Minimizing Tax Exposure in California

Minimizing Tax Exposure in California

Introduction

The purpose of this study is to expand the boundaries of the author's knowledge by exploring some relevant facts related to minimizing Tax Exposure in context of California.

In this research, we will start a new corporation with 4.6million dollars. As the tax research expert our task is to minimize tax exposure. We will discuss specific regulations in California for forming our corporation. We also determine the most appropriate capital structure for minimal tax exposure. Finally, we will discuss the tax planning consideration for the first year of business.

Discussion & Analysis

First if you are moving to California and plan to operate your business from California, you don't really have an option about registering as a CA business. You either have to register your existing Delaware LLC as a foreign LLC doing business in CA or create a new CA entity.

The $800 CA franchise tax is the minimum tax; it is not a credit towards any other taxes. You calculate your tax for either the LLC or S-Corp and if the amount due is less than $800, you pay $800. The calculation of the tax is a little different depending on if your entity is an LLC that is a disregarded entity or partnership or if the entity is classified as an S-Corp, but the $800 minimum pretty much works the same way for either type of entity, in that your annual tax is never going to be less than $800.

If you keep the Delaware LLC, you will be subject to tax in Delaware and California. So if your current Delaware franchise tax is $800 and you don't change the capital structure of your entity, you will pay $800 to Delaware and a minimum of $800 to CA. Although the annual fee for most ...