1

I have a question about how investments managed by an LLC are taxed. For example, say I invest my own money and buy a stock and I sell it for a positive return. If it is sold in less than a year of holding, I will have to pay a higher amount of taxes than if it were sold after one year of holding.

However if I give an investment company my money to manage, and they buy and sell a lot within one year, but the company holds the money for more than a year, which rate would I pay? If I pay the lower tax rate, could I not just start a company like an LLC to manage money and park my money there to invest?

Let me give an example: Imagine I put my money into the LLC and the owners of the that company took no profit and the owners used my money to buy one stock. Imagine that eight months later, the stock has appreciated in value by 10% and was sold, then bought again, appreciated 10% more over another eight months and sold. If I take my money out at this point, how is this taxed?

1

Assuming United States:

The default treatment of LLCs is to pass all profits and losses to their owner(s). So you would not gain any advantage from holding your assets in an LLC this way.

When you elect an LLC to be taxed as a Corporation, it does get potentially taxed at a lower rate, but the profits and losses are taxed AGAIN as income or dividends or sale of your ownership in the corporation.

  • Hey thanks for the reply, I still don't quite understand, so I gave an example in my question that I think would clear up my confusion if I knew the answer. – Ceeerson May 27 at 0:31
  • @CQM - could you illustrate with an example but the profits and losses are taxed AGAIN as income or dividends or sale of your ownership in the corporation – perennial_noob May 27 at 1:59
  • @Ceeerson in your example the in a pass through llc (the default treatment), the 10 month trade is taxed as short term capital gains ON THE OWNERS PERSONAL TAX RETURN. the owner would be 100% you and there is no difference in this case between not having an llc as there is only one taxfiler (llc passes through tax events to you and doesnt file its own taxes). If you elected for corporation treatment in this trade, the 10 month trade would be subject to corporate tax rates, and when you got around to distributions to owners it would be taxed again at their tax rates as there are two taxfilers. – CQM May 27 at 2:30

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.