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Online Share Trading

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trading through a company vs personal

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Not applicable
Hi all, could some of the more experienced in this regard save me the time and hassle of finding this out the hard way - what are the pitfalls of trading through a company vs in my private capacity? My primary benefit is that I earn income through my company, and if I divert funds to a trading account - I only incur company taxes vs personal if I pay myself out and then trade
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25 REPLIES 25
partridge
Super Contributor
Asking this forum for this sort of advice is like asking your mate at a braai. Do yourself a favour and go and talk to a CA or CFP who specialises in planning and tax planning around small business entities. I could list at least 8 major areas they will look at with you. But I won't.
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Not applicable
well, you are about as useful as 2 birds in a bush. And what is up with all the pessimism and criticism? Generally you get quite sound advise from people on the forum. It is how you choose to use it that requires care. I didn't ask for bleeding tax advise, I asked what the pitfalls are - I will make my own decisions on the impact, if you don't mind.
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partridge
Super Contributor
I don't "mind" - its your money - and at this point Clint Eastwood's famous lines sort of come to my mind. ( en passant: I would have hoped that it would have occurred to you that I would not be saying what I was saying unless I knew something about the subject.) Every good wish to you.
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Rams
Super Contributor
eh eh...there are PROS and there are CONS, in my opinion, most of the PROS are CONS!
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md49
Contributor
Well I am a 29 year old CA (so dont know whether I have required experience you may want in an answer) but it would be in your interest to trade it through your company as you will only be taxed 28% on profits and you also can claim deductions on any "expenses" you may have incurred as a result of trading - I wont go into detail on that but i'm sure you get the idea. If its in your own name you will be taxed at your marginal rate which could go up to 40% and you cannot claim any deductions at all because it will be deemed as personal income.
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BC02
Super Contributor
you can claim deductions, read up on Sec 11(a).
You also forgot if you move money out of the business you will pay other costs like DWT. IMO research this a couple of months ago it was cheaper not to trade through a company.
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Rams
Super Contributor
why is expenses not deductible if the income is deemed personal...assume that trading is the sole source of income or is more than 50% of the income derived from other sources
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md49
Contributor
If its personal - it is like earning a salary. You cannot claim expenses against your monthly salary. Only expenses deductible are retirement funding, Medical aid and travel allowance (which is worth nothing anymore). Sad but true.
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GGG
Contributor
You can run it as a Sole Prop and claim deductions.
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BC02
Super Contributor
this is absolute rubbish, you can claim deductions against salary. You cannot claim expenses related to your salary against your salary, but any other income venture can be deducted. If that venture is not profitable for 3 years running it gets ring-fenced.
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prancing_horse
Super Contributor
Skaaptjop, I presume the funds will be used to open an account in the company's name, which will make all expenses tax deductable, you will also be trading with some of the SARS's money until such time as you declare a dividend with the profits.Only if you are at the marginal rate, which is currently 40%,will you be better off, as for every R1 profit you will pocket 61.2c as against 60 in a personal capacity, with the question mark still hanging over what can be tax deductable in your personal capacity. Bottom line you will be at least 2% better off going the company route IMO.
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BC02
Super Contributor
I thought it was: "I tried being reasonable, I didnt like it" :)
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Rams
Super Contributor
i agree BCO2, but a new tax law came about where you can only claim the expenses if the trading income is more than 50% of your salary...if earn 500 000 per annum and trading income is 260 000per annum..you can claim the expenses.
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partridge
Super Contributor
This is hysterical - keep those answers coming - I will keep turning the chops !
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BC02
Super Contributor
This is not a new law, that law is only applicable to commission nothing to do with trading. Its really simple, sec 11(a) allows you to deduct expenses that are "in the production of income".

This was commonly used by doctors who owned farms and set off the one expense against the other. They now ring-fence the income generating activity if its just losses year after year.

As you can see its, this is not difficult but it really is best to discuss this structure with someone who specializes in tax if you are thinking of going ahead - not just someone whos in the financial industry.
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Wino
Super Contributor
Pitfalls could be loss of focus (if your company does something differently), is a poor operational fit, tax issues and complicated accounting. To avoid this, business people tend to set up a pyramidal structure i.a.w a holding company with business entities as wholly owned subsidiaries and/or, depending on the situation regarding estate planning, a trust which owns all of the shares in the companies. The subsidiaries can be pty ltd's, cc's or sole prop's. I hope this helps.
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U-Dog
Contributor
I started a family owned company for investment purposes. A portion of the shares are issued to my kids so that as the company grows, they will share in the upside value without one day having to have their inheritance subject to estate duty to the extent of their holding. I am still currently employed full-time so no monies are currently being withdrawn and all monies I put into the company are treated as loan capital. SARS currently allows a R200k annual donation to children tax-free so again I can annually donate R200k of the loan capital to my kids if I so choose. Within the company, all business related expenses are deducted for tax purposes (wear and tear on computer equipment, etc) I like the structure because it's clean and easy to manage.
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prancing_horse
Super Contributor
Any amount over R100000 donated in a tax year is subject to 20% tax, not R200000 asx you've stated.How I wish you were correct. It's been like that since tax year 2008, about time it was increased.
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U-Dog
Contributor
Apologies you are correct. R100k. I seem to have it my head that an increase was being discussed but could be wrong
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