Taxes on Investment Gains

[rogercbryan]

I know I need to call my CPA on this but I always like to get a little input from you all before I do...

Here is the situation. One day at lunch one of my employees started talking to me about FOREX and I was impressed with his knowledge of this market. He then made a smug comment that first was insulting but then intriguing. He told me that if I gave him just one of my bar tabs to invest in FOREX he could make a ton of money. So I figured what the heck its only a few dollars.

I gave a him some money and he ran it up 600% in three weeks. Now that I feel like he has a grasp on this I'm interested in making our arrangement more legitimate which means I want to be protected from tax liability mistakes. I still understand that he could loose this all in a day...

All the FOREX sites I've talked to do not allow joint accounts between two unrelated people. It has something to do with money laundering. I was told that I could use one of my corporations as the account holder if I wanted. Which may not be bad idea.

So if I use a corporation as the account holder and then have my investor (employee) as an employee of the corporation and pay him 50% of the profits will my corporation (via disbursement myself) only be responsible for the other 50% of income? If the corporation pays him (the investor/employee) as a contractor (1099) will I be protected from his tax liability? If I pay myself on a schedule K will I be taxed at my normal income tax bracket or will I be paying a capital gains tax?

I like to educate myself a little before I call my CPA... this way I don't feel like an ass when I talk to him...

Anyone have any ideas?

[Gaulkin]

Whichever way your CPA happens to go for protection and what not really is not an issue, what is an issue is the bill hes going to charge you for having to organize and form together all your short gains(bought and sold within one year) transactions plus taxes of course.

[rogercbryan]

Whichever way your CPA happens to go for protection and what not really is not an issue, what is an issue is the bill hes going to charge you for having to organize and form together all your short gains(bought and sold within one year) transactions plus taxes of course.

That doesn't make any sense... I would only be taxed on profit taken out of the investment if I did this through a business entity... The individual transactions do not matter... as far as I believe.

[Gaulkin]

That doesn't make any sense... I would only be taxed on profit taken out of the investment if I did this through a business entity... The individual transactions do not matter... as far as I believe.

Each transaction has to be accounted for every time so if you make one thousand trades in a year each has to be filed. This type of thing takes time and therefore translates into a nice bill when your CPA is done.

[rogercbryan]

Each transaction has to be accounted for every time so if you make one thousand trades in a year each has to be filed. This type of thing takes time and therefore translates into a nice bill when your CPA is done.

Yikes... I've been doing a lot of research and I never saw that mentioned... this would be a significant problem.

[Gaulkin]

Yikes... I've been doing a lot of research and I never saw that mentioned... this would be a significant problem.

My dad is a CPA and does my tax return and for my income plus about twenty short term transactions the bill would of been 600 dollars.

[rogercbryan]

My dad is a CPA and does my tax return and for my income plus about twenty short term transactions the bill would of been 600 dollars.

I'm going to call my CPA... my guy is doing 20-30 trades a day right now... this will be a nightmare at the end of the year...

[Gaulkin]

I'm going to call my CPA... my guy is doing 20-30 trades a day right now... this will be a nightmare at the end of the year...

Yes it will be. Each trade you have to write down buy price, sell price and your gain or loss on the return.