About to create first stealth account, but need clarification before proceeding.

[toml3030]

Can I see any tax attorney regarding the avoidance of CA franchise tax, or do you recommend certain specialists?

there is no way to legally avoid paying the $800/yr tax if you operate in CA in any way, shape, or form.

I suppose I could form a corporation in Wyoming, and then make myself an employee while hiding my ownership since the state doesn't give away such info. The only issue is getting a resale license for buying wholesale without giving my real position away to CA. Though I suppose I could explain it away as one my employee duties.

You could hide your ownership of the corporation, but you would still have to pay taxes in CA because you must register as a out of state corporation.

Another issue is double taxation at the federal level. S-corp tax status would prevent this, but would likely give me away as well, since dividend distributions would be taxed as ordinary income for personal taxes even if I left the money within the business.

There are ways to avoid this if you keep good records.

Also, I know it was already determined that a sole proprietorship DBA would not hide my personal identity from paypal, but what if I created a DBA and then used that DBA to register an EIN? Would that effectively hide my identity from paypal?

On a sole prop, if paypal ever pulls public info from IRS, they could find out who owns the sole prop DBA. Possible but unlikely unless you do shady stuff and they're determined to shut you down.

 

[Kawgy]

Sorry to bump this thread again and double post, but I can't respond to PMs yet.


Also, I know it was already determined that a sole proprietorship DBA would not hide my personal identity from paypal, but what if I created a DBA and then used that DBA to register an EIN? Would that effectively hide my identity from paypal?

I tried setting dba as well to save money too. It won't go through. You'll get an error message at the end of the form if you tried to.

 

[toml3030]

Making dbas for each account won't be enough if you are going to reach the 200/20000 threshold. Once you hit this threshold, it will trigger paypal asking you for ssn, tax id, or ein.

This is why you don't go sole prop if you want to make a long term business on this paypal acct. LLCs each get treated as a separate entity so EIN for each LLCs don't get linked.

 

[MZLKN]

there is no way to legally avoid paying the $800/yr tax if you operate in CA in any way, shape, or form.You could hide your ownership of the corporation, but you would still have to pay taxes in CA because you must register as a out of state corporation.

Right, because being an employee in California would mean that the business had nexus in California.

I tried setting dba as well to save money too. It won't go through. You'll get an error message at the end of the form if you tried to.

If I can't do this then I am screwed.



It seems like my only option is to run multiple unverified stealth accounts since sole prop DBA won't work, and having separate business entities is way too expensive in CA.

 

[STAUNCH]

Or just come in EU, open EU eB/PP accs, operate with them. "EU" doesn't mean "UK", btw.

 

[MZLKN]

Or just come in EU, open EU eB/PP accs, operate with them. "EU" doesn't mean "UK", btw.

Is there something wrong with UK accounts? Are there any disadvantages with EU accounts and using them on the US ebay website? Anything else I should be aware of? I would like to use such an account for long term selling.

 

[Kawgy]

Right, because being an employee in California would mean that the business had nexus in California.



If I can't do this then I am screwed.



It seems like my only option is to run multiple unverified stealth accounts since sole prop DBA won't work, and having separate business entities is way too expensive in CA.

Refer back to the link i sent you. Its possible to avoid the $800 fee, but you still would need to pay taxes.

 

[MZLKN]

Refer back to the link i sent you. Its possible to avoid the $800 fee, but you still would need to pay taxes.

I read it again, and the only method I see applying to me is forming the company in a state like Wyoming that doesn't keep/report ownership info. If I were to hire myself as an employee, the company would be still be operating in California. Me sitting in my bedroom with my laptop managing an ebay account qualifies as having nexus in California. So to avoid the franchise tax I would have to violate the foreign business registration law and never register. For all intents in purposes, this is tax evasion. The fact that Wyoming and other states like it don't keep ownership info doesn't make this safe. Knowing the IRS, they would find a way to identify me as the owner eventually, and then I would be in BIG trouble. Too risky.

 

[toml3030]

I read it again, and the only method I see applying to me is forming the company in a state like Wyoming that doesn't keep/report ownership info.

Your registered agent in Wyoming would have to keep the info, so the state could get it if it asks the agent. Remember, the law is that you don't have to register the ownership to the state voluntarily, not that you can keep it secret from the state.

 

[MZLKN]

Your registered agent in Wyoming would have to keep the info, so the state could get it if it asks the agent. Remember, the law is that you don't have to register the ownership to the state voluntarily, not that you can keep it secret from the state.

It's inevitable that the state would ask the agent for my ownership info. That's why I didn't think this method was safe. I am aware that the foreign business registration is done voluntarily, but it might as well be mandatory given the steep consequences should one elect not to.

 

[toml3030]

It's inevitable that the state would ask the agent for my ownership info. That's why I didn't think this method was safe.

The chances that the state of Wyoming would track you down is virtually nil as long as taxes are paid and you don't engage in criminal activity.

