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Ask Lane Your Own Question

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3898
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I own an S corporation that is incorporated in Virginia, but

Resolved Question:

I own an S corporation that is incorporated in Virginia, but I do not live in Virginia. My question is if I draw a salary from the corporation, do I owe any Virginia income tax on my wages? My next question is that since the profits and losses are passed directly to me, due to the reason it is an S corporation, do I owe any Virginia income tax on the these proceeds that are passed directly to me from the S corporation?
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

Lane :

Hi.

Customer:

Hi

Lane :

Please don't shoot the messenger here, but VA is one of the many states that starts their state return with federal AGI ... and, wages ( as well as the S-Corp dividends that flow to business income or loss on line 12) are a part of AGI at the bottom of your 1040 HOWEVER ....

Lane :

Your resident more than likely provides a state tax credit for taxes paid to other states Almost ALL do, what is your resident state?

Customer:

I do no know if it matters but principle business location is listed in Florida with the filing of the Virginia State Corporation. Florida has no individual state income tax.

Lane :

Where is the income actually earned ... its it Virginia source income?

Customer:

It is nationally, but 30% is generated from Virginia residents through eLearning programs on the internet.

Customer:

Could I reform the corporation in Delaware to avoid this issue in the future?

Lane :

OK what VA will robably say is that you owe income on that, which is called "Virginia Source Income." Let me check ..

Lane :

Yep, Delaware can be expensive.... Why not flORIDA?

Lane :

See this:


Nonresidents


A nonresident is a person who is not a domiciliary or actual resident of Virginia, but who received income from Virginia sources during the taxable year.


"Income from Virginia sources" means income derived from labor performed, business conducted, or property held in Virginia, as well as lottery prizes and certain gambling winnings. Examples of Virginia source income include:




  • Wages or salaries received for services performed in Virginia;




  • Income received from the rental or sale of Virginia real estate;




  • Income, including interest, received from a partnership, S corporation or other business that operates in Virginia;




  • Prizes paid by the Virginia Lottery, and gambling winnings from wagers placed or paid at a Virginia location.



Customer:

Next question is I have am now, effective September 1, 2013, a Cayman Island resident. With this change of residency, what state would be best to base the corporation if it would be tax wise to move it?

Lane :

Ahhh Delaware may make some sense ... anytime anything's a bit atypical Delaware works well, they have the argest body of corporate law... IF it's been done, Delaware/s done it

Lane :

Before I forget, let me give you this:

Lane :

From that same page (I'll give you the link) VA dept of revenue:




  • Nonresidents report their income in the same manner as residents, using Virginia Form 763. An allocation percentage, based on the ratio of Virginia source income to income from all sources, is then applied to arrive at the individual's net Virginia taxable income.



Customer:

So to recap even though I was a Florida resident, I would be responsible to pay taxes to Virginia for my revenue passed to me through my Virginia S Corporation. I am to file form 763 to report this, and pay.

Customer:

Now that I am a Cayman resident, it would possibly be more tax wise to reform the corporation in Delaware.

Lane :

yes, but only on the VA source income (see the last part of the bullet point above - and it's on the site I gave you the link for - and so is the VA form) ... It says "An allocation percentage, based on the ratio of Virginia source income to income from all sources, is then applied to arrive at the individual's net Virginia taxable income."

Lane :

Yes

Lane :

Delaware also does an excellent job of working with folks who are not Continental residents

Lane :

Not US residents, I shuld say, Cayman is British territorial isn't it

Customer:

Yes, it is British territorial.

Lane :

So, yes, you'll file a VA return, pay tax on the VA portion and yes, Delaware makes sense on several levels

Customer:

Thank you for all your help!

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3898
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 6 other Tax Specialists are ready to help you
Expert:  Lane replied 11 months ago.


Thanks for everything Bernard.

Good luck... wish I were moving to the Cayman Islands (Maybe one day)


If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane

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