Hacker News Reader

Comment by chao- | Hacker News Reader

Quite the opposite. In Texas, until a certain point in revenue, they really don't want to waste any time and resources on you. They ask "Did you make at least $1,000,000 last year? No? Well, please move along peasant, we have real businesses to deal with who might actually be worth auditing."

Makes sense, somewhat. Even in the case of minor fraud, they would likely spend more in manpower than they could possibly reclaim from such a low-earning outfit. You still have to file, of course, but it's properly simple if you didn't earn a significant amount.

EDIT: corrected from $200,000 to one million.

View on HN

In CA, if your gross under a certain revenue, you owe a base amount in taxes ($800 in taxes + your biz license and other fees). If you are over a certain revenue, then you owe a percentage (which comes out to equal or greater than the $800 + biz license and fees). [1]

This sucks a lot for small side businesses/projects, most of which may not even make $800 in the first year. It's a very anti-small business law/tax, which is why a lot of internet based companies incorporate out of state like Nevada where their tax liability is significantly lower or none at all.

[1] https://www.ftb.ca.gov/businesses/bus_structures/LLCompany.s...

Sadly - if any aspect of your business is conducted in California (e.g. you reside there) - that minimum $800++ is still owed - regardless of where it's incorporated.

Is that true even if you are an online-only business? As-in, you have no physical presence in CA except you (as an employee of your own company) happen to live here?

I've honestly not looked into it any further -- for my side consulting gig which I do maybe once or twice a year, it's just not financially worth while to incorporate in CA... so, I go undocumented (which means I forfeit any protections an LLC or s-corp could provide me) and CA looses out on all taxes, biz license fees, and any other fees... instead of just some... really a lose-lose situation.

It depends.

The California Corporation Code states that merely residing in the state does not mean you are required to register as a foreign (out of state) LLC and pay the $800. If your LLC is registered elsewhere, and your business is 100% internet only and doesn't have any employees, property, etc in the state, then you are probably fine. Obviously talking to a real lawyer about your specific case is a good idea.

Keep in mind though that you WILL still have to pay California income tax on whatever your share of the LLC's profits is.

See 17708.03 10.c here:

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&g...

If your project is so small that $800 a year is going to hurt it them maybe it's not ready to be an LLC yet. Not that I think cA is a great state to incorporate in, but limited liability is a really significant legal privilege, so I think of minimum taxes like this as a disincentive for shell companies/fly-by-night setups.

Not necessarily. Most businesses lose money the first year -- so add that with a minimum payment to the state of around $1,200+, and that becomes a significant discouragement to even try to start your own business.

Bootstrapping a side gig until it's large enough to sustain oneself becomes much more of an unfair challenge (when compared to other states) -- yet I have a feeling shell companies don't have an issue as they are usually backed by another already incorporated company, etc.

So it serves nothing but to be a giant roadblock for small businesses to get off the ground... at a time when we are supposed to, as a country, be promoting small businesses as they are the real job creators in the market.

Actually, its below $1m. Technically below $1.1m, since they don't bother if you owe less than $1000, but below $1m in revenue you owe nothing.

Thanks for the correction. That's even better as we're set to break 200K this year :)

>> Even in the case of minor fraud, they would likely spend more in manpower than they could possibly reclaim from such a low-earning outfit.

I think they're counting on the fact that you'll straighten things out and continue paying faithfully for many years after this. Plus, there's a deterrent effect on others who hear the same story.

It's not necessarily worth paying for a security guard to catch the one guy who tries to steal a case of beer. The store pays for the guard to deter theft rather than catch thieves.

Wait, let me understand this: if you make less than 1MM in Texas with your corp, you don't pay taxes?

Reply on news.ycombinator.com