerage fees and commissions, and much more)
As you could see, all these deductions add up quickly, and you could potentially be leaving a lot of your hard-earned money on the table.
Good news is, there is a solution for individuals and investors.
The solution is to fall under Self-Employed Trader Status. To fall under this umbrella, individuals are required to be trading through a specific type of business entity structure that consists of a sanctioned trading operating agreement. Self-employed trading status gives us the ability to take up to 250 tax deductions, and allows us to capture our capital loss in it’s totality. Which, we can not do under default tax status.
Now there are a lot of complex things to know when it comes to setting up your business entity. Such as “what is the required business entity to obtain self-employed trader status, and how that is structured”.
At Prime Corporate Services, we specialize in helping you with your specific needs. We offer a free, one-hour consultation that will go over your business and what would be the right fit for you and your investments.
Take advantage of this offer, to make sure you are taking advantage of the the New Tax Reform!