 

[MZLKN]

The chances that the state of Wyoming would track you down is virtually nil as long as taxes are paid and you don't engage in criminal activity.

By state I meant California. They would see the discrepancies in my taxes and send the IRS after me. I would get traced to Wyoming, then they would then go to my registered agent for my info. Unless of course Wyoming wouldn't comply with such a request.

So in your opinion, how viable is this method? I think I would like to form a Series LLC with s corp status. However, distributions would be taxed as ordinary personal income regardless of whether or not I withdraw money from the company, potentially exposing me as shareholder. C corp status would allow me to hide my ownership better since I could leave money in the business and not be taxed on it. There is also the issue of double taxation with c corp status, but earlier you mentioned it's avoidable by keeping good records. No idea how it's done though. Finally, how can I get a resellers license without compromising my identity as owner and unreported operations in California? I suppose I would just apply for one in the state I establish the business?

 

[toml3030]

By state I meant California.

The state of CA wouldn't care either, as long as taxes were paid. However, if you structure it right, you might be able to pay just $800 tax once, since it's perfectly legal for one LLC to own another LLC.

However, distributions would be taxed as ordinary personal income regardless of whether or not I withdraw money from the company

You're thinking way too much into this. First of all, as long as you're not borrowing money, you want to show as little as profit as possible on paper. If you're making so much money that saving big $ on taxes becomes an issue, there are ways to get around it, by structuring the money you take out as qualified dividends.

how can I get a resellers license without compromising my identity as owner and unreported operations in California? I suppose I would just apply for one in the state I establish the business?

If you don't collect sales taxes, it can take years for the California frahchise tax board to track you down. Also, the $800 tax is waived for the first year. You could start and after 2-3 years go legit on the resale number or abandon the business if it doesn't work out.

 

[MZLKN]

The state of CA wouldn't care either, as long as taxes were paid. However, if you structure it right, you might be able to pay just $800 tax once, since it's perfectly legal for one LLC to own another LLC.

Are you suggesting a structure in which the parent LLC is formed or registered in CA, with the sub-LLCs formed strictly out of state and taxed individually rather than have all the taxes consolidated on on the master tax form? If so, I don't understand how this helps, unless the sub companies wouldn't be seen as operating in CA, saving me from its business income tax. The parent LLC would still be subject to franchise tax annually not just once. Total income from the parent LLC can still be easily tracked as well, so that doesn't save all profits from being taxed. This doesn't seem any different than a LLC with DBAs, except with more forms and filing fees.

You're thinking way too much into this. First of all, as long as you're not borrowing money, you want to show as little as profit as possible on paper. If you're making so much money that saving big $ on taxes becomes an issue, there are ways to get around it, by structuring the money you take out as qualified dividends.

For s corporations there is no option to take out money as a qualified dividend. It would have to be a pass-through unqualified dividend, which is why I said it could expose me. Only c corporations allow money to be withdrawn as qualified dividends. However, they are not deductible as expenses for the corporation, so I would also be taxed on business income. I would lose more money with c corp than s corp. As a very small startup, every dollar counts.

If you don't collect sales taxes, it can take years for the California frahchise tax board to track you down. Also, the $800 tax is waived for the first year. You could start and after 2-3 years go legit on the resale number or abandon the business if it doesn't work out.

The 1st year franchise tax exemption only applies to s corps and c corps. Still, I would definitely have to establish business out of state since other CA taxes on s corps and c corps are too heavy in the beginning.

 

[MZLKN]

Double post, sorry.

 

[toml3030]

Are you suggesting a structure in which the parent LLC is formed or registered in CA, with the sub-LLCs formed strictly out of state and taxed individually rather than have all the taxes consolidated on on the master tax form? .

Yes, that would be one way of going about it.

If so, I don't understand how this helps, unless the sub companies wouldn't be seen as operating in CA, saving me from its business income tax. The parent LLC would still be subject to franchise tax annually not just once.

1. I mean paying franchise tax once as in one payment a year, instead of having each LLC paying each year.

2. You can get creative, with good professional tax advice, if enough $$$ was at stake. If you have multiple entities, you can control WHERE the profit is generated. For example, let's say you have company A and company B. Company A could be the wholesale acquisition company and Company B is the eBay sales company. Since you control both companies, technically you can set it up so that Company A based in Wyoming is a wholesaler selling to Company B based in California. You see where I"m going with this?

Total income from the parent LLC can still be easily tracked as well, so that doesn't save all profits from being taxed. This doesn't seem any different than a LLC with DBAs, except with more forms and filing fees.

Key words being that PROFITS are being taxed....

Only c corporations allow money to be withdrawn as qualified dividends.

Unless the laws have changed on this, you can receive distribution from S corp as qualified dividends if it exceeds your cost basis.

 

[MZLKN]

Yes, that would be one way of going about it.

Seems like a lot of paperwork and filing fees though. Perhaps it can be streamlined with a Series LLC in which the parent company is registered in CA while the sub companies are not.

