The short answer

Most of a day trader’s tax benefits come from how the IRS classifies your trading, not from having a company. If you qualify as a trader, you can claim those benefits right on your personal 1040. A company adds value later, mainly when steady profits make it worth paying yourself a salary so you can fund a retirement plan and deduct health insurance.

First question: are you an investor or a trader?

The IRS doesn’t go by what you call yourself. Calling yourself a day trader doesn’t make you one for tax purposes. To be treated as running a trading business, you must meet all three of these tests.

• You trade for short-term price moves. Your goal is to profit from daily market swings, not from dividends, interest or long-term growth.
• Your trading is substantial. The number and dollar amount of your trades are significant.
• You trade with continuity and regularity. You trade steadily throughout the year, not in occasional bursts.

The IRS also looks at how long you usually hold positions, how much time you spend trading, and whether you rely on trading for your livelihood. There’s no official trade count, but court cases have generally favored people who trade on most market days, make hundreds of trades a year and hold positions for days or weeks rather than months.

What trader status gets you on your 1040

If you qualify, you can report as a trader on your personal return with no company at all. The biggest change is that your trading expenses become deductible business expenses.

One more point: trading gains aren’t subject to self-employment tax, whether you’re an investor or a trader. That’s good news. But it also means trading profits don’t count as earned income, so on their own they can’t fund a retirement plan or support the self-employed health insurance deduction. That’s where a company can come in.

The mark-to-market election (Section 475)

Traders, but not investors, can choose the mark-to-market method. At year-end, your open trading positions are treated as if sold at market value, and your trading gains and losses become ordinary income or loss, reported on Form 4797 instead of Schedule D.

• No $3,000 loss limit. A losing year can offset your wages and other income. For 2026, the excess business loss rule caps this at $256,000 for single filers and $512,000 for joint filers, with any excess carried forward.
• No wash sale rules. They don’t apply to securities in your trading business, which removes a major year-end headache for active traders.
• A possible QBI deduction. Ordinary trading income may qualify for the 20% qualified business income deduction. Trading is a specified service business, though, so in 2026 the deduction phases out between $201,750 and $276,750 of taxable income for single filers ($403,500 to $553,500 for joint filers).

The trade-off is that gains in your trading account are taxed at ordinary income rates, not the lower long-term capital gain rates. Keep any long-term investments in a separate brokerage account and identify them as investments on the day you buy them, so they keep capital gain treatment.

When setting up a company makes sense

Forming a company doesn’t make you a trader, and it doesn’t create the tax benefits above. The company must qualify as a trader on its own. And a single-member LLC is taxed just like your 1040 by default, on Schedule C. So for taxes, an LLC by itself changes very little.

The real benefit comes from an LLC taxed as an S corporation. The S corporation can pay you a salary out of trading profits, and that salary is earned income. That opens up benefits you can’t get from trading gains on a 1040 alone.

What a company costs

An S corporation is a real business with real overhead. Before forming one, weigh these costs.

• Setup and state fees. Formation fees, annual reports and any state franchise taxes, which vary by state.
• Payroll. Running payroll for yourself, filing quarterly payroll returns and issuing yourself a W-2.
• An extra tax return. A Form 1120-S every year, plus state returns, with a K-1 that flows to your 1040.
• Separate accounts. The brokerage account must be in the company’s name, with company money kept apart from personal money.
• Added payroll tax. Most business owners use an S corporation to cut self-employment tax. Traders don’t get that benefit, because trading gains never had self-employment tax. The salary adds payroll tax, so the company only pays off when the retirement and health benefits are worth more than the added costs.

A C corporation is rarely a good fit for an individual trader, because profits can be taxed twice: once in the company and again when you take money out. LLCs taxed as partnerships are used in some cases, such as spouses who trade together.

Side-by-side comparison

If you or your spouse have wages or other earned income, you may still fund retirement accounts and get health coverage through that income, which makes a company less necessary.

Which is right for you?

Your next steps

1. Review your trading pattern

   Look at last year’s trades: how often you traded, how long you held positions and how much time you spent. This tells you whether trader status is realistic.

