No mention of single member vs multi-member LLC, and lack of certain liability protections with single member LLCs. Most people will have expectation of liability protection, and those single member LLCs may be surprised to find the assets of their single member LLC at risk for their personal liabilities.
No mention of tax treatment, by default single member LLC is pass through (no need to file separate federal return), but can elect to be taxed as a Corporation or S-Corporation. No mention multi-member is taxed by default as a partnership but can elect tax treatment as Corporation or S-Corporation.
No mention of an Operating Agreement, which is the controlling document; therefore, without one the LLC is governed by California Code. These issues are of great importance, example: you may have a partner and the death of the partner may result in dissolution of the LLC or maybe having a new, unwanted partner(s) (spouse and/or heirs of the deceased partner), but without the operating agreement California Law will dictate.
I cover some of the issues you cite in another post:
I think you mean "has already decided they want to form an LLC in California "
I remember when I decided to form an LLC the next step was do decide which state to do it in--specifically, whether to do it in Delaware or my home state. Cost and convenience (what this article is about) was a consideration.
Then after I decided to do it in my home state, I needed to decide whether to a) do it myself, b) use an online service, or c) use a local attorney. That meant more reading on that particular question.
And so on...
But fine then; we disagree. I found the article worth reading - it is exactly the sort of thing I'd want if I found myself with a mostly-idle interest in what the process looks like.
Last time I did incorporate, I spent substantially more time and money on the question (and would never do so in CA, but that's a different discussion). But that's because I was actually doing it, not just curious.
The 2nd article you just linked is much better, and usefully informative. However, it still needs:
- info about the need for an operating agreement
- more detail about piercing the corporate veil
- discussion of FTB and IRS reclassifying as hobby business
You are advertising to a very technical audience and should address these things at a deep level.
You're making some quite strident demands of some random person on the internet here ;)
Having said that, I too would be interested in the extra topics that you listed, particularly the operating agreement piece. I looked into this recently and NoLo offers a $100-300 service  which comes with options, vs. free Operating Agreements like this random one on UpCounsel.
I have no idea what the parameters are on this, and in the past I've just leant on a lawyer friend to do this for me; I'd like to understand the details.
For my 2nd LLC I just copied a free template (different than my expensive lawyer'd one) since I now had a really good understanding of what needs to be there.
At first yes it's scary to think you might be getting it wrong, but you learn that it's not rocket science. It's basically the agreement between the members of the corporate structure. I haven't read the NOLO one but I bet it's good value for money.
You will generally have to present the operating agreement to the bank to open a business account, to get business financing, maybe for insurance, stuff like that.
My experience (IANAL) is that for friendly partners, the nolo template is going to be fine. If you're selling shares to folks that you don't have a history with, you may want to have the assurance of expert, personal legal advice from someone you can also go back to with future concerns. And for that kind of bigger LLC anyway, the $1000 or so is a reasonable expense.
First google result for the obvious 'how to file llc california':
Just as readable as the original article and goes into some more useful admin details, such as the need to get a business license, seller's permit, etc.
You do realize this post isn't "informing" people, it's an advertisement, right?
I have some plans for future posts that will delve a little further into the weeds on various structuring / finance / tax topics.
I'm in Japan, but I don't think US tax law is any less complicated ;-) When I started my company I waited until after talking to the lawyer and doing all the legal paperwork to engage an accountant. Big mistake! There were a lot more options than I knew about (and that my lawyer told me about). Even engaging my accountant when I did, he still saved me his yearly fee in about 5 minutes. I think it's not a stretch to say that he's saved me about 10% net year to year.
I have not found this to be the case, at all.
An ownership interest in the LLC (and its share of assets) is always at risk for the member's personal liabilities just like any assets of an individual debtor. LLCs merely afford liability protection against personal liability for the company's debts.
A pass-through LLC MUST file a tax return and issue Schedule K-1s to the partners (a pass-through LLC is considered a partnership by the IRS) so they can pay their taxes, even though the LLC does not pay taxes itself. You must also file a California state tax return to report payment of the $800 annual minimum franchise tax.
