Colin, sorry, I didn't give all the details. You are right, it needs to be a consulting fee. In order for both to take advantage of the SEP-IRA, each spouse files as a trader, with a separate schedule C and schedule D, with trading expenses and capital gains allocated between the two. They also each pay the other a consulting fee, say $150k (or whatever the maximum needed for SEP-IRA's), and each files a schedule C to report their consulting income. And maybe a 1099 too. Each pays self-employment tax, and each gets to make a SEP-IRA contribution (max $25k or whatever it is).
So you have a total of 4 schedule C's (2 with losses, 2 with consulting fees) and 2 schedule D's (both with gains) filed.
Net net, the IRS gets as much, or maybe more, tax payments that year. All gains were short-term. If they challenge the SEP-IRA, they would have to contend the income is not earned, and therefore give a refund of the self-employment tax.
I didn't think up this strategy, a partner in a NYC accounting firm with a lot of trader clients came up with it for me. As I said, I don't use it anymore, and am not necessarily recommending it, but thought it might be of interest.
Now that I've got the SEP-IRA's funded, the next step is to convert part of them to Roths, of course.
Dennis |