1. I mean paying franchise tax once as in one payment a year, instead of having each LLC paying each year.

This is the same as having one LLC with multiple DBAs.

2. You can get creative, with good professional tax advice, if enough $$$ was at stake. If you have multiple entities, you can control WHERE the profit is generated. For example, let's say you have company A and company B. Company A could be the wholesale acquisition company and Company B is the eBay sales company. Since you control both companies, technically you can set it up so that Company A based in Wyoming is a wholesaler selling to Company B based in California. You see where I"m going with this?

I am understanding this better. Though the example you gave seems like one hell of a numbers game selling to myself and taking losses against myself. But I suppose in the end it helps to offset profits and spread them around, keeping each business in a lower tax bracket. If I have a few ebay businesses, I guess I would have register each of them negating savings. Maybe I could just create one online sales sub-company that operates with several DBAs and has individual EINs for stealth purposes. Not sure if this is possible though.

Key words being that PROFITS are being taxed....

I used the terms profits and business income interchangeably here. I don't see the difference unless you mean gross profits, which is worse to be taxed on.

Unless the laws have changed on this, you can receive distribution from S corp as qualified dividends if it exceeds your cost basis.

Everything I've read so far says S corporations can make payouts to shareholders as qualified dividends. However, the IRS allows for "a non-dividend distribution in excess of stock basis is taxed as a capital gain on the shareholder's personal return. It is a long-term capital gain (LTCG) if the S corporation stock has been held for longer than one year." It's the lower capital gains tax rate, so is this what you mean?

 

[toml3030]

This is the same as having one LLC with multiple DBAs.

each LLC can have its own tax ID and ebay/paypal acct, but DBA's can't.

Maybe I could just create one online sales sub-company that operates with several DBAs and has individual EINs for stealth purposes.

There's no point in having multiple DBA's because it's the same business entity.

I used the terms profits and business income interchangeably here. I don't see the difference unless you mean gross profits, which is worse to be taxed on.

NO, it makes a HUGE difference. For example, a business can lease a car that you can drive, business can write off meals at a restaurant, a business can own real estate and write off depreciation, etc. If your corporation has no profits, you don't get taxed on it.

Everything I've read so far says S corporations can make payouts to shareholders as qualified dividends. However, the IRS allows for "a non-dividend distribution in excess of stock basis is taxed as a capital gain on the shareholder's personal return. It is a long-term capital gain (LTCG) if the S corporation stock has been held for longer than one year." It's the lower capital gains tax rate, so is this what you mean?

Yes, for example, if your corporation has profits of $50K a year, instead of paying out $50K to you directly, it can borrow $50K and then pay you out and have the corporation pay back $50K with operating profits.

 

[Kawgy]

You're getting there. Just know that it can be done if someone else has already done it before you. Finding the right specialist will expedite things for you. Make some calls and pick their brains. Each will tell you what they know. Since you know its already been done you just have to find that one. Once you find them you will know. They'll have all the right answers for your questions and they have supporting information that will back up what they say. If not, google just to confirm.

 

[MZLKN]

each LLC can have its own tax ID and ebay/paypal acct, but DBA's can't.There's no point in having multiple DBA's because it's the same business entity.

Half the time, I read that LLCs and corps can get new EINs with DBAs (LastBlow recommended it). The other half of time, I read that it is not possible and that to have multiple EINs under one company, subsidiaries are required. I guess people must be confusing subsidiaries and DBAs since they have similar purposes.

NO, it makes a HUGE difference. For example, a business can lease a car that you can drive, business can write off meals at a restaurant, a business can own real estate and write off depreciation, etc. If your corporation has no profits, you don't get taxed on it.

The money left over after expenses are tax deducted can be referred to as net profit or net income. That's how I was using the terms. They are interchangeable the same way gross income and gross profit are when expenses aren't accounted for. Also, dividends/distributions aren't tax deductible, meaning zero profits left untaxed wasn't possible. So again I didn't see how it helped. But your loan payout and loan repayment using business profits seems to take care of that issue.

Yes, for example, if your corporation has profits of $50K a year, instead of paying out $50K to you directly, it can borrow $50K and then pay you out and have the corporation pay back $50K with operating profits.

I was tired when I typed that and overlooked a typo. So in case you misunderstood, I meant to say that while s corps CAN'T qualify for qualified dividends, they CAN still qualify for the lower long term capital gain tax, which has the same tax rate as qualified dividends. So they are pretty similar. I'm not sure if this distinction makes any difference for the paper trail though.

You're getting there. Just know that it can be done if someone else has already done it before you. Finding the right specialist will expedite things for you. Make some calls and pick their brains. Each will tell you what they know. Since you know its already been done you just have to find that one. Once you find them you will know. They'll have all the right answers for your questions and they have supporting information that will back up what they say. If not, google just to confirm.

Yes, it is becoming clearer in my head. All these loopholes and nuances can be quite confusing, so sorry if I seem like a bonehead. I'm thinking of speaking with tax attorneys in CA and the state I plan on establishing business in to get two perspectives.