It is correct that just filing the papers and paying the fees to the state does not constitute proper LLC formation. An Operating agreement must be executed and other formalities completed. There's something like an 11-point test for disregarding a corporation and any one them can bring personal liability. Forming an LLC can be done yourself, but research it, and follow the rules closely. The key is to keep the LLC as a separate entity and not to overlap or commingle your personal assets and the assets of the company. If you do everything for the company as you would do for another person, such as separate address and phone number, bank account, etc., you should be fine.
In most States, you will be required to have a lawyer represent yourself. You cannot represent yourself (pro se). So in cases where a lawsuit is frivolous, it can be incredibly expensive, whenever you could of just filed a Motion to Dismiss, etc, yourself.
That is the basic idea of using an entity like an LLC in the first place.
Not to discount that but aren't LLCs usually formed to avoid personal liability for company liabilities? Not sure if I misunderstood your comment but it sounds to me that you said personal liabilities (e.g. credit card debt) would have to be paid out of the company. I think the main reason most people form an LLC is the other way around, preventing that a lawsuit not only ruins the company but also you personally. Or is that also easier in a single member LLC?
> Not to discount that but aren't LLCs usually formed to avoid personal liability for company liabilities?
That’s officially why they’re formed, but that doesn’t mean they provide what the owner expects.
Years ago, when I was a bank teller, I noticed that one of our clients — a CPA — had not incorporated her business, or set up an LLC, LLP, etc. She mentioned that the limited liability wasn’t absolute; people are often able to pierce the veil ( http://lawprofessors.typepad.com/business_law/2017/11/no-nee... ), so she wasn’t convinced it was worth the trouble. I found out later that courts are willing to pierce the veil in cases that don’t make sense (often, the courts pierce the veil for contract lawsuits where the injured party failed to write in the contract that the LLC’s owners would personally guarantee the performance, but if a car owned by an LLC was in an accident, courts would respect the limited liability; this seems backward since the victim of the accident didn’t pass up a chance to get the owner to personally take liability: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=236967 ).
If they don't, standard analysis of both the way the company is operated is done, the same as would occur with a noncontract liability where veil-piercing is sought.
So, it's certainly possible for the veil to be pierced in a contract case but not an auto accident liability case, but it's just as possible the other way around. The features you've specified and intuited are the basis for the decision to pierce the veil (and from which you have concluded that the logic is reversed from what would make sense if you were deciding based on those features) simply are not the ones that control the determination of whether the veil will be pierced.
I agree. That’s half my point: why set up an LLC if every bank and company you deal with has you personally accept liability anyway?
> If they don't, standard analysis of both the way the company is operated is done, the same as would occur with a noncontract liability where veil-piercing is sought.
That’s how it’s supposed to work, yes.
> So, it's certainly possible for the veil to be pierced in a contract case but not an auto accident liability case, but it's just as possible the other way around. The features you've specified and intuited are the basis for the decision to pierce the veil.
I’m not the one doing the intuiting; it was one of UCLA’s corporate law professors. I will acknowledge that his proposal is twenty years old, and the “intuition aspect” is based on whether the approaches used by various states actually achieve the expected policy outcome. That is, if the courts don’t decide whether to pierce the veil based on questions like “is this simply an attempt to get another bite at the apple?” then it’s hardly a surprise that many attempts to get a second bite at the apple succeed. And if the question of whether I can personally sue the owner of a pizza restaurant or have to live with the restaurant’s limited liability is based on whether he has copies of the minutes from his formal board meetings, it’s likely that the decision to pierce or not to pierce won’t actually advance the desired policies.
It does look like I had the wrong paper, though. The one I linked to makes the argument that veil piercing is unprincipled, but https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?art... gives the numbers (eight years old, at this point).
Tort liability (like copyright claims, employment-law claims, and, from. your example, personal injury and property damage claims.)
