S Corp with Straddles Income
If this activity were to generate let's say 100K of profit, and the   other corporate activities also generate 100K of revenue, are there   any issues tax-wise I need to be concerned about? Yes. Having 25% or more of passive income in 3 consecutive years will invalidate your S-Corp status and you'll revert to C-Corp. Can I deduct normal business expenses from the straddles (which are   taxed as short term capital gains) profit? I don't believe you can. You can deduct investment expenses from the investment income. On your individual tax return it will balance out, but you cannot mix types of income/expense on the corporate return or K-1.
First of all, this is a situation when a consultation with a EA working with S-Corporations in California, CA-licensed CPA or tax preparer (California licenses tax preparers as well) is in order. I'm neither of those, and my answer is not a tax advice of any kind. You're looking at schedule CA line 17 (see page 42 in the 540NR booklet). The instructions refer you to form 3885A. You need to read the instructions carefully. California is notorious for not conforming to the Federal tax law. Specifically, to the issue of the interest attributable to investment in S-Corp, I do not know if CA conforms. I couldn't find any sources saying that it doesn't, but then again - I'm not a professional. It may be that there's an obscure provision invalidating this deduction, living in California myself - I wouldn't be surprised. So I suggest hiring a CA-licensed tax preparer to do this tax return for you, at least for the first year. The answer seems to depend on where you live.  Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.)  In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check.  Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost. The only possibility that I've seen in the past is if some of the income is for deferred services which are to be delivered in the following tax year, a portion of the income can be deferred.  Also, agree that you should be an S-corp and talk to another CPA if yours hasn't told you that yet. "Came across this very nice video which explains the ""Long Straddle"". Thought will share the link here: http://www.khanacademy.org/finance-economics/core-finance/v/long-straddle" Do not mix personal accounts and corporate accounts. If you're paid as your self person - this money belongs to you, not the corporation. You can contribute it to the corporation, but it is another tax event and you should understand fully the consequences. Talk to a tax adviser (EA/CPA licensed in your State). If they pay to you personally (1099) - it goes on your Schedule C, and you pay SE taxes on it. If they pay to your corporation, the corporation will pay it to you as salary, and will pay payroll taxes on it. Generally, payroll through corporation will be slightly more expensive than regular schedule C. If you have employees/subcontractors, though, you may earn money which is not from your own performance, in which case S-Corp may be an advantage. I was looking for ideas on what the usual figures are in such positions. Something like market value, or other terms such as changing slab percentages in compensation. Not sure what the best practices are in this situation.  Not sure what you are referring to. No there is no way to have untaxed earnings.  Single Member LLC are taxed on your personal taxes.  Partnership LLC is taxed on your and your partners personal taxes.  An C-Corp LLC has its own tax bracket.  An S-Corp is taxed on your personal taxes (but does not get taxed as self-employment taxes).   At $500,000, YOU SHOULD BE AN S-CORP or C-CORP to save on self-employment taxes. "This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so ""earnings"" are taxed the same. However, for S-Corp there's a ""reasonable compensation"" requirement, so while B and C don't do any ""work"" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place."