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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Hi I have 3 questions: 1. My company (LLC Partnership,

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Hi

I have 3 questions:

1. My company (LLC Partnership, my wife and I, I'm the only active employee) is registered in Colorado, but I performed services work through my company for a company here in CA between mid-Jan and end of March. In which state should I pay taxes that my company is responsible for (Employee (me) Fed and State Income Tax, Payroll (SS/Medicare), FUTA and State UI?

2. I was also living in CA during this time and I've already prepared an estimated Fed tax and estimated CA state tax form for Q1 for our personal taxes (my wife is direct employee, only for my income from my business). Is CA the best state to file in, or is it required because I did the work here? (our home is in Colorado)

3. Am I better off/required to have my own company create a W2 for me and pay my taxes (I'm new to quickbooks but think it can do this)? Or pay my estimated taxes for my business through my personal tax?

Thanks

Jacob

LEV :

Hi and welcome to Just Answer!
In which state should I pay taxes that my company is responsible for (Employee (me) Fed and State Income Tax, Payroll (SS/Medicare), FUTA and State UI?
Employment taxes are based on the physical place where work is performed. If the work is performed in two states - the company (employer) must be registered in both states. State unemployment taxes (SUTA) are paid to the state where the most work is performed.
Is CA the best state to file in, or is it required because I did the work here? (our home is in Colorado)
If you are a resident of Colorado - all your income regardless where it was earned is taxable for that state.
If you worked in California - but was not a resident of California - only income from California sources is taxable for that state.
However you have a situation when the same income is taxed for both states - Colorado based on your residency and for California - based on the source of that income. In this case - you should claim a credit on your Colorado resident tax return for taxes paid to other states (California) and effectively avoid that the same income is taxed twice.
Am I better off/required to have my own company create a W2 for me and pay my taxes (I'm new to quickbooks but think it can do this)?
If you are a partner - there should not be wages and employment taxes. All income is passed to partners on schedule K-1 - and included into individual tax return.

LEV :

Because that is an LLC with several members - it is treated as a partnership for income tax purposes - and should file partnership tax return.


A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Some additional information about partnerships may be found in IRS Publication 541 -http://www.irs.gov/publications/p541/index.html


All business income and expenses are reported on the partnership tax return form 1065 - http://www.irs.gov/pub/irs-pdf/f1065.pdf


Partnership should issue schedules K-1 to each partner reporting pro-rata share of net taxable income - http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf
So - income tax liability is passed to partners.

Customer:

Hi Lev, in Colorado, we filed as an LLC, but as it is only my wife and I, I had to choose between a "partnership LLC" and a "corporate LLC".

Customer:

It was my understanding that my "income" is passed through to my personal income. So I'm paying myself at a rate less than the total rate my company charges, isn't that possible?

Customer:

Lev, are you still there?

LEV :

If you did not specifically selected the LLC to be treated as a corporation - by default rules - it is treated as a partnership.
The partnership is a pass through entity - it filed the tax return but doesn't pay income tax. All tax liability is passed to partners.
The corporate is a separate legal and taxing entity - it pays own income taxes.
It is possible to choose S-corporation treatment which is combination of the corporation and a partnership.
Tax rate schedule is different for individuals and for corporations. The actual tax liability is based on teh total income and other factor - it is possible either way to be more beneficial.

Customer:

So does that mean I can pay myself as an employee, or do I still need to be paid as partner? Just want to make sure I'm filing the right forms

LEV :

If that is a partnership - you are a partner - and not an employee.
If that is a corporation - you are an employee - and the corporation pays you wages.

Customer:

Got it, and I believe it is a partnership, so I'll look into the K1 - thank you

LEV :

If you specifically did not choose the LLC to be treated as a corporation - that is a partnership - and you are a partner and NOT an employee.

Customer:

Thanks

LEV :

You are welcome.

Customer:

Can you point me to where to get info on the K1?

Customer:

Never mind, see you've already included it above

Customer:

Thanks and have a great day

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