Do I need to set up an LLC to trade stocks?
by G
Starting out as a part time private stock investor. However, have invested $ already in training programs, and will continue to travel to classes, and incur more business expenses that could be used toward write offs. I've been told that it would be best to just set up an LLC. Does this make good financial sense?
Answer
If all you're doing is trading stocks on the national exchanges (and not buying majority interests in companies and running them yourself or through a manager), then you don't need an LLC.
As an ordinary shareholder of, say, Microsoft stock, you have no liability for any debts of Microsoft. The added limited liability protection of purchasing common stock through an LLC is an unnecessary expense.
Secondly, your investment expenditures are tax deductible against your investment income (dividends, interest, capital gains), regardless of whether they are owned by you directly or through an LLC.
In conclusion, there is little reason to form an LLC to invest in stocks.
The only thing that might change my mind is if you plan on having a partner investing with you, in which case you might want to create an entity and spell out precisely each member's contributions, responsibilities, and profit/loss sharing in your LLC's operating agreement.