Ive heard the stories of LLCs going bankrupt, but I dont know of people losing their personal assets.
A hardware engineer just came into my office earlier with a prototype for a cheap server with a good GPU for AI tasks. He incoporated in California in 2013 and still hasn't actually gotten a product out or made sales. Meanwhile he paid 6 years of taxes * $800 = $4800. He could have bought an iMac Pro, or invested in the business in some way if he had not incorporated. You don't need to officially be an LLC or corporation for your project to be real.
If you really do need to legally form a company to separate out finances and liability, depending on what you’re doing, you might want to look at starting a Delaware C corporation (they have a minimum franchise tax of $350 plus I think a $50 filing fee). If you’re thinking of taking investment the rules and laws of Delaware are very well understood and there is a substantial amount of case law that makes it a lot more predictable to use their courts as almost everything that can happen has happened. So for certain types of companies it’s cheaper and better. For smaller things a C corporation may be overkill and an LLC or S Corporarion may work better if you do not need to raise money.
So, “jist set up an entity wherever the setup costs are cheapest” may actually just layer that jurisdiction's tax on top of CA tax, depending on your business details.
Maybe he doesn't need an LLC at all right now.
LLCs are not incorporated.
Nevada has SilverFlume for many years. Also, no income taxes. Also, no Employment Development Department. Also, real estate at $1/sqft. Also...
The Downtown Project was highly ambitious - area is just now starting to take off.
To actually create one:
If so, that’s nuts and we need some beefier Commerce Clause jurisprudence.
Get a bottle of Scotch, clear a week-end and grab an annotated copy of Delaware’s General Corporation Law . Read it. Book two hours with a top-tier lawyer. Ask them questions. DE law will give you an overview with which to ask the right questions for across the U.S.
Pedantic overkill? Yes. Satisfying if you’re the right personality type? Absolutely. (Caveat: the law is complex and unforgiving. Use this to ask a lawyer good questions versus pretending to be a lawyer yourself.)
Disclaimer: I am not a lawyer. This is not legal advice. Do not form a legal entity without speaking to a lawyer.
“I am suing because some dude on Hacker News suggested..”
It should hopefully be a good starting place for you.
Please just spend a little time educating yourself about corporate structure and spend a lot of time building a company with real value. The former can typically be changed without a lot of fuss if the latter requires it.
Delaware does benefit from this... they get all the filing and other miscellaneous fees out of the deal as well.
People saying why not form in another state: it was my understanding that while you can do this you'd still have to register with the state you're actually in so you're not saving on taxes and just spending more money by registering twice? Maybe I'm just misinformed...
One of the more interesting was an attempt to tax one of the casino owners (I believe it was Harrahs but I don't have access to the records) because they lived in California (South Lake Tahoe). That was denied because the casino did not do any business with anyone in California and the guy they were chasing didn't do any work for the casino from home.
Could somebody clarify? Say I want to create a corporation, and will probably do work for it from home living in California. Does incorporating in Delaware now mean I will be paying the $800 tax (or some other) for CA, in addition to whatever Delaware charges?
The franchise fee is 1.5% with a minimum of $800 for all profits from business generated in California. So yes you’d pay the franchise fee for CA and the $250 to Delaware
Also, with Trump's tax plan, C corps might be taxed less than you as flow through via your LLC. If your tax rate is above the new ~22% c corp rate, you might want to look at that and do a Delaware C or S Corp. Attorney; just sayin'
I don't think cap gains tax plus corporate tax will end up less than even the highest earned income rate.
Note, I'm not a legal person, but these are things I was told to consider when picking a state to form your LLC.
Let's say you want to remain anonymous (not for any illegal reason, just pure privacy paranoia). Does that mean a california LLC won't work?
What's the difference between those other states and using a registered agent for the mailing address in CA?
Especially if you don't live there.
You can also form a Wyoming LLC without even being a US citizen or resident. It's comically simple to setup and the annual fees are a joke. There's a large registered agent industry there.
