Debra A. Simmons, CPA

Tips for Recognizing Questionable Tax Avoidance Strategies

In Income Taxes on August 1, 2010 at 7:36 pm

Have you heard or seen ads urging Californians to incorporate in Nevada to avoid paying California taxes? Here are some tips to help you recognize questionable tax avoidance strategies.

California residents are taxed on all income, including income from sources outside California. If California residents incorporate outside of California, yet remain California residents, any dividends or salary they receive from the corporation will be taxable to California, regardless of where the corporation is incorporated or does business.

In addition, non-California residents who receive income from a California source, such as salary for work performed in California for a corporation, regardless of where that corporation is incorporated or does business, may be required to pay California tax.

Any corporation, regardless of where it is incorporated, that is doing business in California, is subject to California franchise tax. Doing business is defined as actively engaging in any transaction for profit. A single transaction can be sufficient to be doing business. In the case of limited partnerships, limited liability partnerships, and limited liability companies, California assesses an $800 annual tax for doing business in this state. Limited liability companies are also assessed an additional fee, which is based on worldwide gross receipts.

For more information on California income, contact Debbie Simmons at (310) 701-1825.

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