Startup games: #Taxtip

A casual conversation at a park while my kids play:

Mr. Startup: “I have business idea, but know nothing on how to set it up"

Pooja: "Congratulations! There's a start. Well, I do that for a living"

Mr. Startup: "Oh nice, we should connect. I have heard, Delaware is the place to Incorporate my LLC"

Pooja: "Hmm...Why Delaware? & Why LLC?"

Mr. Startup: "Cause I googled it, it's cheap to incorporate, all businesses do it"

Pooja: "LLC might not be the best structure for you, and you are based out in California, we need to check how this benefits you.”

For most taxpayers, a search on google is a great place to start but to end your search based on google might not be the best thing.

Often times I meet people who have already set up their entity and connect with me on year end taxes or international tax compliance. The reason they never contacted a tax professional on the initial set up is because they wanted to save money early in the game. And it's all good, as funds are low & every dollar counts.

Unfortunately, there is price to pay when you discover that you incorporated the wrong entity or missed filing important elements during the incorporation or following it.

It's too large a subject to cover in small write up, but will try to give you #Taxtips

• What: Clarity on what you about to create? The sole purpose of your entity is very important, in the short and long run (I am looking for funding vs this is family business). Is this a product/ services or somewhere in between? What constitutes service will determine your sales tax, and gross tax issues? (Yes, this stuff is for real)

• Who: How many people are in it? Is everyone bringing in money or just services? What you need employees or contractors. Will you need payroll? Do you need an external CFO, or you can do it all?

• Where: Your location, your employee's location, your asset's location, the states where your revenues are flowing from. This will impact your state tax & sales tax.

• How: How you going to organize the stock/ capital/company structure? This will not only impact your company tax and C suit's tax return, but also the employees' taxes.

Few other points to ponder when you decide on the state you are incorporating in.

• LLC fee

• Franchise Tax fee

• State of Information fee if applicable

• Gross receipts tax if applicable

• Sales/Use tax if applicable

Feel free to reach out to me in case you need a list of Franchise taxes by state and LLC formation fee in each state.

Please connect with contact@2cherrytax.com

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