1) Forming an LLC, or a trust, or similar things, has always been considered complex, expensive, and requiring human supervision. I guess and assume that a large percentage of the population still believes it is the case.
2) This thread, however, confirms that people are ready to see #1 challenged and eventually removed. And there are numerous examples of websites, resources, etc, pointing at simple and elegant solutions that would apply to MOST cases. (deciding whether your case belongs to "most" or not might not be too simple though).
3) There is so much unexpressed potential in the ability for people to put these matters into their own hands. Don't get me wrong, experts are and will still be required in many cases, but the point still stands.
An example? Everybody owning property should use some form of legal entity to own/manage that property. Why? Because in its simplest form (a trust) it is literally cost-free, and brings several benefits out of the gate (no probate on death; legal separation between trustee and beneficiary; etc). For slightly more specific needs, an LLCs or other similar vehicles also provide great benefits (although require tax reporting, and some state and local tax to be paid each year). And these tools shouldn't be expensive. Not for most people.
In my recent experience, I have been dealing with the structure of a land trust to facilitate real estate transactions (using the Blockchain to record these transactions - before you say anything, we're not crypto fanatics, the crypto part is actually quite straightforward and not too crazy like many projects out there).
We are a startup, and we invested a significant chunk of our initial funding in fees (legal and otherwise). We intend to open source most of our outcomes eventually, and hope that MOST people will be able to actually benefit from this, instead of spending several orders of magnitude more to have it done the old way.
In that regard, the "setting up an LLC in 10 minutes for $70" is exactly how these things should be. (again, provided that you belong to the "most cases" category).
All in all, I'm really happy that this is happening.
As a side note, if you have experience with trusts and LLCs used for real estate investment, I would be very happy to chat with you - I come from the IT world (Amazon, etc) and still have a lot to learn from experienced people.
There are other businesses where an LLC makes sense, including possibly for a bootstrapped startup that will have one stockholder for its whole existence. But that's not my area.
Not even going to include a disclaimer about this not being legal advice, because I am a lawyer and this is good advice :)
As for Delaware vs. your home state (CA in this case), I think it depends on the business. If you are a multi-national corp, sure go with Delaware. But if you live in CA, the other owners live in CA, and you're mostly doing business in CA, I'm not sure you'd need a Delaware corp. Delaware has franchise taxes of its own, so you'll end up paying taxes and fees in two states because you'll have to register as a foreign corp in your home state (CA).
For example - this week I'm helping someone with a simple filing in California, and the processing time is 10-12 days, unless we pay California an extra $350 expedite fee, whereas Delaware will turn the same filing around in 2-3 days with no expedite fee.
Or, for another one - in California you can't submit an electronically signed document for a filing, so you and your lawyer get to spend the extra billable time dealing with scanning PDFs instead of DocuSign.
And you get to deal with the lottery of attorney reviewers who will sometimes reject Articles of Incorporation over things that have been OK in every other document you've ever filed.
And this is all separate from the fact that the lawyers on both sides of your transaction are secretly scratching their heads while they dust off their copy of the California Corporations Code and billing your for the time they spend figuring out what's different from Delaware.
It's just not worth it for the $400.
Lawyer, but not your lawyer.
I'm just trying to point out that "Delaware C Corp" may not always be the right answer. It may actually only be the right answer for a very specific use case.
Both Delaware and California offer LLCs, as well as incorporation options. Are you contrasting an LLC versus a C Corp, or a Delaware LLC with a California LLC?
A Delaware C corp vs. a California LLC
TL; DR If you’re raising outside financing, Delaware. Otherwise, California is probably fine. (Assuming you have a nexus in California.)
Disclaimer: I am not a lawyer. This is not legal advice. Don’t make these decisions without a lawyer.
I don’t understand. “C Corp LLC” doesn’t make sense; you can’t be both.
Still an LLC. We’re talking about entity formation and comparing jurisdictions; being legally precise becomes important in this context.
Disclaimer: I am not a lawyer. This is not legal advice.
