How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask CGCPA Your Own Question
Category: Tax
Satisfied Customers: 3820
Experience:  over 40 years experience in tax matters
Type Your Tax Question Here...
CGCPA is online now
A new question is answered every 9 seconds

I am US citizen and live in California...

This answer was rated:

I am US citizen and live in California. I am planning to open the production and publishing software company in Delaware together with my partners from Croatia, structured as LLC. This company would be receiving donations from public to support the software development, in exchange donors will receive various software packages depending on donation amounts (some being downloaded from Internet and some packaged and mailed to them). After completion, the software would be sold solely via internet.
- How would be this company taxed during development and afterwards while selling software online?
- What would this mean for me - would I be taxed on income in Delaware and/or California?
- What would be the best tax situation for me: operate as salaried director of the company, some percentage co-owner, or as the legal representative of the owners that are not residents of United States (Croatia nationals)?

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.


First, I need to make you aware of a few items:


No matter that you call the money received from individuals/sponsors donations, if they receive any item in exchange they have made a purchase and you have made a sale which will be reported as income by your entity.


If you reside in California and work in California the state will consider this a taxable entity in California regardless where it is organized since it will have nexus in the state. The minimum franchise tax in California is $800 per year. To avoid duplicate taxation as well as the registered agent fees in Delaware ($200 + per year - one of the things not always mentioned) I would form the LLC in California.


Taxation of the entity will be fairly simple. Reporting form decisions will need to be made - either taxed as a C Corporation or a partnership. The partnership will provide you tax losses during development but your associates may not be able to take advantage of them.Therefore, I would elect to have the entity taxed as a C Corporation. The following link will take you to an IRS page about LLC's and there are other useful items referenced on that page which I suggest be read by you and your associates:


Your income would be taxed in California. If you finally determine to form the LLC in Delaware you will be taxed by Delaware as a non resident and will be able to claim an offset on your California return. It would , however, require two returns be prepared for you.


Your title does not matter if questioned by the IRS. The reality of the situation is what will dictate. Based on what you have stated, you will be an owner and, if C Corporation tax reporting is elected will be able to receive a salary. If taxed as a partnership you will not get a salary but will be taxed on your entire share of the profit/loss whether or not you remove it from the business.


Is there any additional assistance or clarification you need at this time? If yes, please feel free to ask. Otherwise, This is a significant decision and merits clarity of thought and an understanding of the tax authority rules. Thank you for the opportunity to assist you.

Customer: replied 2 years ago.
Thank you for your answer.
May I please ask you what did you mean by "The partnership will provide you tax losses during development but your associates may not be able to take advantage of them."?
Thank you in advance.
The tax losses will likely result from R&D costs and overhead and you will be able, if filing as a partnership, to deduct those losses from your other sources of income on your US tax filings. The tax benefits may not be as great for your partners since they do not, per your earlier statement, reside in the US. However, if they do reside here and/or need to file uS returns they will be able to claim the same taxable income reductions as you can. Thus, they may not receive the same benefit as you on a dollar for dollar basis. I do not know Croatian tax laws and cannot comment on any benefit that may accrue to them in that nation.
Category: Tax
Satisfied Customers: 3820
Experience: over 40 years experience in tax matters
CGCPA and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thank you for reply.


What's the best way to form this company:

1. Me establishing partnership of the existing firm in Europe and opening a sister company in US,

2. I form the company and let my non-resident partners buy it (can they do that and how?),

3. or forming new partnership in US with my non-resident partners?


Just to clarify - if my partners are not residents, they don't have to pay federal tax on income as individuals? Could they have bank account in US and transfer their profits in and out of country? Would this depend on how this company is being formed?


Does this mean that I as US citizen have to file income tax on entire company profits since my partners don't have to pay taxes, or just my share of profit? Is it same with deductibles?


Since I would just live in California, and all work is done online, and I would only have the home office there, would that be exception from paying double franchise tax (DE and CA)?


If your "partners" have US business interests they will be required to file US tax returns and, if a tax is due, pay that tax. The saving grace for them will be that, if there is a tax treaty between their nations and the uS they will be entitled to a tax credit for the tax paid to the US on the nations taxes. The tax treaties can be researched at the following web site:


Following that logic, I would establish the business in the state of your residence by forming an LLC and filing as a partnership.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Previous | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA

Meet The Experts:

  • Wallstreet Esq.

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    10 years experience
< Last | Next >
  • Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    10 years experience
  • Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • Richard's Avatar


    Tax Attorney

    Satisfied Customers:

    29 years of experience as a tax, real estate, and business attorney.
  • Robin D.'s Avatar

    Robin D.

    Senior Tax Advisor 4

    Satisfied Customers:

    15years with H & R Block. Divisional leader, Instructor
  • Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
  • jgordosea's Avatar


    Enrolled Agent

    Satisfied Customers:

    I've prepared all types of taxes since 1987.
  • R. Klein, EA's Avatar

    R. Klein, EA

    Enrolled Agent

    Satisfied Customers:

    Over 20 Years experience