3 ms·

So form your business elsewhere. It's true that some states are more friendly to small businesses than others, but generally the reasoning holds true. If that's

So form your business elsewhere. It's true that some states are more friendly to small businesses than others, but generally the reasoning holds true. If that's not enough, you could always pick up shop and shift your nexus to another state. It's really up to the owners judgment, but a significant franchise tax bill on a small business might be preferred over the additional administrative requirements for running an S corp. At least in the former scenario, you are bringing in some nice revenue. [UPDATE: here's some info on California S corp vs. LLC: http://en.wikipedia.org/wiki/S_corporation#California.2C_New_York_City_additional_taxes http://en.wikipedia.org/wiki/S_corporation#California.2C_New...]

skmurphy 17y ago
If you are physically present in California you will end up paying CA Franchise taxes (and corporate income taxes on revenue generated in CA). The additional administrative requirements for a SubS are at most an hour a year for a small firm. Please don't confuse revenue and profits, it's possible to generate revenue, pay the CA LLC Franchise tax on it, and still have a loss on the year if expenses exceeded revenue. With a SubS you only pay tax on profits, which I agree for early years may be close to zero.
- joelhaus 17y ago
  I think it's fair to say that you should consult a tax professional before forming a legal entity; however, it's also important to have a general understanding of each entity types' cost/benefit. There's plenty of info on the web. Additionally, for purposes of this discussion, legal entities are formed exclusively under state laws. While you can incorporate anywhere, most states require a registered agent be present domestically. You can hire firms like CTcorp to fill this role. The second consideration is your "physical" location. What constitutes nexus (especially for technology companies) is the subject of some controversy, but the specific legislation varies among states. Generally, nexus for income tax occurs in the locations where value is generated. This usually means the location of a firm's assets and employees. Sales tax nexus is even more ambiguous. Here's a better explanation than I could ever give: http://web.archive.org/web/20021001165628/http://www.aicpa.org/members/div/tax/praguide.htm http://web.archive.org/web/20021001165628/http://www.aicpa.o... Treatment at the federal level is uniform. Imagine that a significant portion of HN visitors are located in CA, so skmurphy's advice is worth paying attention to!

skmurphy 17y ago

If you are physically present in California you will end up paying CA Franchise taxes (and corporate income taxes on revenue generated in CA). The additional administrative requirements for a SubS are at most an hour a year for a small firm. Please don't confuse revenue and profits, it's possible to generate revenue, pay the CA LLC Franchise tax on it, and still have a loss on the year if expenses exceeded revenue. With a SubS you only pay tax on profits, which I agree for early years may be close to zero.

joelhaus 17y ago
I think it's fair to say that you should consult a tax professional before forming a legal entity; however, it's also important to have a general understanding of each entity types' cost/benefit. There's plenty of info on the web. Additionally, for purposes of this discussion, legal entities are formed exclusively under state laws. While you can incorporate anywhere, most states require a registered agent be present domestically. You can hire firms like CTcorp to fill this role. The second consideration is your "physical" location. What constitutes nexus (especially for technology companies) is the subject of some controversy, but the specific legislation varies among states. Generally, nexus for income tax occurs in the locations where value is generated. This usually means the location of a firm's assets and employees. Sales tax nexus is even more ambiguous. Here's a better explanation than I could ever give: http://web.archive.org/web/20021001165628/http://www.aicpa.org/members/div/tax/praguide.htm http://web.archive.org/web/20021001165628/http://www.aicpa.o... Treatment at the federal level is uniform. Imagine that a significant portion of HN visitors are located in CA, so skmurphy's advice is worth paying attention to!