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My IT Consulting company is and S-Corp incorporated in Georgia,

where I lived until recently...
My IT Consulting company is and S-Corp incorporated in Georgia, where I lived until recently. At this stage this is a "one man band" with me selling my time. I recently moved to Livermore in Northern California . It may often be the case that I work in other states or even overseas.

1. Generally speaking: Where should I incorporate to get the best TAX solution for myself and the corporation, given that I might sometimes commute weekly, and work out of state on projects?

2. My current client is headquartered in San Francisco and they want me to work on a project for their Canadian company in Montreal Canada for around 6 months. Does it affect, and how does this affect the answer to (1)?
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Answered in 2 minutes by:
9/10/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,267
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane :

Hi, California is certainly NOT the answer (relatively high corporate and LLC taxes) and ver restrictive (i.e, no sevice for capital contribution up front ... basically lots of impediments)

Lane :

Nevada has no income tax ... and is very pro business right now, several incentives

Lane :

If the SanFrancisci company continues to pay you the Canadian piece is not really a issue ... you onlybpay tax in Canada is you are a resident there

Lane :

A lot of this might depend on WHERE it is that you do the work... various states have different requirements about registering in that state as a foreign corporation is you actually are long enough to be considered domiciled in that state

Lane :

Essentially, for now, I'd stay with GA .. what will happen is CA will tax you on their source income, but you will get a credit from GA for taxes paid to another state (the net of that is that you end up paying the higher rate)

Lane :

One thing top keep in mind ... as an S-Corp (may be stating the obvious here) you don't have to pay self employment taxes on the dividends (profit left over after your salary and other expenses) ... so keep your salary (within reason) as low as would bee deemed "reasonable" (and the IRS doesnt define that, they just base it on comparable salaries, etc.

Lane :

There ar severn states that have no income tax:



  • Alaska

  • Florida

  • Nevada

  • South Dakota

  • Texas

  • Washington

  • Wyoming


Two states have a limited income tax on individuals. These states taxonly dividend and interest income:



  • Tennessee

  • New Hampshire

Lane :

Most Tax-Friendly States for Business


The states that top the Tax Foundation list as the most tax-friendly are:

1. South Dakota: No corporate or individual income tax
2. Wyoming: No corporate or individual income tax
3. Alaska: No individual income tax or state-level sales tax; however, there are local jurisdictions that impose sales taxes
4. Nevada: No corporate or individual income tax
5. Florida: No individual income tax
6. Montana: No sales tax
7. New Hampshire: No sales tax
8. Delaware: No sales tax, but second worse corporate income tax in the nation; however, does have a favorable business law environment
9. Washington: No individual or corporate income tax
10. Utah: Assesses all major tax types, but has low property tax rates and a favorable unemployment insurance tax system

Lane :

Another thing to keep in mind with the commuting, be the way IRS deems business travel as deductible is by determining your tax home

Lane :

And the time frame is important ... that is to say, ...

Lane :

From IRS: "Travel expenses paid or incurred in connection with a temporary work assignment away from home are deductible. However, travel expenses paid in connection with an indefinite work assignment are not deductible. Any work assignment in excess of one year is considered indefinite."

Lane :

And on the tax home piece..Again directly form IRS: "Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals, or lodging in Milwaukee because that is your tax home. Your travel on weekends to your family home in Chicago is not for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located"

Lane :

Seems as if, given the info you've provided some of these travel expenses issues may be a cery large factor

Lane :

Here's the IRS guidance on this:

Lane :

But again , in terms of working in other places (depending on who is actually paying you) your best practice is going to be sure to take the foreign tax credit (if applicable) http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit and the state tax credit for your home state (resident state) against taxes paid in other states: http://taxes.about.com/od/State-Income-Taxes/a/multiple-state-tax-returns.htm

Lane :

This is the overview ... but it sounds like (if it's possible) your "tax home," the length of your assignments/projects, (may be the most important, given that this is where much of the variation lies in your federal tax deductions, other business expenses will be what they will be) ... and then, to a lesser extent, looking at the various states that have no or low income tax and other incentives (although state taxes are not nearly as big a financial piece of the tax cost pie)

Lane :

(if it's possible to project, that is )

Lane :

By the way California has a relatively high S-corp tax and even if your expenses take your profits down to nothin, they have a minimum $8000 per year corporations tax

Lane :

  • An S corporation is taxed on its net income at a rate of 1.5 percent for California purposes. S corporations are not subject to income tax for federal income tax purposes.

Lane :

( but you are, of course) ... that piece about not being taxed at the federal level was frm them ... California is VERY aggressive, relatively speaking

Lane :

in ATL here, by the way

Lane :

Questions? ... I've tried to lay out the important pieces

Lane :

... still don't see you coming into the hat here , s I'll move us to the Q&A mode (that will allow you to see this all at one time better) ...We can still continue a dialogue there, just not in real-time as we can here Also, I'll paste everything above in the Q&A window so you can see it all ... Let me know if you have any questions at all

Lane :

Lane

Ask Your Own Tax Question

Hi Hans,

... just checking back in here, as I never saw you come into the chat.

Let me know of you have questions,

Lane

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Customer reply replied 4 years ago

Hi Line. I can't believe that I told you that I have an S-corp! That is typing error. I have a C-Corp. How does that change the above?


Not as much as you might think, Hans

The travel rules apply both to employees and business owners, regardless of the entity type.




The states that I provided that the tax foundation listed as the most business friendly that have no corporation tax at all are the following:

South Dakota: No corporate or individual income tax
Wyoming: No corporate or individual income tax
Nevada: No corporate or individual income tax
Washington: No individual or corporate income tax

Finally Delaware is highly touted as a good state for incorporation, but unless you're trying to do something on the cutting edge or are trying to keep your ownership anonymous, raise capital by going public, etc. they actually have the second worse corporate income tax in the nation.




Just factor in that the C-Corp, pays it's own taxes at corporate rates ... which means, among other things, that losses don't flow through to you individually, and you won't get the benefit of a lower capital gains tax on any sales of assets.

You do have more ability to use tax free fringe benefits in a C-Corp, and given that yours is a service business, that may actually make the C-Corp better choice for you.

Do keep in mind however, that as you become more profitable, any dividends paid to you (this would be after you've taken your salary, and deducted other business expenses and paid taxes) … after having been taxed to the corporation … will be taxed again, as income to you (this is the double taxation you hear about with C-Corps).



Hope this helps

Lane

Positive feedback is appreciated... That's the only way we're paid for our time here.

HOWEVER … if you have more questions on this, please come back here, so you won't be charged for another question.
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,267
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Customer reply replied 4 years ago

Lane, thanks. I find your advice a little bit generic, but on the other hand because I am busy I have been unable to ask more questions so I thought it would be unfair to keep this open longer.


Well put,

It had to be, however.

You provided, first, inaccurate information and then all I could do was try to adjust from there.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question, and we can dig in, in a more specific fashion.

Thanks again,
Lane
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Customer reply replied 4 years ago


will do. Thanks.

Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,267
13,267 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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