prn — 2012-08-13T20:24:37-04:00 — #1
I recently opened LLC in California but I live in Oregon.
When I pay myself salary as employee of LLC do I need to pay California taxes on the salary.
do I need to pay california taxes on the profit?
Thanks in Advance.
sagewing — 2012-08-13T21:09:34-04:00 — #2
The way that an LLC is taxed depends on the way that you file your taxes for it. It can be disregarded or taxed as a corporation or partnership.
I'm curious why you would form a CA LLC if you are living in Oregon? That can really complicate things and if you aren't actually physically doing business in California you might be better of dissolving the CA LLC and starting again in Oregon. California is unique because they will take a small tax (franchise fee of $800 min.) on profit even if you operate a pass-through entity (disclaimer: I remember that from a few years ago), and the CA FTB is super difficult to deal with even by government tax agency standards
At the very least you'll need to register the LLC in Oregon and then take all of the income as OR income - that way you'll avoid taking any payroll taxes in CA. Why did you set it up this way?
prn — 2012-08-13T21:19:47-04:00 — #3
Thanks for your reply.
My client is in California and go there every alternative week for 2-3 days. Initially I thought if I am doing business in CA I have to open LLC in CA or file DBA in CA.
Just to clarify ... so you mean even if my LLC paying salary to OR resident employee I have to pay CA payroll taxes.
another thing I dont mind closing my CA LLC but I have to sign contract with my client as soon as possible and opening a new LLC will take some time...so I am thinking I will continue with CA LLC for another 2-3 months and then will transfer CA LLC to OR
anybody know better solution to this situation?
sagewing — 2012-08-13T23:02:11-04:00 — #4
That is a bad situation because you will have some 'nexus' in California and will therefore have to register the LLC as a foreign entity (or a domestic one) regardless. So, if you want to be 100% legal you will have no choice but to deal with the CA FTB.
That said, you will probably be better off domiciling your LLC in Oregon and then registering it as foriegn in CA. That way, when you allocate the majority of your income to Oregon payroll (or however you pay yourself) you'll have a more realistic basis for that. Also, being a foriegn entity may reduce your liability to the FTB.
But your situation still is not clear: are you ONLY doing work for this client in CA? or are you always doing work for this client but will only physically be in CA for a few days every other week? What kind of contract is this and are you certain that you even need an LLC or will get any benefit from it? If you are dealing with a single client/contract and it's not worth more than a certain amount, you aren't realizing any benefits from an LLC an dcan save yourself a lot of headaches by going 1099.
If you share with us the approximate value of the contract, the physical location where the work will be done (can be split between two places as a percentage), and your plans for the LLC (if any) beyond this particular client, then it will be easier to advise.
prn — 2012-08-14T00:50:16-04:00 — #5
But your situation still is not clear: are you ONLY doing work for this client in CA?
Yes this is only client I have.
or are you always doing work for this client but will only physically be in CA for a few days every other week?
Yes thats correct
What kind of contract is this and are you certain that you even need an LLC or will get any benefit from it?
Here is the my current situation.. I used to work for this client through other two companies..
Company A (My Employer) --> Company B (Direct vendor) --> Company C (Client)
Now I am going to sign contract directly with Company B using my LLC. Company B doesn't want to go with 1099 option as that raises flag with IRS..
If you are dealing with a single client/contract and it's not worth more than a certain amount, you aren't realizing any benefits from an LLC an dcan save yourself a lot of headaches by going 1099.
sagewing — 2012-08-14T00:57:23-04:00 — #6
I don't think that's right. They will.have to 1099 you regardless if you are an SMLLC, and the risk of the IRS rejecting the classification is the same. I would dissolve the CA entity, form a OR entity and register it in CA right away. But, it also depends on the value of the contract.
prn — 2012-08-14T01:02:27-04:00 — #7
Why it is dependent on the contract value? Current contract value is approximately 125K
and what is the difference between having company in CA or registering OR LLC in CA from saving point of view?
In my case I do not have any clients in OR
sagewing — 2012-08-14T11:04:20-04:00 — #8
Revenues below a certain point aren't worth forming an LLC around. For 125k it can be worthwhile ,though.
You need to be registered in both states. So, you should look at the SOS site on both states and find out what the costs are for each state for:
- domicile/formation of the LLC
- annual fees (especially in CA)
- payroll taxes, etc.
- foriegn registration
Then just do the math. Probably it will be cheaper to hold the LLC in OR and then register it as foriegn in CA. I'd be willing to be on it Plus, it's just more natual and convenient to domocile the LLC in the physical location that you will operate it in unless there is some special reason not to.
In almost all cases, the pace where you operate the LLC is where you have to register it. So, even if you only have one client in CA you will still be servicing that client from both CA and OR. Check with a laywer for some nuances of these laws, but that's the general idea. If your client was in CA and you never went there, you probably wouldn't have to register in CA at all.
There are some tax gymnastics that you can use to get around these things, but they aren't that simple and at that revenue level it's probably easier to hire a good CPA and just let them deal with it. But, avoid CA taxation as much as legally possible!