New Federal Requirement: Starting January 1, 2024, most business entities in the US will need to report Beneficial Ownership Information.
I live in Virginia and I want to form a legal business identity (MAYBE in Virginia or any other state which is more suitable for me), I’m a single owner and I’ll be selling software services Online in US and Canada.
As I’m a single owner, have no employees at this movement and working from home but maybe later I’ll get an office and 2 to 3 employees, but in this current situation I will be only providing software services and support to my customers, I won’t be doing the marketing or advertising in fact I will outsource the marketing to different marketing companies overseas on commission basis e.g India, Malaysia, Philippine etc.
Let says my monthly sales income is around $20,000, I will pay between 40% to 60% commission to those marketing companies overseas, now for example 50% ($10,000) is left for me from which I will cover the cost of software packages delivered to customers which is around $2500 (drop shipping will be done by an online company that manufacture and deliver software packages with your company name and logo). Finally $7500 is left for me as a profit.
Now my questions are:
1) How the taxes going to work from me? Also will I be responsible to pay taxes on 50% that paid to those marketing companies overseas?
2) Which is the best business structure to form Sole prop, LLC or Inc?
3) Do I need to fill Foreign entity?
4) Do I need a business license/permit to conduct business/Sell in all the states or I only need for Virginia State or I don’t need a business license as it’s an online business?
5) Is it better to form legal business identity in Virginia or Delaware or any other state?
6) Why do people prefer to from LLC in Delaware when it comes to an online business?
7) If I form LLC in Delaware, can i get a business account in Virginia?
8) Lastly which is the best way to minimize my taxes?
Please provide me with as much information and advice as you can, I’m new to this and really confused I don’t know how or where to start from.
Thank you in advance.
Josh,
Let me answer your questions one by one:
1) You are only responsible to pay income tax on net income. If you have payouts to affiliates, they are responsible to pay tax on that. As far as taxes go, I would recommend you to browse all the questions answered by our tax expert Wray Rives, it could clear a lot of question marks. You can see them here.
2) Again, this is another question that has no easy answer. I would recommend you to read our article Choosing Business Entity to get some ideas.
3) Not if you register in Virginia.
4) Business license is only needed if your line of business is regulated and requires such licenses. Also, some states and other jurisdictions require general business license, but I haven’t heard of Virginia having such requirement.
5) If you will run this business from Virginia you might want to select Virginia as the state of registration. For more on that please refer to our article Choosing Where To Incorporate.
6) When the business has no physical presence in any particular state, or when you plan to grow it really big, through third party investment, IPO etc. then you should consider Delaware as the state of registration. For small businesses Delaware is an overkill.
7) If you form an LLC in Delaware and you conduct your business from Virginia you might be creating nexus in Virginia and would need to register the company in Virginia as foreign entity. You can open bank account in any state though.
8) For tax advice I would recommend you to consult an accountant, as we only provide general incorporation advice, not personalized tax advice. you can contact Wray for free 30 minute consultation to discuss your personal tax affairs.
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