:DI live in CA, and my tax attorney says to create a AZ-LLC for my phoenix property and avoid paying the CA state tax. Any comments on that?
I spoke to a NV incorporator, and he said that I should incorporate in NV for veil protection, and not to have state taxes, and not worry about 1031 exchanges. He says that’s the great benefit of the NV corp.
I have a property in Phoenix, make rental income so what should I do: (1) AZ LLC, (2) NV LLC, or (3) CA LLC.
Then next questions - should it also be in a land trust. If so again what state, or does it not worth that way?
Your thoughts would be helpful
in most cases, an LLC is a disregarded tax entity so the rental will flow thru the LLC back on to ScHE of your 1040 (unless elect for a corp. treatment).
also in Calif, if you operate an LLC that is filed in another state, you have turn around and file in Calif as a foreign entity (and still pay the $800 yearly tax).
Calif is extremely aggressive about collecting taxes and what you propose is not unique. Also I 'm not quite sure what you are trying to accomplsih. You probably will show a paper LOSS when deprectiation and amortization is figured in. Thus you might lower your Calif tax liability. ;D
That’s my 2 cents, but hey I’m just a guy on the Internet. Are you paying this atty for advice?
Mike in Calif.
State tax laws will not reduce or eliminate ANY federal gains, thus you will not eliminate the need for 1031 if you wish to defer federal taxes on cap gains.
I’d go with AZ, establish AZ banking and try to avoid CA ever finding out about the AZ entity. good luck. You have to avoid your CA address or SSN appearing on any documents relating to the business. If you tax the LLC as a C-corporation (no pass-thru profits) may avoid the CA taxes. Pass-thru profits appearing on your personal 1040 will trigger CA tax as well, just because you live there.
I can’t believe that people are encouraging others on this forum to “try to avoid CA ever finding out about the AZ entity”
this is just poor advice. be careful. but be honest.
you are giving people dangerous advice about tax “avoidance.” it can be construed as evasion (evading CA taxes). that is as you once put it … a ticket to 3 free meals a day at the federal pen. come on man…TRY to avoid CA???
What state is your tax attorney from…CA or AZ or ???
run Mark’s idea by your TAX ATTORNEY and see what he says. If he is comfortable with that concept and you are too…then have a great life.
you can LEGALLY structure your finances to minimize your tax liability. Even in CA. many business owners seek the tax shelters of lower to no tax states such as AZ or NV or FL. It can be easily done by shifting income generated to those lower taxed states.
I would agree with Mark’s assessment to use an AZ LLC if you have property in that state.
I’m not suggesting at all that Jag “evade” taxes and NOTHING in my post remotely suggests that. You’re imagining things that aren’t there. I just re-read it myself and, nope, nothing there that is in any way poor advice.
A properly taxed AZ LLC that does not in any way create nexus in CA and does not pass-thru income to him personally will appropriately avoid CA taxes.
And he does have to be careful that CA not find out about the entity, as they WILL try to tax it on the basis that since he, the owner, is in CA, it has established nexus.
Hi Everyone, you all had good information. But let me clear this up. I am NOT trying to avoid taxes. After meeting with my CA tax attorney, he says since I own income property in AZ I owe taxes to AZ. I should create a AZ LLC for appropriate protection and tax advantages.
My CA LLC makes me pay a CA franchise tax, regardless of where the property was earnining income. Therefore, I can eliminate the CA franchise tax by forming the LLC where the property is located - that’s AZ. And AZ does not have a franchise tax from what I hear.
My S-Corp is completely separate from any investments. I am a realtor representing buyers and sellers for a well known company. I created this to have maximum write offs with less risk of being audited, i.e., medical reimbursement plans, pension plans, and it reduces my tax hit.
So my confusion is should I create an AZ LLC since that property is located in AZ, and so I won’t have to pay the California $800 fee off the top.
AZ LLC taxed as a C-corp so that the income does not flow thru to your personal return will avoid both the CA fran tax as well as CA income tax, as long as the LLC does not establish nexus in CA.
Nexus will attach when you 1) open a CA bank account, 2) establish an “office” in CA [ie: use a CA address as a business address] 3)engage in any transaction that is reportable to CA gov’t [such as filing any deeds, liens, etc in CA].
If you choose to tax your LLC as any of the pass-thru entities, you will still avoid CA fran tax, but will still pay CA income tax through your CA personal return.