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Operating a software consulting business in California

Asked by: Paul McLaskey - 5 January, 2011 My operation is software consulting, primarily in CA.
1. If I set up LLC or S corp. in DE., am I obliged to set up Foreign Entity in CA?
2. In terms of SE consideration, is straight LLC, LLC set up as S corp. or straight S-corp. best?
3. I'm not quite clear about Franchise Tax (CA.)...Is it $800 minimum & a further $900 for receipts $250K to $500K?
4. Is corp. tax for LLC in CA. nonexistent?

Many thanks indeed
Answered by: Alec Green - 5 January, 2011

If your company operates primarily in California then you should register a foreign entity in that state. Otherwise your company may be subject to tax penalties and even a prohibition on transacting business in California.

I'm not entirely clear on what you are asking in your second question, but we recommend that you set up an LLC for your small business. An LLC can choose to be taxed as a partnership, and S-corp or a C-corp. You can discuss the advantages and disadvantages of each with an accountant. We will be happy to recommend an accountant for you.

As far as the franchise tax goes, there is a minimum of $800 in California you are right that the next amount is $900 for $250-$500 thousand in income. You can see a full explanation here LLCs must pay the California franchise tax.


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