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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 88441
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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I live in PA and work for as a consultant for a company in

Customer Question

I live in PA and work for as a consultant for a company in CA. I travel to client sites around the country.

Is there an advantage to setting up an LLC? If so, should I set up the LLC in PA or somewhere else? The fee for setting up an LLC in PA is very expensive compared to other states. On the other hand, would it be more complicated to file taxes, or would I need to register as a foreign corporation in PA, if I have an LLC from another state? I want to make sure I can write off expenses for my home office, etc.
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 1 year ago.
The only advantages to the LLC is insulation from personal liability for anything done by the LLC, but it does not relieve you from personal liability for your own actions. Tax advantages of the LLC can be a bit different, but it depends on expenses of the LLC. What I mean by this is that the LLC is a flow through entity, meaning that any profits or losses of the LLC go on your individual taxes. The LLC files a tax return and lists income and expenses and then the botXXXXX XXXXXne is issued to you on a K-1 form for you to file (like a 1099) on your own taxes. Thus, you can rent office space and that would be a deduction (even if you rent it from your home, which would unfortunately be income to you personally for rent, but then there are deductions from rental property too and you need to sit with your CPA to determine that based on your personal situation). Most of the expenses the LLC will write off will be the same expenses you can write off on your personal taxes if you are the sole member and sole employee.

Since you are NOT conducting business in PA, you can register your LLC anywhere and the best places right now are Nevada or Wyoming, they have no state taxes and the formation costs and annual maintenance costs are very reasonable. You do not need to register your LLC in PA if you are not regularly conducting business there, which you are not doing if you are traveling.


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Customer: replied 1 year ago.

Wouldn't the fact that I am writing off my home office in PA indicate that I am regularly doing business in PA, and thus require me to register as a foreign corporation?


 


Also, let's say I am set up as a Wyoming LLC... even though Wyoming has no state tax, wouldn't I still need to pay state tax, if I live in PA and get money from the LLC?


 


And would I be able to pay personal expenses out of my Wyoming LLC, and thus limit the net income that is taxed? (I understand this could put me at risk for piercing the corporate veil, thus negating the liability benefits of the LLC, but I am wondering about tax implications. I suspect that I would still pay taxes on the income of the LLC, and would not be able to write off expenses paid out of the LLC unless they were business related - but I wanted to get confirmation that this is correct thinking).


 


Thank you.

Expert:  Law Educator, Esq. replied 1 year ago.
Not necessarily, since a person can have an office but not regularly conduct business within a state. As you travel to customers or work online, you are not regularly doing business in PA. This is something commonly done by many corporations and LLCs and unless you are dealing regularly and frequently with customers in PA, you are not doing business in PA, even if your base office is there.

You would pay income tax in PA for any income you receive from the LLC, depending on your CPA, you may be able to minimize that too and you can even have an LLC taxed like a corporation, which would mean no WY tax and your LLC pays tax on profits and then you only pay PA income tax on your direct income from the LLC, which you of course can control. You need to discuss the actual tax issues based on your specific financial situation with your CPA.

You could pay some personal expenses out of the LLC, you just need to justify them as business expenses properly with your CPA to avoid the commingling. However, people do this all of the time and it depends on having a good CPA and this minimizes the profit of the LLC as well.
Customer: replied 1 year ago.

And if I sign a consulting agreement (NDA, or Non-Compete), and my name appears on the contract along with the name of my LLC, am I still shielded personally if someone comes after me for a violation of the agreement?

Expert:  Law Educator, Esq. replied 1 year ago.

You would have to sign the contract "on behalf of LLC name" and do not sign personally, but most companies are sophisticated and would insist you sign both for the LLC and personally for an NDA or Non-Compete and even if you do not, they can argue as a sole member LLC you are still personally bound by the NDA as a member of the company and also by the non-compete. So the court will not let you avoid complying with these types of agreements as an LLC, this is what I said in the beginning you can still be personally liable for your personal acts and this is an example.

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