2. Separate trading from investing

   Keep long-term holdings in their own brokerage account so they’re clearly identified as investments and keep capital gain treatment.

3. Decide on mark-to-market before April 15

   For 2027, attach the election statement to your 2026 return or extension by April 15, 2027. Then file Form 3115 with your 2027 return to complete the change.

4. Track your trading expenses

   Keep records for software, data subscriptions, equipment, education and your home office so you can deduct them on Schedule C.

5. Revisit the company question every year

   Once your profits are steady, run the numbers on an S corporation. Setting it up at the start of a year keeps the paperwork clean.

How we can help

• Review whether you qualify as a trader
• Prepare your mark-to-market election
• File Form 3115 for the accounting change
• Compare a 1040 and an S corporation with your numbers
• Form your LLC and file the S corporation election
• Set up payroll and a reasonable salary
• Coordinate a Solo 401(k) with your provider
• Prepare your personal and business returns

The short answer

Trump Accounts opened on July 4, 2026. They are long-term investment accounts for children, and the government will put $1,000 into the account of any eligible child born from 2025 through 2028. You only have to sign up and ask for it.

What is a Trump Account?

A Trump Account is a savings account for a child, created by the One Big Beautiful Bill Act signed in July 2025. In the tax code it’s called a Section 530A account.

Think of it as a starter retirement account. Money goes in while the child is young, it’s invested in low-cost U.S. stock index funds, and it grows without yearly tax until adulthood. Unlike an IRA, the child doesn’t need a job to have one.

Who qualifies for the $1,000?

The government deposit is a four-year pilot program. A child qualifies when all of these are true:

• Born between January 1, 2025 and December 31, 2028
• A U.S. citizen
• Has a valid Social Security number
• An authorized adult files Form 4547 and requests the $1,000

Children born before 2025 can still have a Trump Account. They just don’t get the $1,000. Any child under 18 with a Social Security number gets the same savings and tax benefits.

How to open an account

1. File IRS Form 4547

   Do it online through your IRS account at IRS.gov/trumpaccounts, through the official site at trumpaccounts.gov, or with your tax return.

2. Watch for the activation notice

   After the IRS processes the election, you’ll receive instructions for activating the account.

3. Activate the account

   Complete the identity verification steps. Once the account is active, eligible children receive the $1,000 and family contributions can begin.

There’s no hard deadline, and the July 4 launch wasn’t a cutoff. Still, we recommend acting soon, especially for children born in 2025 or 2026.

Who can contribute, and how much?

Family and friendsAfter-tax dollars

→Up to $5,000
a year, combined

Your child’s accountOne per child

←Up to $2,500
counts toward $5,000

An employerTax-free to you

Parents, grandparents, other relatives and friends can all contribute, but everyone shares one $5,000 yearly limit per child. Some employers contribute up to $2,500 a year to an employee’s child’s account, tax-free to the employee, and that money counts toward the same $5,000. If you’re employed, it’s worth asking HR whether your company offers this.

The government’s $1,000, and certain contributions from charities or state and local programs, don’t count toward the limit. Contributions stop in the year the child turns 18.

What it could grow to

Here’s what an account might be worth at 18 under three contribution levels.

Hypothetical example assuming an 8% average annual return, compounded yearly over 18 years, before taxes. Actual returns will vary and could be lower.

How is the account taxed?

The most common misunderstanding is that Trump Accounts are tax-free, like a Roth IRA. They aren’t. They’re tax-deferred: no tax while the money grows, but withdrawals are generally taxed as ordinary income later. How much is taxed depends on where the money came from.

Family contributions aren’t tax-deductible. Because you’ve already paid tax on that money, your child shouldn’t pay tax on it again. That only works if there are good records.

What happens at 18?

• Birth to 17Contributions go in and the account grows with no yearly tax.
• The year the child turns 18The account starts following traditional IRA rules and the young adult takes control. No one is forced to withdraw.
• Before age 59½Withdrawals are taxed and may face a 10% penalty. The penalty is waived for some uses, such as college costs, a first home (up to $10,000), or the birth or adoption of a child.

How does it compare to a 529 plan?

