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Please advise how much tax will I have to pay if I start a

small business in California. What...
Please advise how much tax will I have to pay if I start a small business in California. What are the current rates including state and federal taxes? Are there any other regular payments I should know about?
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Answered in 5 minutes by:
8/15/2013
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
Verified

Stephen G. :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Customer:

Hi! ok, thank you

Stephen G. :

Generally, a small business would start off as a sole proprietorship & the earned income will simply be reflected on your personal income tax returns.

Customer:

Im planning to have LLC

Stephen G. :

The only difference is that if you have income you will pay your own social security taxes, whereas as an employee 50% of the social security tax is paid by your employer.

Stephen G. :

An LLC doesn't change anything; you are still able to include the income on your personal returns.

Stephen G. :

What type of business are you talking about?

Customer:

I still don't understand. Shouldn't a company pay taxes? Could you give me a number?

Customer:

I'm a fashion agent connecting designers and buyers - i get a commission

Stephen G. :

No. It doesn't work that way; there are no separate income taxes for an LLC.

Stephen G. :

OK, I understand; you will file a "Schedule C" with your personal return in order to report the activity of your business.

Customer:

so for example, I got paid $100k - how much tax will i have to pay?

Stephen G. :

I presume that at least initially, you won't have any employees?

Customer:

no

Stephen G. :

I can't tell you how much you'll pay without knowing all the rest of your information with respect to your personal income taxes. In California, I would suggest that you set aside roughly 40% of your net income for federal & state income taxes and your self-employment (social security) taxes,

Customer:

i see

Stephen G. :

Roughly 15% federal income tax, 15% self-employment tax, 10% CA income taxes.

Stephen G. :

ie. 40%

Customer:

do i get it right that i only pay taxes once and not double - for company income and then my personal income?

Stephen G. :

Your actual tax should be somewhat less, but again that number should keep you safe.

Stephen G. :

No. "Company" tax for a single-member LLC; everything goes on your personal return

Customer:

what if there are 2 partners owning LLC?

Stephen G. :

An LLC is what is called a "disregarded entity" for income tax purposes; that means that there is no specific income tax return for LLCs.

Stephen G. :

In your case, it probably doesn't make sense to do business as an LLC:

Customer:

why?

Stephen G. :

No need to pay all those fees; bi-annual reports to the Secretary of State, etc.

Stephen G. :

Why do you want to do business as an LLC; there's no tax advantage;

Customer:

i got advice using this service yesterday!

Stephen G. :

You are receiving commissions based upon your sales;

Customer:

i explained my idea and was recommended to open LLC

Stephen G. :

That's possible, but how much information did you provide?

Customer:

exactly this - it is a service and i get a% from a total sales order

Customer:

one more think but it might be important - i will be connecting american designers with russian buyers

Stephen G. :

No. I just looked at the question/answer & I agree that an LLC would make sense in dealing with foreign markets; there's a lot more information in that question than you gave me.

Customer:

so now im exploring my option with regards XXXXX XXXXX even to open a company - in CA or in russia - taxes are different and so on

Stephen G. :

As far as your income taxes go, nothing I told you is different.

Stephen G. :

As a US citizen, you are taxed on your worldwide income.

Customer:

I'm not a US citizen, I'm a Russian citizing living in US

Stephen G. :

Do you have a green card?

Customer:

not yet

Customer:

I'm here with my husband on a work visa

Stephen G. :

You will be taxed the same as a US citizen if you are residing in the US; What is your husband's status?

Customer:

if we apply for a green card - i will have to pay taxes in the US even if i register my comapny in Russia?

Customer:

He is a British citizen on a work visa in the US

Stephen G. :

Has he filed a US income tax return?

Customer:

yes

Stephen G. :

When did you arrive in the US?

Customer:

march 2012

Customer:

we are on L1 visa until 2015

Stephen G. :

Did you file a joint return with him? When were you married?

Customer:

we are married since 2009 im currently unemployed, so i do as a dependent now on his return

Stephen G. :

Well, that's another whole situation involving elections etc. As far as the questions you asked with your situation nothing changes from what we've recommended;

Customer:

if we apply for a green card - i will have to pay taxes in the US even if i register my comapny in Russia?

Stephen G. :

If you are resident in the US, you will pay US taxes.

Customer:

do I have accurate information that if i have green card and do not live in the US, I will still pay taxes in this country?

Stephen G. :

Is your husband a resident in the US when you aren't?

Customer:

if, say we apply for green cards, but few years later we will decide to come back to England or russia or somewhere else - will we still have to pay taxes in the US because we have green cards?

Stephen G. :

I believe that you will lose your green card status under those circumstances, but I understand that depends upon a number of factors as green cards are issued to "permanent residents"; You will need to check the immigration laws in order to determine your legal status under those circumstances. Certain US citizens are eligible to exclude foreign income if they reside in a foreign country for extended periods of time; green card status is a different circumstance if you move out of the US isn't temporary; if you leave the US permanently and don't work in the US, you won't be subject to US taxes.

Customer:

ok

Customer:

thank you very much

Stephen G. :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Customer:

sure, thanks again

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
Verified
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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
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Experience: Extensive Experience with Tax, Financial & Estate Issues

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