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I agree. Carl Icahn, activist investor, is trying to change the rules with a show of force but companies only keep it overseas because they believe they'll get

I agree. Carl Icahn, activist investor, is trying to change the rules with a show of force but companies only keep it overseas because they believe they'll get their way soon. If you make it so it isn't an option, then they're forced to reinvest or lose to competitors and/or piss off shareholders with no growth. I'm all for low corporate taxes but small businesses get hosed and they create jobs and innovation despite their disadvantages. Want to start an LLC in California? You'll have to pay UPFRONT sales tax and an annual $800/yr license. People on this board complain about SaaS products that are $20/mo. What do you get from the state? Nothing. The upfront sales tax is completely ridiculous. While it's a credit - you start your company with thousands of dollars in the hole when cash is king. Then you have compliance costs and the state income & sales tax is not competitive. At least other states like Nevada and Texas can capitalize and steal talent to try and keep other states honest. That's refreshing. I have 2 successful LLCs in California but the current situation irks me. I'm closing another startup because the costs and time involved with keeping it lukewarm until I can free up time from the other 2 is prohibitive. And the cost to start it back up after I close it is prohibitive too (business tax, new sales license, distributor, etc.). Eventually I'll probably sell the 2, move to Costa Rica and start a new New-Co up. :)

cft 11y ago
If you have say an LLC as a disregarded tax entity, or an S corp that earns honest buck, say $1m/yr in 2015, prepare to pay $500,000 tax, even if you intend to store money in the corporation to re-invest all of it in 2016. At the end of the calendar/fiscal year, the income will be taxed, regardless of your intent to use it for business development in the later years. Note, it is not taxed when you take it out of the corporation, it is taxed before that. If you create a C Corp, it will be taxed about $300,000, but then taxed again at about 40% if/when you take it out. Contast this not even with Pfizer, but simply with say a smallish public company with 1bn market cap that has gross $200m/yr and expenses of say $201m/yr (often deliberately in red, like AMZN, to pay 0 tax). Every several years they would issue $100m worth of new shares to remain cash flow positive (zero tax rate on $100m by the way), and use a large portion of these proceeds towards the executive compensation in options that is taxed at 20% as long term capital gains. I observed this up close, my ex was a corporate lawyer in such a typical company. But this was not all. In the end they split the company into two, (paying hiring bonuses in the shares of the spinoff to all execs), and incorporated the spinoff in Cayman islands, to make it an inversion target! I felt almost nauseus writing my own large tax checks for my domestic LLC!!
- encoderer 11y ago
  My cpa gave me the advice that a c Corp is the best option if you have retained earnings for exactly that reason.
  - deleted 11y ago
    [deleted]
- mahyarm 11y ago
  When they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.
- mahyarm 11y ago
  When they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.
deleted 11y ago
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fapjacks 11y ago
It is absolutely a small business assassination program. I used to run a non-profit in another state to give veterans immediate help (money) when they needed it, which was moderately successful. It was tiny, but helpful. I moved to California. I am no longer able to provide help to veterans because of that tax. "For the privilege to do business in the State of California"...
bitL 11y ago
Why not incorporate in Delaware or Nevada? Both seem to be ideal for startups/personal projects, no tax until you hit $1M revenue (only personal income tax), you pay only yearly sales license or franchise tax, you don't need to reside there (you can even reside outside US, so you can live happily in Costa Rica). What's the benefit of incorporating in CA?
- exclusiv 11y ago
  I have my third LLC that I'm going to continue registered in Nevada. However, since myself and partner both live in California so we had to register a "foreign LLC" in California which still has the overhead and costs. So basically - doing it legit means you are required to register a foreign LLC in Cali if you are operating there.
  - bitL 11y ago
    That's really annoying :(
  - quickquicker 11y ago
    Ran into this same issue with my Delaware LLC as we have a partner based in Florida which has similar foreign LLC registration requirements.
simonebrunozzi 11y ago
Why Costa Rica specifically? Lifestyle + lower cost of living, or particularly easy to setup and run businesses?

cft 11y ago

If you have say an LLC as a disregarded tax entity, or an S corp that earns honest buck, say $1m/yr in 2015, prepare to pay $500,000 tax, even if you intend to store money in the corporation to re-invest all of it in 2016. At the end of the calendar/fiscal year, the income will be taxed, regardless of your intent to use it for business development in the later years. Note, it is not taxed when you take it out of the corporation, it is taxed before that. If you create a C Corp, it will be taxed about $300,000, but then taxed again at about 40% if/when you take it out. Contast this not even with Pfizer, but simply with say a smallish public company with 1bn market cap that has gross $200m/yr and expenses of say $201m/yr (often deliberately in red, like AMZN, to pay 0 tax). Every several years they would issue $100m worth of new shares to remain cash flow positive (zero tax rate on $100m by the way), and use a large portion of these proceeds towards the executive compensation in options that is taxed at 20% as long term capital gains. I observed this up close, my ex was a corporate lawyer in such a typical company. But this was not all. In the end they split the company into two, (paying hiring bonuses in the shares of the spinoff to all execs), and incorporated the spinoff in Cayman islands, to make it an inversion target! I felt almost nauseus writing my own large tax checks for my domestic LLC!!

encoderer 11y ago
My cpa gave me the advice that a c Corp is the best option if you have retained earnings for exactly that reason.
- deleted 11y ago
  [deleted]
mahyarm 11y ago
When they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.
mahyarm 11y ago
When they give you those options and if you exercise right away they are taxed at whatever the current market value of the stock is, as income. It's only once you exercise and hold that you get the LTCG tax rate on the rise of price of the stock when you sell. If they are structured as ISO options, then you will hit the AMT tax rate very very quickly and at the minimum pay %28 tax. If you live in CA, there is another %8 CA AMT tax that will apply on top of that I think. And if you start hitting the AMT tax rate, the 'tax credit' you get from paying state taxes starts going away too! So I guess if you play a lot of AMT shenanigans with ISO stock options, you can reduce the tax load to %28-36, which is an improvement I guess. But ISO stock options are golden handcuffs and pretty bad when your in a private company. If I'm wrong, me and whole bunch of stock compensated engineers would be very interested to learn how we are wrong.

deleted 11y ago

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deleted 11y ago

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fapjacks 11y ago

It is absolutely a small business assassination program. I used to run a non-profit in another state to give veterans immediate help (money) when they needed it, which was moderately successful. It was tiny, but helpful. I moved to California. I am no longer able to provide help to veterans because of that tax. "For the privilege to do business in the State of California"...

bitL 11y ago

Why not incorporate in Delaware or Nevada? Both seem to be ideal for startups/personal projects, no tax until you hit $1M revenue (only personal income tax), you pay only yearly sales license or franchise tax, you don't need to reside there (you can even reside outside US, so you can live happily in Costa Rica). What's the benefit of incorporating in CA?

exclusiv 11y ago
I have my third LLC that I'm going to continue registered in Nevada. However, since myself and partner both live in California so we had to register a "foreign LLC" in California which still has the overhead and costs. So basically - doing it legit means you are required to register a foreign LLC in Cali if you are operating there.
- bitL 11y ago
  That's really annoying :(
- quickquicker 11y ago
  Ran into this same issue with my Delaware LLC as we have a partner based in Florida which has similar foreign LLC registration requirements.

simonebrunozzi 11y ago

Why Costa Rica specifically? Lifestyle + lower cost of living, or particularly easy to setup and run businesses?