A Trump Account works best alongside a 529 college savings plan, not instead of one.

Your checklist

• File Form 4547 for a child born 2025 or later
• Check the box to request the $1,000
• Agree on who in the family will file
• Activate the account when notified
• Ask your employer about contributions
• Start a contribution log
• Check with us before large family gifts
• Use only official government sites

The short answer

A pre-tax 401(k) deferral lowers the taxable wages on your W-2 and the income on your tax return. A Roth deferral doesn’t. If a lender reads your income from your tax return, Roth makes you look like you earn more, even though your business made exactly the same money.

What each choice shows

Example: an S-corp with $60,000 of profit before salary pays its owner a $16,000 W-2 salary, defers $14,776 into a Solo 401(k), and makes a $4,000 profit-sharing contribution.

The K-1 income is the same either way. The S-corp deducts your salary, its share of FICA, and the profit-sharing contribution no matter how you defer. The only thing that changes is how much of your W-2 shows up as taxable wages.

Where a lender gets your income

Your S-corpIssues your W-2 and K-1

→Both flow
to your return

Your 1040Plus the S-corp’s 1120-S

→Lender
averages the years

Qualifying incomeSets how much you can borrow

When you own 25% or more of the business you’re paid by, lenders usually treat you as self-employed. That generally means they qualify you from your personal and business tax returns, typically the last two years, rather than from recent pay stubs.

How it can change your qualifying income

Using the same example, here’s the income a lender could see in each case.

Hypothetical example. S-corp owners who work in the business are expected to pay themselves a reasonable salary, so the no-salary case is shown only for comparison.

Which tax years will count?

This is often the biggest question, and it can make the rest of this article moot.

• Your 2026 return is filed before you applyThe lender will likely use 2025 and 2026. Your choices this year matter.
• Your 2026 return isn’t filed yetThe lender may use 2024 and 2025, plus a year-to-date profit and loss statement. This year’s choices may not affect qualifying at all.
• You close after the S-corp return is dueExpect the lender to want the newest returns, including the S-corp’s 1120-S.

Your other lever: timing the profit-sharing contribution

The trade-off with Roth

Your game plan

Questions to ask your loan officer

• Will I be qualified as self-employed?
• Which tax years will you use?
• Do you read W-2 Box 1, Box 5, or gross pay?
• Do you need the S-corp’s 1120-S too?
• Will you want a year-to-date P&L?
• How do you treat K-1 income vs. distributions?
• Does a new salary this year need an explanation?
• When should my next return be filed?

The short answer

A Roth 401(k) and a Roth IRA follow the same basic idea: you pay tax on the money now, and qualified withdrawals in retirement are tax-free. They have separate limits, so you don’t have to choose. You can fund both in the same year.

Side by side

The biggest difference: getting to your money early

Life happens before 59½. Here’s what it looks like to take out $10,000 from an account with $20,000 in it: $15,000 of your contributions plus $5,000 of earnings.

Hypothetical example. Many 401(k) plans don’t allow withdrawals at all while you still work for the employer, which makes the Roth IRA even more flexible by comparison.

The five-year clocks

To withdraw earnings tax-free, you need to be 59½ and have had a Roth account for at least five years. The two accounts keep separate clocks.

• Roth IRA: one clock covers all your Roth IRAs. It starts on January 1 of the year of your first contribution.
• Roth 401(k): each plan has its own clock, starting with your first Roth contribution to that plan.
• The tip: open a Roth IRA early, even with a small amount. If you roll a Roth 401(k) into it years later, the money uses the Roth IRA’s older clock.

Using both: where the money flows

PaycheckRoth 401(k), up to $24,500

+Plus
a bank transfer

Your bankRoth IRA, up to $7,500

→At retirement
optional rollover

One Roth IRATax-free, one account to manage

Which to fund first

If your income is over the Roth IRA limit, skip step 2. The Roth 401(k) has no income limit, and some higher earners use a “backdoor” Roth IRA, which is worth reviewing with a tax advisor first.

