Dissolving an LLC, Moving to another State - How does it work?

Question

Right now my LLC is located in California. After paying an immense amount in Taxes to California, we are deciding to move it to Nevada.

We have family there, so we feel that it is a great move.

With that said, I understand that the process is as such:

1) Close the LLC (in California)
2) Pay Taxes on that LLC (As in, pay taxes all the way from Jan 2010 to - June 2010)
3) Re-open it in another state (Nevada)

Can anyone elaborate in more details on how this works? Are these steps correct? Do I pay taxes after I close my LLC? We'd prefer to do away with the taxes for California immediately. You don't need to be a resident of Nevada to open an LLC there, correct?

We travel constantly back and fourth from California to Nevada, so can anyone also go into further detail(s) on the pros vs. cons between the two?

Thanks!

J Scott · Answer

But, I would guess that if you live in California and/or you're operating the business out of California (and especially if you hold inventory in California), you're going to pay taxes there.

Just a guess...

Vikram C. · Answer

Matt, your idea is not a bad one.  Here are some things you will need to do in order to avoid having to pay taxes in California.

1.  Form a corporation in NV and do not elect to be treated under subchapter S.  In other words, form a C Corp.  This will allow you to live in CA if you wish and not have the taxes pass through to you.

2.  Have your bank account in NV or any state outside CA that does not have an income tax.  Make sure payments go into that account.

3.  Have employees, operations, offices, warehouses, etc. outside CA.  Ideally, you would not want any significant degree of concentration of any of the operations in a state that has an income tax.  If your business is online and you provide a service, as opposed to a product, thiss should be easier to do.  (You can also hire employees from other countries for cheaper through various websites for outsourcing.)

4.  You will, of course, continue to pay federal income taxes for the NV corporation.  If you take out any of the profits as salary or other compensation, CA will tax you on it if you are residing there.

5.  If your business is global, the same principles I have mentioned could apply to setting up the corporation outside the U.S. but there are more complex rules involved to reduce federal taxes (CFC, etc.).

If your income is very high, tax planning is one of the best investments of your money because a few thousand dollars to a good tax planning attorney can save you many times that much in taxes.  But you need to do all this properly to make sure you are not violating the million pages of tax laws that the states and federal government have.

Jon Holdman · Answer

What does your LLC do?

No, you don't need to be a resident in NV to create an LLC there, or any other state for that matter.  But depending on what your LLC does, it may have to register in CA as a foreign entity.  For example, if you own property in CA, you'll have to register a non CA LLC as a foreign entity and pay all the same taxes you're paying now.

J Scott · Answer

First, I'm not a tax professional, so don't assume anything I say is correct...
                    
                    That said, here are a couple things to think about:
                    
                    - Assuming your LLC is taxed as a sole proprietorship, a partnership or an S-corporation, the income will flow through to you personal tax returns, and you will pay taxes to whichever state you would otherwise be paying taxes, regardless of where your LLC is registered.  And CA may require you to register the LLC as a foreign entity in that state.  So, just because you move your CA LLC to NV doesn't mean you'll suddenly get out of paying state taxes on the income in CA.
                    
                    - As for paying taxes after you close the LLC in CA, you can estimate your tax burden and pay estimated taxes any time you like.  But, the official 2010 tax filing for the LLC (and for any flow-through taxes to you personally) can't be made until 2011.  This is because there will still be tax changes between now and then, and the new tax forms don't come out until later in the year (or even early next year).  If you happen to pay the exact amount owed in estimated, you're good for next year and just need to file the paperwork by March 15 or April 15 (depending on the corporate structure).  If you overpay or underpay, the difference will be taken care of next year.
                    
                    I would highly recommend talking to a CPA or tax professional to help you out with this...

Matt Garcia · Answer

I do not own any property in California, I am 23 years old.
                    
                    I made enough money to hit the higher brackets of California's taxes.
                    
                    My business is particularly done online -- We have no physical buildings in California.

Are there anyways to get around the California taxes by forming the LLC in Nevada?

Thanks.

Dissolving an LLC, Moving to another State - How does it work?

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