Today TaxMama hears from Betsy in San Francisco, who wants an in-depth tax planning for free! “I’m planning to start an Internet business. I live in CA and will be working from my home. I want to create a NV LLC for the asset protection reasons you mentioned in Nevada LLC show. And, if the business is successful, I will likely move to Nevada.
I know I will have to register with CA Franchise Tax Board. But, would I be better off as an employee and taking the home office deduction and other expense deductions. Or just taking my distribution at the end of the year as a member? And can you tell me how I could calculate what the difference would be?”
Hi Betsy,
Essentially a good plan.
Except that you’re in California now – and California has a gross receipts tax for LLCs in addition to the base $800 annual fee. That’s a tax on your earnings before you deduct your expenses. Depending on what your business will do, and how much your sales will be, that additional tax can come as a big shock.
As to your question about being an employee of your LLC, as a single owner, if you don’t make any elections to file the LLC as a C corp or an S corp, you’re automatically a ‘disregarded entity’ (IRS term) and you’ll file the LLC tax return on your personal Schedule C. So, there is no
employee decision, really.
You’re bringing up issues that would take about two hours to explain and evaluate. Can you sort this out yourself? Not really, just to explain all the things to look for in order to make the evaluation would take over an hour – and that’s for someone who’s already spent years learning the issues.
Before you do anything, invest a couple of hours with a good local tax professional who understands the wealth protection, California’s rules about foreign corporations, and small
businesses – and your particular issues. It will be very well worth your time. Good luck on the new business.
And remember, you can find answers to all kinds of questions about incorporating and all kinds of other tax issues, free. Where? Where else? At TaxMama.com
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