3 ms·

1) Which states are preferable in terms of tax in a start-up? If there is any states of particular preference at all. 2) My impression seems to be that registe

by kmfrk 16y ago

1) Which states are preferable in terms of tax in a start-up? If there is any states of particular preference at all. 2) My impression seems to be that registering your company in Delaware is more of a priority "down the line", even though it seems to be the go-to place for many companies. Is Delaware the place to go, or what is the current wisdom? 3) If I move from a European country to the US, should I expect to be taxed by the country where I spend more than six months a year, or are there things to look out for such as the risk of double taxation?

camz 16y ago
We'll I don't think tax is a good idea to base your decisions for a startup. There's a saying that the tail wags the dog. Your business is the dog and tax is the tail. California state is almost as disgusting as New York when it comes to how aggressive, how many taxes they have and how high their tax rates are. BUT, Silicon Valley, Cali is where your startup is probably going to get its funding so you sorta dont really have a choice in where to start. Starting a company in Delaware isn't something that you need to worry about. Incorporating in Delaware is for their caselaw. Delaware has a VERY clear line of cases where they break everyone detail down to its minuet detail so that when you get sued, the lawyer is very clear as to your options and likely outcomes. Also, very important is that Delaware has pro-majority ownership rules. Delaware gives the majority owner of the company extensive authorities on what they're allowed to do. Other states will be less pro-business and protect the minority interest, thus limiting the power of the majority owner. The united states is special. From my knowledge thusfar, i think the US is the ONLY country that taxes your worldwide income. Other countries wont tax income earned elsewhere. If you live in the US, then you'd pay taxes on your US income. But, if you become a resident of the US, then the US might try taxing your worldwide income too! lol. I'd say that there's a higher change of you paying double taxation in state tax than federal tax.
- rdl 16y ago
  The Philippines also tax worldwide income. I think they and the US are the only which ALWAYS tax all worldwide income of their citizens/permanent residents. Actually, a lot of countries tax worldwide income if you are resident in the country; it's just that there is a procedure to establish non-residence (e.g. for Canadians who are outside Canada for a certain number of months/years, or UK people), and then they are not liable to tax. A lot of other countries only tax some people on worldwide income (e.g. not taxing foreign income of new citizens in New Zealand for like 4 years), and others never tax foreign income. International tax law is a constantly shifting swamp of lameness. (there's also the Foreign Earned Income Exemption (around the first $92k/yr of income); i.e. why I have been on vacation for Q3/Q4 2010; it saved me more money to remain outside the US and work on my startup part-time while SCUBA diving and exploring Asia, than returning to the USA mid-year).
  - camz 16y ago
    I agree, international tax is constantly shift because the economy is shifting away from being isolated to individual citizens. I'm not surprised that the Phillipines have the same tax rules as the united states since they were held by the US for so long. But, I stand corrected. I should've been clearer and spoken less in general terms in my definition of how world wide income is taxed in the US.
rdl 16y ago
1) The state where you are physically going to be present is going to want to tax you. If you incorporate in DE (zero tax basically, some fees and such), but are physically running the business from San Francisco, you owe the CA Franchise Tax Board all income tax. 2) DE is basically the correct choice (and C Corp) if you plan to take outside professional investment, maybe sell the corp, etc. And doing it properly will cost about $5-10k; probably closer to $10k if some of the principals are non-US-Citizens. For any other business, you could consider C or S corp or LLC in your state-of-intended-operation, to lower costs and hassle (so you only have to file with one state). If you base yourself in Nevada, you pay no tax and cheap filing costs; if you base yourself in NYC, ouch. Of the "startup friendly states", I think TX and WA have the best tax situations, but both have a weird corp tax (basically, on your gross receipts, vs. profits), which can actually be worse for an R&D intensive business (negative profits for a while) or a low-margin business). 3) This depends on the specific country you're moving from (i.e. where you hold citizenship), the visa you're on in the US (if you're not a US citizen), etc. There are pairwise double taxation agreements between countries, and I think some EU-USA stuff. It also depends on the kind of earnings you have -- if it's wage income, for work performed above-board in the US, you'll be paying US taxes + medicare/social security, and probably crediting that against your possibly-higher foreign-citizenship taxes. If it's capital gains, it depends on where you are when you realize them, and what visa, etc. you have. It's complex.
- camz 16y ago
  I think that RDL is giving valid and valuable advice. Generally speaking WA and TX has no income tax for personal and businesses, but the gross receipts is almost always going to hurt more than the average income tax because of the huge tax base. For example, if your selling ads and your only making a margin of 30 to 10 percent. The base of your gross receipts is going to include the full amount and not just your cut of the profit. Texas is known for having some of the worst gross receipts taxes. Michigan GRT and BRT as well as the Ohio CAT are horrible. So beware of those pitfalls. But, again I think you should definitely head RDLs advice!

