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Eugene Jeanne's headshot
Eugene Jeanne CFO; Enterprise Risk Manager

Optimal Legal Structure for a Consulting Company in CA?

Asked on May 9, 2013

I live in California and would like to set myself up as a consulting firm to take work assignments in &/or outside of CA.  How is it possible to create a company (LLC or otherwise) such that, besides the obvious registration fees, I don't have to pay the large minimum tax bill of California (legally, of course)?  I can't come up with an answer, because even if I were to register my firm in another state it looks like I would still have to pay the minimum $900 tax bill for the privilege of living in CA.  Perhaps our community has faced this dilemma and come up with alternative approaches?  Thank you.

Answers

Simon Westbrook's headshot
Simon Westbrook CFO • August 7, 2012

Bad news is ...no chance!
If you live in CA you are required to file a CA return. CA has a hundred ways to claim you are doing business in CA. Your CA return can apportion your US taxable income by state based on sales, assets and payroll, and they will hold you responsible for paying a minimum tax if you dont reach that level with your taxable income in CA.
The good news... its only $800, not $900, a special discount of 8.5%

Randy Miller's headshot
Randy Miller Partner • August 8, 2012

Unfortunately, Simon is dead on. I am a CA resident too, and in the end, incorporating worked out as the best alternative for my accounting/consulting business. The $800 minimum tax is annoying but unavoidable. However, before you set up, you should research local city and county tax issues to minimize that drain. I saved by locating my business outside of the city which eliminated the minimum 3% city business tax.

J.D. Floyd's headshot
J.D. Floyd Owner, CFO • August 9, 2012

Count me in agreement. I am based in New Jersey, but have foreign registration in 5 other states including California. That means corporate minimums for my S Corp in 5 states, plus Secretary of State / stock fees in 3 states. Cannot get around it.

J.D. Floyd

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