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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
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Experience:  Over 20 Years experience
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We live in Ohio and are planning on opening an online store

Resolved Question:

We live in Ohio and are planning on opening an online store only. We are incorporating in Delaware which has no sales/income tax.

our LLC is a Delaware residency even though we are operating the website from our home in Ohio, but the store itself is only connected to our LLC which has a reigstered agent/address in Delaware. So we feel that we do not have to collect sales tax on any customer whether they are from Ohio or anywhere else for that matter. Is this correct? Wouldn't it be up to the individuals as buyers of our products to then file a 'use tax' on whatever they bought from us on their personal tax filings? And we wouldnt as an LLC have to pay Ohio as the state either?,correct?

Also, we will have a business bank account in our LLC name and would like to know the best way possible of paying the least amount of Federal Taxes or any taxes for that matter. We are thinking about just using the debit card attched to the bank account to pay our normal bills/groceries etc. is this legal or is this not advised? Should we be paying ourselves separate of the business acount...but then we would have to file with our city and state on this money as residents of Ohio so we don't want to have to do that?

Also, our internet office although based in Delaware, we will be sending the packages from Ohio and we would like to know what types of write offs are legit. Are things like utility bills, property tax on the house and everything we buy for the business all eligible for tax write offs when we file our returns as an LLC? What are the rules to everything you can write off technically?

This is really confusing us....we don't know if we need a vendor's license from Ohio or anywhere else for that matter etc.? Help!!!!


Thank you.
Submitted: 2 years ago.
Category: Tax
Expert:  R. Klein, EA replied 2 years ago.

Your legal thinking is a bit off the mark.

 

First, if you create your LLC in Delaware, you will need to register with Ohio as a foreign LLC if you want protection in the Ohio courts. If someone sues you or if you want to sue someone if you are not registered in Ohio, you will need to take your courthouse business to Delaware.

 

Second, by the fact that you are based in Ohio, you fall into "Ohio nexus". You MUST collect retail sales tax from Ohio residents and you are liable to Ohio for payment of same. If you do not collect the tax, Ohio can make you pay out of your own pocket.

 

Third, An LLC is not a taxable entity as far as the IRS is concerned. You must determine your tax type or use the default. If you are a one-owner LLC, the default is a sole proprietor and all your profits are subject to income tax and self-employment tax. You may elect to be taxed as an S-Corporation, but that will require you to make an actual election with the IRS. In the case of an S-Corp, you will need to pay yourself a "reasonable" salary and additional money that is distributed to you above that salary can be done as a profit distribution not subject to SE tax.

 

Fourth, since you are based in Ohio and have Ohio nexus, you will also owe Ohio income tax. This is despite being a DE LLC. Income sourced from Ohio is taxable to Ohio.

 

Fifth, seek the advice of a tax professional before you go further and find yourself behind the eight-ball here with taxes. There is a lot you probably need to learn about before you go forth into this business venture. Sounds like a lot of what you have learned so far has come from the unreliable "street of rumors" or the equally unreliable "internet rumor mill". No, you cannot write off your entire house and its expenses.

 

 

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience: Over 20 Years experience
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