Have Tax Questions? Ask a Tax Expert for Answers ASAP
Thank you for your question.
What state is this business physically located in? What type of business are you in?
Are these businesses (LLC and S Corp) related in any way?
How many owners of the LLC are there?
The business is a web based sales company/marketing referring business to other companies (e.g. doing pre-sales, phone sales). It happens that there are no employees in the USA. All of the contractors are based outside the USA working as independent contractors.
The S Corp has some clients that pay it.
The LLC has other clients that pay it.
The LLC has income from some websites too.
I am the sole owner of LLC
I also have a rental property in CA (personally owned)
I also have some investments (personal) in Ameritrade.
What state do you reside in please?
I live outside the USA most of the year, so I do not claim a state as residency and have filed a non-resident CA return since 2003
Based on this information, and assuming you are a US citizen non-resident in the USA, then you will need the following tax returns:
S-Corp: Federal 1120-S covering all income. Wyoming does not have a state tax.
LLC: Files a Schedule C attached to your 1040 unless you opted to be taxed as a corporation. Nevada has no state tax either.
You personally: You will need a Form 1040 which includes all of your income and the K-1 generated from the S-Corp to pass that entity's income to you as shareholder.
You will also need a CA Non-Resident state return. On it, you will pay tax on your net rental income and any other CA source income.
Income not effectively to CA is not taxed by CA directly, so unless you have a business office for the S-Corp or LLC in CA or other ties to the state, these items are not taxed by CA.
It does not matter what state the customers are in. Customers of a NV corporation with no nexus or ties to CA other than the customers living in CA is not taxed by CA.
In 2011, CA extended their scope of taxation.
Did you take into account these rules?
Are you over the thresholds in which these rules apply? You gave me very little information to go by, so, no, I did not take the new CA rules into consideration because I don't know about your entity's gross income levels, and more importantly, you gave me no information about any nexus you have to CA. So I am assuming you do not live or work in CA or any other US state.
This is why my answer specifically states that you don't owe CA unless there is nexus regarding the entities
The new law affects out-of-state corporations and pass-through entities (partnerships, S corporations, LLCs treated as partnership) and their partners/shareholders/members that have property, payroll or sales in this state. They MAY be considered doing business starting in tax year 2011 if they meet any of the thresholds listed.
I was looking for some exact information regarding the forms, and what I've been provided doesn't help me. If there are some specific questions I can answer to get a specific forms and a course of action, that would be helpful. I already knew what you had told me.
I was looking for guidance as to whether the LLC or S corp or personally I had to file in CA. There are only about 4 forms (a CA return for a LLC, S corp or personal non-resident) I am asking about.
You started out good asking about my situation and was hoping you could at least ask a few more questions to give a specific answer instead of what I knew prior - that there is a new rule in 2012.
It just appears you are not familiar with the CA rules.
To provide more information:
$300k in CA source income (e.g. from CA clients paying)
$2,700k from non CA source
Have income flowing through the LLC
Ameritrade investment income (is this subject to CA tax?)
Own a rental property in CA. Value of property is over $50k
Here is where the confusion arises:
1) I have been told that because I own a rental property that I am technically doing business in CA; hence the full amount of $300k should be taxed in CA, aprox at 10%
2) Others have told me that the income from the LLC is unrelated to the personal property I own, and that I fall under the threshold
Any help in figuring this out?
When you write 'The only time your ownership of more than $50K of property in CA affects you is if you were an owner of an AFFECTED entity of the above rule.' it means that it would affect me only if the LLC with the income had property in CA?
When you write, 'Your situation falls into a loophole when you apply the new rule in the correct order.', this is for the tax year of 2011, right?
Any other case law or examples other than the link I provided to support this loophole? When I call CA, their phone says they are too busy to answer my call and it disconnects.