by kmfrk 16y ago

camz 16y ago

We'll I don't think tax is a good idea to base your decisions for a startup. There's a saying that the tail wags the dog. Your business is the dog and tax is the tail. California state is almost as disgusting as New York when it comes to how aggressive, how many taxes they have and how high their tax rates are. BUT, Silicon Valley, Cali is where your startup is probably going to get its funding so you sorta dont really have a choice in where to start. Starting a company in Delaware isn't something that you need to worry about. Incorporating in Delaware is for their caselaw. Delaware has a VERY clear line of cases where they break everyone detail down to its minuet detail so that when you get sued, the lawyer is very clear as to your options and likely outcomes. Also, very important is that Delaware has pro-majority ownership rules. Delaware gives the majority owner of the company extensive authorities on what they're allowed to do. Other states will be less pro-business and protect the minority interest, thus limiting the power of the majority owner. The united states is special. From my knowledge thusfar, i think the US is the ONLY country that taxes your worldwide income. Other countries wont tax income earned elsewhere. If you live in the US, then you'd pay taxes on your US income. But, if you become a resident of the US, then the US might try taxing your worldwide income too! lol. I'd say that there's a higher change of you paying double taxation in state tax than federal tax.

rdl 16y ago
The Philippines also tax worldwide income. I think they and the US are the only which ALWAYS tax all worldwide income of their citizens/permanent residents. Actually, a lot of countries tax worldwide income if you are resident in the country; it's just that there is a procedure to establish non-residence (e.g. for Canadians who are outside Canada for a certain number of months/years, or UK people), and then they are not liable to tax. A lot of other countries only tax some people on worldwide income (e.g. not taxing foreign income of new citizens in New Zealand for like 4 years), and others never tax foreign income. International tax law is a constantly shifting swamp of lameness. (there's also the Foreign Earned Income Exemption (around the first $92k/yr of income); i.e. why I have been on vacation for Q3/Q4 2010; it saved me more money to remain outside the US and work on my startup part-time while SCUBA diving and exploring Asia, than returning to the USA mid-year).
- camz 16y ago
  I agree, international tax is constantly shift because the economy is shifting away from being isolated to individual citizens. I'm not surprised that the Phillipines have the same tax rules as the united states since they were held by the US for so long. But, I stand corrected. I should've been clearer and spoken less in general terms in my definition of how world wide income is taxed in the US.

rdl 16y ago

1) The state where you are physically going to be present is going to want to tax you. If you incorporate in DE (zero tax basically, some fees and such), but are physically running the business from San Francisco, you owe the CA Franchise Tax Board all income tax. 2) DE is basically the correct choice (and C Corp) if you plan to take outside professional investment, maybe sell the corp, etc. And doing it properly will cost about $5-10k; probably closer to $10k if some of the principals are non-US-Citizens. For any other business, you could consider C or S corp or LLC in your state-of-intended-operation, to lower costs and hassle (so you only have to file with one state). If you base yourself in Nevada, you pay no tax and cheap filing costs; if you base yourself in NYC, ouch. Of the "startup friendly states", I think TX and WA have the best tax situations, but both have a weird corp tax (basically, on your gross receipts, vs. profits), which can actually be worse for an R&D intensive business (negative profits for a while) or a low-margin business). 3) This depends on the specific country you're moving from (i.e. where you hold citizenship), the visa you're on in the US (if you're not a US citizen), etc. There are pairwise double taxation agreements between countries, and I think some EU-USA stuff. It also depends on the kind of earnings you have -- if it's wage income, for work performed above-board in the US, you'll be paying US taxes + medicare/social security, and probably crediting that against your possibly-higher foreign-citizenship taxes. If it's capital gains, it depends on where you are when you realize them, and what visa, etc. you have. It's complex.

camz 16y ago
I think that RDL is giving valid and valuable advice. Generally speaking WA and TX has no income tax for personal and businesses, but the gross receipts is almost always going to hurt more than the average income tax because of the huge tax base. For example, if your selling ads and your only making a margin of 30 to 10 percent. The base of your gross receipts is going to include the full amount and not just your cut of the profit. Texas is known for having some of the worst gross receipts taxes. Michigan GRT and BRT as well as the Ohio CAT are horrible. So beware of those pitfalls. But, again I think you should definitely head RDLs advice!