As an income tax preparer, not declaring your income in another state is a dangerous option. The other issue is you cannot declare your losses when it suites you. If you receive income from an LLC in another state that income is taxable to you in your state of residence. On the other hand, an LLC in another state that does not do business in your state may be exempt. Your income is not.
An LLC can choose to be taxed as a sole proprietor (Disregarded entity on Schedule E), Partnership, S Corp or C-Corp.
Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.
Once an LLC decides to be taxed as something other than a disregarded sole proprietorship it must file the proper tax return the very next tax year. Even if no income was earned. The penalty for late filing penalty is $220 per month per partner. Example: 6 months late with 4 partners = 220 x 4 x 6 = $5,280 and it goes up $880 per month until filed. This is true even if the LLC did not earn any money in those months.
A qualified income tax preparer like myself can get up to 12 months of penalties waived, One Time. They just have to swear to the IRS that you are an uniformed tax filer (idiot) that didn't know what the consequences were. First time I did this I got 12 out of 18 months waived. After spending $24,000 to attend the event they bought the $6,000 Wyoming LLC package at a Bigger Pockets seminar and left it on a shelf for almost 2 years. It took them that long to pay off their credit cards and even think about investing. That is why I think of them as Busted Pockets.
An LLC taxed as a partnership or S-Corporation issues a Form K-1 to each partner. The K-1 declares their profit or loss and percentage of ownership. Once California sees the K-1 on your personal tax return you will owe the LLC Fee.
The only tax entity that does not issue a K-1 is the C Corporation. Once you get paid and declare the income on your personal return, California will most likely check out the LLC in the state and go after you.
Avoid tax fraud. Move out of California if you don't like being taxed to death. Illinois isn't much better. Additionally, our legislature just gutted a huge percentage of LLC protections.
An LLC provides some asset protection. However, if you don't maintain all of the "Corporate Proprieties" it can be pierced by even the worst attorneys.
Always carry the MAXIMUM liability protection on each property and purchase both a personal and a commercial liability policy of $2 million or more. When buying umbrella policies don't forget to ask the agent what the "Retained Amount" is.
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