Right. It's still an LLC, for specific state legal purposes. And it's generally a C-corporation for tax purposes, federal and international law.
A single-member LLC electing to be taxed as a corporation will still be sued as an LLC (i.e. it can be pierced more like an LLC and less like a corporation), dissolved and maintained as an LLC and enter into contracts, open bank and brokerage accounts as an LLC, and have the same difficulties raising outside capital as an LLC.
If you do business in CA, which is to say you earn revenue in CA (and file a corporate/partnership tax return in CA), you’re paying the $800 annual fee regardless.
So even if you form a Delaware LLC or Delaware C-Corp or Florida LLC and you earn money in CA, you’re paying the franchise tax.
You're free to set up shop in South Dakota (no minimum) and see just how many customers you find there...
I gave up the LLC protection after a couple years of this price gouging.
In general, most people misunderstand then “limited liability” of LLC’s.
There is also an LLC fee once you hit a certain income threshold.
To save on costs, don’t go to a big firm, they are expensive. Ask around and find a solid boutique firm that specialises in your area. They will often do some kind of deferment if you are really small, although there’s usually a retainer.
Get it done right, the first time, and you won’t have to spend money on it again. This applies to anything legal; incorporation, contracts, employment agreements, licences, etc.
If you are by yourself, starting a company, just go register a d.b.a (doing business as) at your local courthouse.
And yes, a CPA will cost you money, but it is something you must have right and is worth the cost. By having a CPA, you will avoid falling into a situation where you end up paying a fine, or have unexpected fees/taxes, or, more often than not, the CPA will actually show you how to structure/operate in a way that will SAVE you taxes and fees. If you are going into a partnership or S/C Corp with different owners, than the money spent on a lawyer as well as the CPA is very much worth it.
Save yourself down the road and spend the money now to do it right.
You still have to pay yourself a reasonable salary which would be taxed at regular earned income rates.
And then for any dividends you pay yourself, you are going to pay corporate tax of 21% (after Trump tax changes hit) plus 15% or more capital gains.
Also, a lot of students I know would be interested in learning more about bookandledger - do you have 40 minutes to give a talk about the new co. and your past experiences?
They want your personal name on there so they can come after you personally in case something fishy happens.
I liked the 10 minute part though.
You aren't required to incorporate at all (but in many cases it's the best course for mitigating risk). People start businesses all the time without forming a separate entity. However, in the eyes of the law, that means that you and your business are one and the same. So if the business does a Bad Thing, you as an individual are responsible for all of the consequences of such Bad Thing. Similarly with taxes, all of the business' income gets attributed to you as an individual. Most people don't want these two things to happen, so they form an entity. You can go without, but it comes with significant risk, and you may end up forfeiting favorable tax treatment as a result.
These same issues get more complicated as soon as you involve others. Talk to your accountant. And consider what your risks are and how much your business is going to make. Find legal assistance for small businesses, or talk to a business lawyer as soon as you can.
Although, as has been said, you don't need an LLC if your business is not "there" yet.
If you are in the US, you can just use your SSN and sign up directly with your payment processor as a sole proprietor.
If things take off, you can start worrying about talking to a lawyer. You really won't have any reason to form an LLC until you need to hire real employees (W-2 employees).
It seems to me like choosing CA over some state with less onerous taxes and is like loading a gun and pointing it at your foot. If you wind up doing business that wouldn't be subject to CA taxes then the CA taxes on that would be money down the drain.
Annually, I have to pay $20 to file an annual return. Taxes you can do yourself if they are simple - as in a single consultant.
We don’t have LLCs.
But you are correct about the two tax return thing. That is a slight bummer.
CA has 1 of the highest business taxes. LLCs have to pay the State $800 every year, even if your business is losing money or has no revenue and even if you are a single-member LLC, in which case IRS regards it as a pass-through entity.
On top of that, if you form your business in San Francisco, you are mandatory charged a 4% "Healthy San Francisco" city tax that is supposed to helps pay for employee's healthcare.
