Does trading stocks/crypto in an S-Corp change how taxes are calculated for capital gains?

The confusion is understandable! Let me clarify how this works. With an S-Corporation that trades stocks/crypto, the entity itself doesn't pay taxes - all income, including capital gains, flows through to your personal tax return via Schedule K-1. When your S-Corp makes profits from trading, those capital gains maintain their character (short-term or long-term) as they pass through to you. You'd report these on your personal return just as if you had made those trades yourself. So no, you're not being double-taxed on the same money. Regarding salary and distributions: Yes, as an S-Corp owner you need to pay yourself a reasonable salary subject to employment taxes (Social Security and Medicare). Any additional distributions beyond that reasonable salary aren't subject to self-employment taxes, which is the main tax advantage of an S-Corp. But both your salary and distributions come from the company's profits, which have already been allocated to you via K-1. For the capital gains specifically - each trade is still a separate taxable event with its own basis and holding period, just like individual investing. The S-Corp tracks these separately and they flow to your personal return with the same character they had in the S-Corp. Reinvesting profits doesn't change your tax liability - you're still taxed on the realized gains whether you hold cash or immediately buy new investments.

I went through exactly this dilemma last year with my crypto trading business. After tons of research, I finally found taxr.ai (https://taxr.ai) which completely solved this issue for me. Their system analyzed my corporate structure and trading history, then showed me exactly how the pass-through taxation works for capital gains in an S-Corp. What really helped was their specific breakdown of how each trade flows through to the K-1, and their explanation of why you're not getting double-taxed (even though it feels that way initially). They also clarified the requirements for "reasonable compensation" for trading activities, which was super valuable since the IRS scrutinizes this area. The tool also identified exactly which business expenses were deductible for my trading operation, which saved me a ton in taxes I would have otherwise missed. For anyone dealing with crypto or stock trading in corporate structures, it's been incredibly useful.

Just want to follow up after trying taxr.ai based on the recommendation here. It was incredibly helpful for my situation! I was making the mistake of not documenting my time properly for my S-Corp trading activities, which could have been a huge red flag in an audit. The system showed me exactly how to structure my compensation vs. distributions for my trading business, and explained why certain expenses I thought were deductible actually weren't. It also cleared up my confusion about how capital losses in the S-Corp flow through to my personal return, which my previous accountant had gotten wrong. The best part was getting clarity on how trader tax status works with an S-Corp structure - turns out I qualified for mark-to-market accounting which makes a huge difference for my situation. Definitely recommend for anyone doing trading through an S-Corp!

If you're struggling with getting straight answers about your S-Corp trading situation, you might want to try Claimyr (https://claimyr.com). I was in a similar situation with conflicting advice from professionals, so I decided to go straight to the source - the IRS. Problem is, trying to reach someone at the IRS is nearly impossible these days. I spent HOURS on hold before I found Claimyr. Their service got me connected to an actual IRS agent in less than 20 minutes, and I was able to get a definitive answer about how trading in my S-Corp should be handled. They have a video demo that shows exactly how it works: https://youtu.be/_kiP6q8DX5c For tax questions where you're getting different answers from professionals, sometimes going straight to the IRS is the only way to get clarity, and Claimyr made that process so much easier than I thought possible.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation, and it actually worked exactly as described. Got a call back within 30 minutes with an IRS business tax specialist on the line. The agent walked me through exactly how the K-1 reporting works for capital gains in an S-Corp and confirmed that each trade is indeed a separate taxable event that flows through with the same character (short vs long term). They also explained that the reasonable compensation requirements still apply even for investment activities if you're actively managing the portfolio. Most importantly, they clarified that reinvesting profits doesn't reduce your tax liability - you still owe taxes on realized gains regardless of whether you keep the cash or reinvest it. This was something my CPA had given me incorrect information about. Definitely worth the call!

One important thing that hasn't been mentioned yet - if your S-Corp is only doing trading, you might run into the "personal holding company" rules. Essentially, if your S-Corp's income is primarily from investments rather than an active trade or business, you could lose some of the tax benefits. Also, be aware that day trading in an S-Corp might qualify you for "trader tax status" which changes how you can deduct expenses and potentially allows mark-to-market accounting. This is a whole different ball game tax-wise and potentially very beneficial if you qualify.

People overlooking a HUGE point here - if your S-Corp ONLY does trading and has no other business activity, you might not get the S-Corp tax benefits you're hoping for! The main advantage of an S-Corp is saving on self-employment taxes by taking a portion of your income as distributions. But if all you're doing is trading, those profits are considered investment income, NOT earned income or self-employment income to begin with! So essentially, you're creating an extra entity with extra compliance costs (corporate tax returns, payroll, etc.) without getting the main tax benefit. Individual traders don't pay self-employment tax on their trading profits anyway! The exception would be if you qualify for trader tax status AND make a mark-to-market election - then there can be some advantages. But for casual trading? Probably not worth the S-Corp complexity.