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Expenses and Taxes for LLC in Delaware

Asked by: Manish - 26 July, 2012
I want to form a company - LLC (mobile application) in Delaware. I am based in CA. Have questions related to taxes & expenses
Taxes:
(1) why DE is favorable for taxes ?
(2) If I register company in Aug/Sept 2012, then do I need to pay taxes for 2012. I see min tax in DE for LLC is $250. So even if I don't make any profits, do I need to pay taxes for whole 2012? Is there anything like prorated taxes because my company will be opened only for four months of 2012
Expenses
(1) How should I report my expenses? Because I am physically based in CA and expenses WILL include frequent calls to overseas companies for outsourcing, outsourcing expenses, visit to India and advertising (google, radio, groupon etc.) To pay my expenses, will it be perfect to have Bank account in California? Do I need to open account in my company's name? Can I deduct this expenses for my tax purpose? What are the chances of audit? What is recommended?

Thanks in advance for your help.
Answered by: Ray Albert - 27 July, 2012
Manish,

An LLC is a pass-through entity, meaning the company will not pay income tax, and the profits pass through the entity directly to your personal income. One main advantage of incorporating in a state such as Delaware over California would be that you wouldn't have to pay California's high $800 annual franchise tax (you pay Delaware's $250 instead).

However, if you would be writing your business expenses off from your physical location in California, it could create a nexus in that state, so you would have to have your company registered there eventually. At that point, it may make more sense to register your business in California to begin with, as opposed to registering the business in Delaware and then file a foreign entity in California, which would end up being more time and money in the long-run.

You would need to have a separate bank account for the company, through which you would pay all those expenses of your business you plan on writing-off. It definitely would be a good idea to consult your business plan with a licensed accountant regarding your specific tax and write-off questions.

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