For S-corp owners with a Solo 401(k)

• K-1 profit doesn’t count for a Roth IRA. IRA contributions are limited to your earned compensation, and for an S-corp owner that means W-2 wages, not distributions.
• A Roth deferral keeps your IRA room. It doesn’t reduce W-2 Box 1, while a traditional deferral does, which can shrink how much you can put in your own Roth IRA.
• Married? Your spouse’s wages can count. Filing jointly, the spousal IRA rule lets a working spouse’s pay support IRA contributions for both of you.
• The employer side stays separate. The S-corp’s profit-sharing contribution goes into the 401(k), often pre-tax, and doesn’t touch either Roth limit.

Quick decision guide

• Want access in an emergency: Roth IRA first
• Want to save more than $7,500: add the Roth 401(k)
• Income over the Roth IRA limit: Roth 401(k)
• Want the widest investment choice: Roth IRA
• Employer match on the table: 401(k) first
• Open a Roth IRA early to start its clock
• S-corp owner: check W-2 Box 1 for IRA room
• Roll the Roth 401(k) into a Roth IRA later

The short answer

A Roth 401(k) isn’t a separate plan. It’s a tax choice inside the same 401(k). Every dollar you defer from your paycheck goes in one of two ways: pre-tax (traditional) or after-tax (Roth).

Side by side

The limit is shared. You can split it, for example $12,000 Roth and $12,500 traditional, but you can’t put $24,500 in each.

See the difference: $10,000 of salary over 30 years

Say you set aside $10,000 of pay, you’re in a combined 29.5% tax bracket today (22% federal plus about 7.5% state and local), and the money earns 7% a year for 30 years.

When each one tends to win

Why many people do both

Nobody knows what tax rates will be in 20 or 30 years. Splitting your deferrals gives you both kinds of money in retirement, which lets you choose each year which bucket to draw from. That flexibility lets you fill up the low tax brackets with traditional withdrawals and take anything beyond that from Roth, tax-free.

Your deferral$24,500 limit

→Split
any way you like

TraditionalTax savings now

+And
both grow

RothTax-free later

For S-corp owners with a Solo 401(k)

A few details work differently when you’re both the employee and the employer.

• Your QBI deduction isn’t affected by the choice. It’s based on the S-corp’s profit, which drops by your salary, the S-corp’s FICA, and its profit-sharing contribution either way. Roth vs. traditional only changes the tax on your W-2 wages.
• Roth keeps your IRA eligibility. IRA contributions are limited to your W-2 Box 1 wages. A traditional deferral can shrink Box 1 to almost nothing, while a Roth deferral leaves it untouched.
• Roth needs room for withholding. Because Roth doesn’t lower taxable wages, payroll will still try to withhold income tax. If you defer nearly your whole paycheck, plan to cover that tax another way.
• The employer contribution may have to be traditional. The law now allows Roth employer contributions, but many plans, including Schwab’s Individual 401(k), keep profit-sharing pre-tax. That alone gives you some traditional money every year.

And the Roth IRA?

Quick decision guide

• Low bracket now: lean Roth
• Peak earnings, high bracket: lean traditional
• Not sure: split 50/50
• Need cash for a near-term goal: traditional frees it up
• Want heirs to inherit tax-free: Roth
• S-corp profit-sharing: usually traditional
• Revisit the split every year
• Check your Box 12 code on your W-2

Why Schwab

A Solo 401(k) lets an owner-only S-corp contribute twice: once as the employee through a payroll deferral, and again as the employer through profit-sharing. Schwab’s version costs nothing to open or maintain, accepts both pre-tax and Roth deferrals, and lets you hold low-cost ETFs, including Vanguard’s, commission-free.

What you’re actually setting up

A Solo 401(k) has two layers. The S-corp creates the plan, and you open your accounts inside it.

Your S-corpSigns the Adoption Agreement

→Creates
the plan

The planYour Business, Inc. Retirement Plan

→You open
two accounts

Pre-tax and Roth accountsWhere contributions are invested

The whole process at a glance

Your timeline

• Week 1Gather details, complete the forms, and submit them (steps 1–6)
• Weeks 2–3Schwab reviews the paperwork and opens your accounts
• Before December 31Run payroll with the deferral and deposit it within 7 business days (steps 7–8)
• By the S-corp’s return due dateMake the profit-sharing contribution (step 8)

Start by early November if you want deferrals for this year. Paperwork can take longer than expected, and the plan has to exist before the payroll you defer from.