> 2008 Health Care Security Ordinance, which provides health care to San Francisco residents without insurance (the Healthy San Francisco program) and requires businesses to help fund health care for their employees in San Francisco.
Restaurants were busted running a scam where they passed on this tax to the customer and pocketed the $$ themselves, but that's a whole different story (see Source link above).
I think there will be a lot of "growing pains" as businesses adjust to "actual cost of an employee." Typically my friends back in Texas make fun of me for this after my move to SF, then turn around demanding the removal of illegal immigrants... despite the fact that every one of their favorite restaurants out in Houston exists because of their ability to underpay unreported workers. I see very little difference (costs go up because employees actually get healthcare now vs costs go up because historically underpaid employees have to be paid at least minimum wage because they're reported now).
This is misleading right-wing B.S. This only kicks in once you employ 20 or more people. Anyone reading this on HN, if they eventually do employ 20 people, probably would want to offer them health insurance by that time.
LOL. No. I campaigned for Barack Obama and met him in 2008. That's how 'right wing' I am.
> Anyone reading this on HN, if they eventually do employ 20 people, probably would want to offer them health insurance by that time.
That's a benevolent attitude, but practically, it will drive your business bankrupt if you are paying the CA-rate health care costs. That's the single biggest reason why even big corps like Wells Fargo, Charles Schwab and Bank of America are relocating many of their employees to Arizona and Colorado and elsewhere.
> CA-rate health care costs [are] the single biggest reason why even big corps like Wells Fargo, Charles Schwab and Bank of America are relocating
If you want to do business in California, you will be paying that tax whether you register in California or another state. Consequently, if you're in California there's no reason to consider exposing yourself to the jurisdiction of another state.
I really don't understand.
PS: It seems the original startup school video is gone. This version is linked by their page: https://www.startupschool.org/?course=1
If an LLC, say software services, incorporated in DE provides some consulting to a firm in California, that counts?
And btw that’s the rule in every state. They all want to tax whatever revenue is generated in that state (unless they don’t have a business tax at all, which is somewhat rare)
Given that you're taxed on profits (reductive, I know) isn't this literally impossible?
God forbid Californians value healthcare and that a city 45 minutes from the HQ of the richest company in the world, in the midst of a homelessness crisis, attempt to improve the lives of its at-risk citizens
That is not only condescending but also insulting to people who are working very hard to just survive.
I would respectfully request you to come down from your ivory tower of tech employment and notice the small people. My brother has an LLC and does landscaping. After paying all sort of bills and liabilities his company made $4K profits last year. $800 is pretty big amount compared to those profits. The profits might look negligible but he was able to employ 2-3 people on hourly wages, invest in buying a vehicle, equipment and so on.
When we talk about inequality we should realise that $800 flat tax hurts the poorest of poor lot more than people like you and me. This eventually adds up into making poor people even more miserable than rich people.
It could have been lot more sensible to say don't pay any taxes if you are making less than $20K profits. That would help poor people more.
I am not saying this about you but I come across so many people in tech industry who claim to have bleeding heart for poor and yet are totally ignorant of reality of poor people.
And by the way I’m not in agreement with most taxes; I am almost a Libertarian. I’m also not a Californian. I’m just saying, I think it’s not that big a deal in the grand scheme.
I'm using the language of statists because most people today are statists. It doesn't necessarily follow that I also personally agree with the idea, though I can see why you'd draw that conclusion.
It might be, but that's not what the tax is for. The $800 tax applied to LLPs, LLCs, and corporations isn't a tax on the privilege of operating a business in California: sole props and non-limited-liabilty partnerships can operate as businesses in California and don't pay the tax.
The privilege you pay for with the tax is that of offloading business failure risk onto the public while protecting your own personal assets with a publicly granted corporate liability shield.
No, it doesn't, you can do that as a sole prop or (non-LLP) partnership, and not pay the $800 tax applied to corporations, LLPs, and LLCs.
