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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22375
Experience:  Taxes, Immigration, Labor Relations
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I have a delaware LLC with S-Corp elections, and do business

Customer Question

I have a delaware LLC with S-Corp elections, and do business as a consultant all over the US. I am a W2 employee of my business, and officially a resident of the state of New Mexico. I pay NM state taxes for both personal and business income. I just found out on Monday that I have to move to California in the next few months, and I want to understand the tax implications of this. If I am registered in Delaware, but a paid employee residing in CA - am I better off losing the S corp status? Should I close the mess that I've made and start over? I'm thoroughly confused at this point, and reading tax law online is making me cross-eyed. Please help!
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

As your income is taxable in your state - currently in NM and in future - in CA - there is no any tax advantages to have LLC registered in Delaware.

 

It would be less overhead to have LLC registered in the state where you live.

Here is information about CA LLC registration - http://www.sos.ca.gov/business/llc/llc_faq.htm

 

Please let me know if you need any additional information.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22375
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you
Customer: replied 5 years ago.

Would it be better to close the current set up and start over with a new Fed tax id? Or would I be able to just move the whole thing over to CA and sever the registration in Delaware and NM?

 

Thanks!

Expert:  Lev replied 5 years ago.

Delaware LLC doesn't pay income tax in Delaware if it doesn't do business in the state - your only overhead are (1)requirements to file tax return and (2)the minimum tax due $250.

If you feel comfortable - you may leave that as is...

 

If you decide to register LLC in CA - you do not need new tax ID - you may keep all books as well. Please remember - that there is the $800 minimum tax in CA for any LLC that does business in CA.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22375
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you
Customer: replied 5 years ago.

Ok...so, let me make this even more complicated...technically, I'm not doing billing in CA. My billing is all done out of the country. I consult for a foreign company, that has US customers, and they pay that company, who I then invoice for work done on a monthly basis.

 

In my mind, that would mean I am an employee of a Delaware, LLC with SCorp elections, who is residing and collecting a salary while in CA. So, would I not register the LLC in CA, but keep it in Delaware and pay taxes on the income that I get paid on the W-2?

 

But if I'm an SCorp, that's passthrough taxation...so do I have a benefit at all by trying to keep the S Corp rating, or should it be more of a C Corp? And there's big benefit there to be in Delaware, correct?

Expert:  Lev replied 5 years ago.

If the LLC (or any other business entity) - regardless of its location - has an employee in CA - that means - the LLC is doing business in CA - and according to CA law - should be registered in that state, collect and remit employment taxes, registered with CA Department of Industrial Relations - collect and remit FUTA taxes, etc.

If the LLC do not do these - it will violate CA laws.

 

In my mind, that would mean I am an employee of a Delaware, LLC with SCorp elections, who is residing and collecting a salary while in CA. So, would I not register the LLC in CA, but keep it in Delaware and pay taxes on the income that I get paid on the W-2?

If your workplace is in Delaware - same is true for Delaware registration - and the Delaware LLC would be required to pay Delaware taxes - because it would do business in that state - and you would have income from Delaware sources and therefore would be required to file non-resident Delaware income tax return and will owe some taxes.

 

Before moving forward - you need to determine - regardless of registration - where the LLC is doing business - having employees in a specific state - means doing business in that state.

 

S-corporation vs C-corporation:

C-corporation is taxable entity and pay its own income taxes - in some circumstances it is beneficial, but if any dividends distributed to shareholders by C-corporation are subject of double taxation - on corporate and on individual level - so if you plan to distribute income to yourself - there will not be any benefits from tax prospective...

However if you want to keep money in the corporation, purchase some business properties - you may have some tax savings.

 

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