The eight steps

What to invest in

Use ETFs rather than outside mutual funds, which can carry transaction fees at Schwab. Hold the same fund in both the pre-tax and Roth accounts to keep things easy.

Before you finish: quick checklist

• No employees besides you and your spouse
• Adoption Agreement signed by the S-corp
• Pre-tax and Roth applications submitted
• Beneficiaries named on both accounts
• Deferral Agreement signed before payroll
• 401(k) deduction coded correctly in payroll
• Deposits labeled with type and tax year
• Both accounts invested, not sitting in cash

The idea in one paragraph

As an S-corp owner who works in the business, you’re expected to pay yourself a reasonable W-2 salary. That salary carries FICA, but it also lets you contribute to a Solo 401(k) twice: once as the employee through a payroll deferral, and again as the employer through a profit-sharing contribution. Done right, almost the whole paycheck lands in your retirement account instead of your checking account.

Where the money goes

Your S-corpPays $16,000 salary and $4,000 profit-sharing

→Payroll
FICA withheld

Your paycheck$14,776 deferred, about $0 net

→Deposit
within 7 days

Solo 401(k)$18,776 invested and growing

The paycheck math

You can’t defer 100% of your salary. Your share of FICA has to be withheld from the paycheck itself, and a 401(k) deferral doesn’t reduce FICA. Everything after that can go to the plan.

What it does to your taxes

Here’s the comparison against taking the same $60,000 of S-corp profit with no salary, for an owner in the 22% federal bracket paying about 7.5% in Maryland state and county tax, with a pre-tax deferral.

Your income drops by $20,000, not by the full $21,224 the S-corp deducts. The salary comes back to you as W-2 wages, and only the deferred part leaves your income.

With a Roth deferral instead, your income only drops by the $5,224 of employer-side deductions, and most of that is offset by the lost QBI deduction. You’d be about $1,840 behind this year after FICA. In return, the $14,776 and its growth come out tax-free in retirement.

The whole process at a glance

Your timeline

• NowOpen the Solo 401(k) and sign your deferral election (steps 1–3)
• Before December 31Run payroll and deposit the deferral within 7 business days (steps 4–6)
• January 31Issue your W-2 and file Forms W-3, 941, and 940 (step 8)
• S-corp return due dateMake the $4,000 employer contribution, March 15 or later with an extension (step 7)

The eight steps

8

Phase 3: FinishAt tax time

Check your W-2 and year-end filings

• Confirm the W-2 shows the deferral in Box 12 and the retirement-plan box checked
• File Forms W-2, W-3, 941, and 940 on time
• File Form 5500-EZ once plan assets go over $250,000

Why this matters

A wrong Box 1 or Box 12 shows up as a mismatch on your personal return. Checking the W-2 before you file saves an amended return.

Your W-2 (illustration)

Box 1: wages

$1,224.00

Box 3: Social Security wages

$16,000.00

Box 5: Medicare wages

$16,000.00

Box 12

D $14,776.00

Use code AA instead for Roth deferrals, and Box 1 stays $16,000

Box 13

Retirement plan

Illustration only, based on a pre-tax deferral.

Don’t forget your Roth IRA

IRA contributions are limited to your compensation, measured by W-2 Box 1. With a pre-tax deferral, your Box 1 drops to $1,224, which would cap your own IRA contribution at that amount. If you’re married filing jointly, the spousal IRA rule lets your spouse’s wages count, so you can still contribute the full amount if their pay covers both IRAs.

Is this worth it compared with leaving the money in checking?

Before you finish: quick checklist

• No employees besides you and your spouse
• Plan adopted under the S-corp’s EIN
• Deferral election signed and dated
• Payroll deduction coded pre-tax or Roth
• Payroll paid before December 31
• Deferral deposited within 7 business days
• Employer contribution by the return due date
• W-2 Box 1, Box 12, and Box 13 checked