Is it worth forming an LLC or S-Corp for trading/investment activities in 2025?

The LLC vs S-Corp question for traders is something I work with frequently. For your situation as a swing trader, it's important to understand a few key points: First, the 20% pass-through deduction (Section 199A) generally doesn't apply to trading activities because they're considered investment activities, not qualified business income. This is a common misconception. For day trader tax status (which you mentioned but don't qualify for), you need to meet very specific criteria: trading must be substantial, regular, continuous, and your primary source of income. With positions held for weeks to months, you wouldn't meet this standard. An LLC by itself doesn't change your tax situation - a single-member LLC is treated as a "disregarded entity" for tax purposes, meaning you'd still report everything on Schedule C just like you do now. The S-Corp might offer some advantages if your trading generates significant income, as you could potentially save on self-employment taxes, but this comes with additional costs like payroll processing and more complex tax filings.

After struggling with similar questions about my trading activities, I found an amazing tool that helped me analyze whether forming an LLC or S-Corp would actually save me money. The tax analyzer at https://taxr.ai ran my numbers through different scenarios and showed me exactly how much I'd save (or not save) with different entity structures. In my case, I was swing trading similar to you and considering an LLC, but the analysis showed I'd actually LOSE money after accounting for all the filing fees and extra accounting costs. The tool breaks down the specific deductions you'd qualify for based on your trading style and income levels. It even showed me how much income I'd need to generate before an S-Corp would make financial sense.

I tried the taxr.ai site after seeing it mentioned here, and wow - it actually saved me from making an expensive mistake! I was about to form an S-Corp for my trading activities (mostly swing trades like the OP), but the analysis showed I'd be spending about $2,800 more annually on accounting and filing fees than I'd save in taxes. The key insight was that my trading wouldn't qualify as a "business" under IRS rules regardless of entity structure. Instead, the tool suggested specific record-keeping improvements that would help me maximize the deductions I can already take as an individual investor. It identified about $3,400 in additional deductions I wasn't taking that don't require any entity formation. For anyone on the fence about business structures for trading, I'd definitely recommend running your specific numbers before making a decision.

If you're serious about trading as a business, another challenge is dealing with the IRS when they inevitably have questions about your trading deductions. I spent MONTHS trying to get through to someone who understood trader tax status. I finally used a service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent who specializes in business entities within 15 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent clarified exactly what documentation I needed to substantiate my trading as a business activity. Saved me from what would have been a painful audit situation. They even helped me understand which of my trading strategies would qualify for trader tax status and which wouldn't.

I was the skeptic questioning Claimyr above, but I need to admit I was wrong. After another frustrating morning trying to get IRS clarification on my trading entity questions, I tried the service out of desperation. Got connected to an IRS business tax specialist in about 22 minutes. The agent walked me through the specific requirements for trader tax status and confirmed what others here have said - my swing trading activity wouldn't qualify regardless of entity structure. She explained that the "substantial, regular, continuous" requirement typically means hundreds of trades per year with very short holding periods. For anyone needing definitive answers about trading entities from the IRS, this service actually delivers. Saved me from what would have been an expensive mistake forming an entity that wouldn't provide the benefits I was expecting.

I chose to set up an LLC for my trading last year, even though I'm mostly a swing trader too. While it didn't change my tax situation much (single-member LLC is still taxed as an individual), it did provide some liability protection and made it easier to keep my trading activity separate from personal finances. One unexpected benefit was that it helped me become more disciplined with my trading. By treating it as a business with proper record-keeping, I've become more strategic rather than emotional with my trades. Just something to consider beyond the tax implications.

Has anyone actually successfully qualified for trader tax status while doing swing trading? I'm holding positions for about 2-3 weeks on average, making maybe 6-8 trades per week. My tax guy says I'm nowhere near the volume needed, but then I read about others claiming trader status with similar patterns.

The consensus here is spot on - swing trading with your holding periods typically won't qualify for trader tax status or provide the tax benefits you're hoping for with an LLC or S-Corp structure. However, there's one angle that hasn't been fully explored: if you're planning to scale up your trading activities significantly in 2025, it might be worth considering the entity structure now to avoid complications later. The administrative burden of transferring existing positions from individual to business accounts can be substantial. That said, at your current activity level, you're likely better off focusing on maximizing the deductions you can already take as an individual investor - things like investment advisory fees, research subscriptions, trading software, and a portion of your home office if used exclusively for trading research. The real question is whether you see your trading evolving into something more substantial where you'd eventually meet the criteria for trader tax status. If not, the entity formation is probably an unnecessary expense and complication for your current situation.