4 ms·

1. On taxes, a C Corp might be the right choice, but he didn't say enough to reject an LLC that elects to be taxed under Subchapter S. A C Corp taxed under Subc

by Digory 6y ago

1. On taxes, a C Corp might be the right choice, but he didn't say enough to reject an LLC that elects to be taxed under Subchapter S. A C Corp taxed under Subchapter C creates the classic "double taxation" problem, where any profit distributions are taxed twice before hitting the founder's pocket. 2. A CMRA (virtual mailbox) is not a good registered agent. The "registered agent" is the place the sheriff or process server delivers a lawsuit to a real person. If your mailbox address doesn't accept hand-delivery, they'll reject service. And if that happens, you may not hear about any lawsuit until the court has already ruled against you and entered a judgment. Most states say that if you don't have a place for hand-delivery, the person suing you can mail it to the Secretary of State, who then mails it to your last known address. You rarely get the suit in time to answer. You can find registered agents cheaper than $100. But don't assume your virtual mailbox is a good solution.

withinboredom 6y ago
They did cover 1 quite clearly. At least to me, an American that lives outside America with some US income. You do not want pass through outside the US. Unless you just like paying taxes. Edit: Just to clarify why I said this. The US has a “anti-double taxation” treaty with most countries. Except that it doesn’t really apply fully to businesses. For example, I basically paid almost 50% income tax on income made from the US last year. I’m trying to figure out how to restructure to fix this.
- eli 6y ago
  I think you're discussing a different problem from the parent post. Depending on how you form your US company, you can end up in a situation where the company pays corporate income taxes on any profits, and then when you distribute those profits to yourself you pay personal income tax on them too -- so the same income is essentially taxed twice. There are separate issues with how the US taxes money made overseas.
  - withinboredom 6y ago
    Hmm. Yeah, I see your point. The point I was making though is that pass-through causes /all/ income to be taxed as personal income. When outside the US, you also have to pay income tax in your country (most likely). So now you’re paying income taxes for all revenue (not profits) in both countries. Even with the tax treaty, you’re still looking at an extra ~15% tax on whatever you pay in your own country. With a C Corp, you pay US taxes via the company. You control how much goes to you, personally, which you pay income taxes on. Depending on the amount, you may not have any issues with US income tax.
    - gamblor956 6y ago
      A tax treaty would not apply to that situation. It protects foreign taxpayers from double taxation, not expats. Expats most get relief from their home country for home source income.
  - mbreese 6y ago
    > the same income is essentially taxed twice What about if you pay yourself as a W2 employee? Then, isn’t your salary treated as an expense of the corporation and thus only taxed at the personal level?
    - URSpider94 6y ago
      That's correct, if you pay yourself, that's an expense for the company and deducted from taxable income. And you'll pay personal income tax on it.
    - Digory 6y ago
      Top Federal rate for W2 income: 37% + 2.9% Medicare + 12.6% on the FICA portion. Top Federal rate for dividend/profit distribution: 20% All other things being equal, as the company earns more than your base wage, you want it to be treated as dividend income.
      - deleted 6y ago
        [deleted]
- gamblor956 6y ago
  Tax treaties definitely apply to businesses... And foreign taxpayers. Your being taxed as a US citizen, so a tax treaty wouldn't apply to your US income.
jjeaff 6y ago
The calculus of c Corp double taxation has actually shifted in the last few years due to the lower corporate tax rate of 21%. Situations vary, of course, but if you paid yourself as a founder a base salary and then paid dividends, those dividends could be received at a 0% tax rate up to the first $77k for a married couple filing jointly. So effectively, you would be paying only 21% tax on that 77k. The traditional s-corp passthrough could shield some of the income from SS tax. But you are still going to pay full personal income tax on all of it because I don't think that dividends paid from an s-corp can count as "qualified dividends". Additionally, c-corps have more leeway with fringe benefits. For example, I believe a c-corp can pay for a healthcare plan with pre-tax money where as you can't deduct that for an s-corp.
- Digory 6y ago
  Yes, I hedged because C-Corp taxation sometimes makes sense now. A few years ago it never made sense. Even so, LLC-as-a-C-Corp is usually the winner, not a full-blown Delaware Corporation taxed as a C-Corp.
  - jjeaff 6y ago
    Agreed on LLC as a C-corp. Though I am not sure if LLC as a C-corp can qualify for the tax free sale of the company after 5 years rule. Which gives you a tax free windfall up to the first $5m.

