High-Performance Trading & Tax Efficiency Solution
Transform Your Investment Activities into a Tax-Optimized Business Structure
Executive Summary
Sigma 3 Capital offers a powerful and sophisticated investment solution specifically tailored for high-net-worth individuals. Our strategy combines the benefits of creating a dedicated trading business (an S-Corporation), utilizing special IRS tax elections (475(f)), and integrating robust retirement planning (Solo 401(k)). This structure not only significantly reduces tax liabilities but also amplifies wealth-building opportunities through professional portfolio management.
Detailed Explanation of the Strategy
Background and Mechanics
When most individuals invest, trading gains are typically subject to standard capital gains taxes, and losses have strict limitations on deductions. The Sigma 3 approach changes this dynamic by transforming your trading activities into a formalized business through an S-Corporation. By doing so, you unlock significant tax and strategic advantages:
Key Benefits
Business Expense Deductions: Expenses related to your trading activities (such as software, advisory fees, data subscriptions, and office expenses) become fully deductible.
Section 475(f) Election (Mark-to-Market): This special IRS election allows trading gains and losses to be treated as ordinary income or losses rather than capital gains or losses. This means:
Losses are not restricted by the typical $3,000 annual capital loss limit
No wash-sale rules, making trading more efficient and flexible
Losses (when active) can offset other ordinary income sources, significantly lowering your overall tax burden
Solo 401(k) Retirement Account: By paying yourself a modest salary from your S-Corporation, you can contribute significantly to a Solo 401(k), further reducing taxable income and rapidly building your retirement fund.
Active vs. Passive Participation
This trading business can be structured in two ways, depending on your preference and lifestyle:
Active Participation
You personally engage in trading activities, actively manage or closely oversee trading decisions, and meet IRS-defined participation thresholds (e.g., at least 500 hours annually)
Benefits: Trading losses can directly offset other active income sources like W-2 or business income
Passive Participation
You delegate trading decisions and activities to professional portfolio managers (like Sigma 3 Capital), with minimal involvement from you personally
Benefits: Simplifies your involvement but limits loss deductions to passive income sources only (e.g., rental property income)
Practical Example of Benefits
| Scenario | Total Profit | Business Expenses Deducted | Solo 401(k) Contribution | Taxable Income |
|---|---|---|---|---|
|
Conservative
|
$100,000
|
$15,000
|
$26,000
|
$59,000
|
|
Moderate
|
$150,000
|
$20,000
|
$38,000
|
$92,000
|
|
Aggressive
|
$250,000
|
$30,000
|
$45,500
|
$174,500
|
Why This Structure Works
IRS-Compliant Business Structure: Legitimizes your trading activity as a professional business, reducing audit risk.
Tax Optimization: Utilizes available IRS provisions to convert capital transactions into ordinary transactions, maximizing deductions.
Retirement Acceleration: Significantly increases your annual retirement contributions far beyond traditional IRA limits, accelerating tax-advantaged growth.
Ideal Candidates for this Strategy
High earners seeking advanced tax-saving strategies
Investors interested in professionally managed portfolios with tax optimization
Individuals seeking to leverage trading gains into significant retirement savings
Getting Started
Implementation Timeline
| Action | Timeframe |
|---|---|
|
Set Up Personal Trading Company
|
Within 1–2 Days
|
|
IRS Special Election (475(f))
|
Within 1–2 Weeks
|
|
Solo 401(k) Account Setup
|
Within 2–4 Days
|
|
Sigma 3 Portfolio Management
|
Immediately upon Setup
|
Take the Next Step
Sigma 3 Capital is committed to offering elite-level investment solutions tailored specifically for your needs. Let us handle the complexities, so you can benefit from reduced taxes, maximized retirement savings, and professional portfolio management.
Contact Sigma 3 Capital today to learn how we can specifically tailor this powerful strategy to your financial goals.
Disclosure
Important Notice:
Advisory services are offered through Sigma3Capital LLC, an Investment Advisor in the State of CA.
Sigma3Capital LLC and Long Nguyen are not affiliated with or endorsed by the Social Security Administration or any other government agency.
All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Purchases are subject to suitability. This requires a review of an investor's objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage commissions, reinvestment of dividends and other earnings or fund charges.
Thank you for considering this investment proposal. We are committed to supporting you in achieving your financial objectives and look forward to working closely with you on this journey.