Asking the public at large to absorb for you (by granting you a personal liability shield) the risk that that the resources you give to the business plus those it is able to earn will not be able to meet the businesses liabilities is what you pay the $800 for. Which is why only the limited liability entities pay the tax.
They often convert to an LLC or corporation if they scale beyond a very small operation, because at any but the smallest scale $800/year is nothing (it's less than the wages—not total cost—of a full time minimum wage employee in the state for two weeks.) But, you only need to start that way when you have or are seeking early investors that are protecting substantial assets outside the business; lots of people starting a small business sink most of their personal assets into them initially anyway, so the corporate liability shield isn't protecting anything: if the business fails, they are personally wiped out with or without it, and their exposure is limited more by personal bankruptcy than anything else.
Doing business in California: both local and foreign LLCs doing business in CA pay it.
> Why is it almost 4 times more than Delaware?
Why shouldn't it be?
> WHY does it cost $800 just to exist?
You can do business as a sole proprietor or general (or limited, but not limited liability) partnership without the franchise fee. You are paying for the right to do business in CA with a liability shield. The potential value to you (and cost to the public) of such a shield, all other things being equal, is greater in a bigger market. California has more than 30 times the population and 40 times the GDP of Delaware.
But yeah, there’s really no valid reason other than the fact that California can get away with it.
It's simply a bad policy to start aspiring small businesses in debt. $800 isn't much to many of us on here but it is for a lot of people that want to be entrepreneurs in different fields from different backgrounds. Most businesses have other startup costs as well.
California already has the highest state income taxes. The privilege of doing business here is already accounted for. The franchise tax fee is just a bad policy and it's regressive.
And, so, they start businesses as sole proprietorships, or general or limited partnerships, and reorganize as LLCs or corporations once they've proven the idea. They are exposed to more (and the public exposed to less) risk of unmet business liability, but they can still run a business.
We always see entrpreneurs praised for taking risk, why are we hearing so much complaint that California charges for the privilege of offloading risk on to the public?
California has a pretty progressive income tax. It's the highest at the top income bracket (> $1 mil is taxed at around 13%), but it's significantly lower at the low end than many other states including Alabama, Arizona, Connecticut, Kansas, Maine, Maryland, Minnesota, New York, Oregon, Rhode Island, Vermont, West Virginia, Wisconsin, and DC.
I'd be willing to bet that if you adjusted the brackets for cost of living, CA is taxing the poor more than those other states are.
Why bet when you could actually look up the figures yourself? California has a very progressive income tax with more brackets (ten) than other states, starting at 1% for the lowest bracket. Meanwhile North Carolina charges a flat 5.75% and Wisconsin's lowest income tax bracket is 4%.
Or simply get an LLC from another state. Seems like there are states (Utah?) where there is no annual fee/tax.
I believe you only need a CA LLC if you hire employees in CA.
But no state allows you to register any entity for free. Lowest I’ve seen is South Dakota at $50 per year with no other tax on receipts.
Ask Detroit how that worked out for them.
If they are not useful unless they are at a certain amount, then what would that be and why aren't they at that level already? And wouldn't that just mean that anything below that level actually is useless if it doesn't meet the minimum needed to do anything?
What is reductive about wondering why a situation that you outlined exists for decades when there are specific extra taxes to help battle it?
>> Minimum tax is the amount you must pay the first quarter of each accounting period whether the corporation is active, operates at a loss or does not do business. The current minimum tax is $800.
If you're not making $800 then you don't have a business - you have a hobby.
Either way, yes it's just a cost of doing business in California, and so profits need to be greater than the cost for the business to be sustainable. Perhaps it's not a great description to say "taxed into bankruptcy" but it's no different than "did not meet costs and ended in bankruptcy", with the costs specifically being taxes.
More likely the hourly equivalent will be a lot higher. A dog walker would make that in 4 days at worst. A week or two if they are casual ones.
So to not make that it’s not the taxes that are killing your business.
The only time you can dispute this is when the tax is directly on an activity that requires two participants. Who pays sales tax, the buyer or the seller?