by Digory 6y ago

withinboredom 6y ago

They did cover 1 quite clearly. At least to me, an American that lives outside America with some US income. You do not want pass through outside the US. Unless you just like paying taxes. Edit: Just to clarify why I said this. The US has a “anti-double taxation” treaty with most countries. Except that it doesn’t really apply fully to businesses. For example, I basically paid almost 50% income tax on income made from the US last year. I’m trying to figure out how to restructure to fix this.

eli 6y ago
I think you're discussing a different problem from the parent post. Depending on how you form your US company, you can end up in a situation where the company pays corporate income taxes on any profits, and then when you distribute those profits to yourself you pay personal income tax on them too -- so the same income is essentially taxed twice. There are separate issues with how the US taxes money made overseas.
- withinboredom 6y ago
  Hmm. Yeah, I see your point. The point I was making though is that pass-through causes /all/ income to be taxed as personal income. When outside the US, you also have to pay income tax in your country (most likely). So now you’re paying income taxes for all revenue (not profits) in both countries. Even with the tax treaty, you’re still looking at an extra ~15% tax on whatever you pay in your own country. With a C Corp, you pay US taxes via the company. You control how much goes to you, personally, which you pay income taxes on. Depending on the amount, you may not have any issues with US income tax.
  - gamblor956 6y ago
    A tax treaty would not apply to that situation. It protects foreign taxpayers from double taxation, not expats. Expats most get relief from their home country for home source income.
- mbreese 6y ago
  > the same income is essentially taxed twice What about if you pay yourself as a W2 employee? Then, isn’t your salary treated as an expense of the corporation and thus only taxed at the personal level?
  - URSpider94 6y ago
    That's correct, if you pay yourself, that's an expense for the company and deducted from taxable income. And you'll pay personal income tax on it.
  - Digory 6y ago
    Top Federal rate for W2 income: 37% + 2.9% Medicare + 12.6% on the FICA portion. Top Federal rate for dividend/profit distribution: 20% All other things being equal, as the company earns more than your base wage, you want it to be treated as dividend income.
    - deleted 6y ago
      [deleted]
gamblor956 6y ago
Tax treaties definitely apply to businesses... And foreign taxpayers. Your being taxed as a US citizen, so a tax treaty wouldn't apply to your US income.

jjeaff 6y ago

The calculus of c Corp double taxation has actually shifted in the last few years due to the lower corporate tax rate of 21%. Situations vary, of course, but if you paid yourself as a founder a base salary and then paid dividends, those dividends could be received at a 0% tax rate up to the first $77k for a married couple filing jointly. So effectively, you would be paying only 21% tax on that 77k. The traditional s-corp passthrough could shield some of the income from SS tax. But you are still going to pay full personal income tax on all of it because I don't think that dividends paid from an s-corp can count as "qualified dividends". Additionally, c-corps have more leeway with fringe benefits. For example, I believe a c-corp can pay for a healthcare plan with pre-tax money where as you can't deduct that for an s-corp.

Digory 6y ago
Yes, I hedged because C-Corp taxation sometimes makes sense now. A few years ago it never made sense. Even so, LLC-as-a-C-Corp is usually the winner, not a full-blown Delaware Corporation taxed as a C-Corp.
- jjeaff 6y ago
  Agreed on LLC as a C-corp. Though I am not sure if LLC as a C-corp can qualify for the tax free sale of the company after 5 years rule. Which gives you a tax free windfall up to the first $5m.