LLC / Capital Gains / Business Expenses?

Question

If you trade stocks / futures in a LLC, how is the taxable LT / ST
capital gains offset by business expenses in the LLC? Do business expenses offset the long-term gains or the short-term gains equally? Or can you choose to have business expenses offset the short-term gains first?

For example, let's assume the following:

100K long-term gains
75K short-term gains
50K business expenses

Can the entire 50K of business expenses offset the 75K short-term gains or do the business expenses have to reduce LT / ST gains equally?

If you are trading in a multi-member LLC (selected to be taxed as a partnership), how does business expenses offset the long-term / short-term capital gains from trading?

Since STCG is taxed at a higher rate than LTCG, can business expenses be first applied against any short-term gain, before being applied against long-term gain?

Answer 1

On your Federal return, an LLC is a disregarded entity. You file Schedule C as if you were a Sole Proprietor. The capital gains and losses go on Schedule D as always. Long term gains are taxed at the preferential rate, normally 15% unless your marginal rate is 15% or less where it's 5%. Short term gains are taxed as ordinary income.

Answer 2

Bostonia is correct. If there is only one member, then the LLC is disregarded for income tax purposes. However, if you have more than one taxpayer, then those three items flow through to the members separately on the Form K-1 and are placed in the appropriate places in the member's income tax return. It is unclear from what you have said, but the expenses could flow through as investment expenses subject to a 2% reduction on Schedule A or if they are trade or business expenses, they could flow through to Schedule E and be a reduction of gross income.