Jason KnottCPA & Tax Attorney

CPA, Tax Attorney, Tax and Legal Adviser to Startups and Established Businesses, Specialize in International Taxation

Recent Answers

Most businesses operating within the U.S. are obligated to file federal income tax returns, as well as state tax returns depending upon the state from which the business operates, the residency of its owners, and the business activities of the company. There are also additional filing requirements if you have non U.S. owners within the business structure. Happy to discuss in more detail.

Yes, you can structure an investment fund to offer different returns or fee arrangements. If your fund is structured as a corporation, you could issue different share classes with varying voting rights, equity interests, preference rates on dividend distributions, etc. If the fund is structured as an LLC taxed as a partnership, the LLC operating agreement can provide for different classes of LLC membership units, which provide for different allocation methods.

This will depend upon whether you plan to only flip houses for short term investments, or do you also plan to buy and hold properties for long term and earn rental income from those investments. Flipping houses is generally treated as ordinary income, so you don't benefit from long term or short term capital gain treatment. If the LLC is a single member LLC and is disregarded for federal tax purposes, the ordinary income will be subject to ordinary federal income tax rates, as well as federal self-employment taxes. If the LLC makes an S corporation election, the pass through earnings are only subject to federal income taxes, however, as the sole shareholder that runs the business, you'll need to pay yourself a "reasonable" salary, so you will incur some payroll tax expense. The downside to holding real estate in an S corporation, is the asset can't be transferred or distributed out of the entity without creating a taxable event. Also, if the real estate purchases are financed through bank loans or third party debt, the shareholders are not able to add the liability balances to their basis in the stock, unlike an LLC taxed as a partnership, where a partner's total basis is the capital account plus their allocable share of the partnership liabilities. There are structures where you can create an LLC partnership where you own 99% of the LLC units while another S corporation owns 1% as the GP manager. You can pay a management fee from the LLC into the S corporation.

Generally, no. If you're a U.S. based company, you may outsource the development of your software development projects, or the creation of your intangible property. Payments made to non U.S. persons or companies that are performing the work outside of the U.S., should provide you a Form W-8BEN or W-8BEN-E to evidence their non U.S. tax status. If you don't collect this withholding certificate, you may be obligated to withholding taxes on the gross amount of payments submitted to the India company for their services.

If your business is currently structured as an LLC, you can admit a 10% equity holder as a limited member/partner, which means he holds an equity stake in the company, but doesn't participate in the day-to-day management activities of the business - that responsibility remains with you. You'll have to amend the capital schedule in the LLC operating agreement to admit the new partner. If the LLC was previously only owned by you, the admission of a second owner means the LLC is now a partnership for U.S. tax purposes, so you're required to file an annual Form 1065 partnership tax return. If you don't want to create a partnership, you could explore having him contribute the funds in the form of a debt arrangement, rather than an equity interest.

Yes, it is okay for a C corporation to hold an interest in several LLC's. The only caveat is if you have an LLC that makes an election to be taxed as an S corporation. LLC's are eligible to make an S election, however, there are limitations on who can be a shareholder in an S corporation. S corporation shareholders are limited to natural persons and certain types of trusts, so a C corporation cannot hold stock in an S corporation. If the LLC is treated as a disregarded entity for federal tax purposes, or the LLC filed an election to be taxed as a C corporation, then there shouldn't be an issue. If the LLC's are wholly owned by the C corporation, the C corporation is the sole Member of the LLC, and can appoint the Directors to be Managers of the LLC. Each LLC should maintain separate books and records and have its own LLC operating agreement.

As a U.S. citizen, you always need to be mindful of your U.S. tax filing obligations, regardless of where you live or where you earn income. U.S. citizens are subject to income taxes on their worldwide income. If you live abroad as an expat, you may be eligible to take a foreign earned income exclusion for wages paid to you whilst you are physically present outside of the U.S. If you are looking to run an Amazon FBA business, you need to be mindful of the U.S. federal income tax obligations, as well as the state sales tax obligations that may arise depending upon your sales volume in each U.S. state. I would recommend consulting with an international tax CPA or tax attorney that can advise you on these various tax issues.

There are a couple of moving pieces here which would require some additional information. If you are winding down a C corporation, you are eligible to write off any losses as capital losses. Calculating the capital loss will depend upon what your basis is in the stock, and what assets (if any) you are able to redeem from the corporation in a final distribution. You are eligible to offset capital losses against other capital gains.

Yes it is possible. It is not uncommon for an LLC to have a managing member that owns a nominal interest of 1% while the remainder of the LLC units are owned by limited members that do not have management authority or actively participate in the operations of the company. If the LLC member is authorized under the LLC operating agreement to manage the affairs of the company, then they should be able to open a business account on behalf of the LLC. The bank may request a copy of the LLC operating agreement to verify that you have the authority to act on behalf of the company.

There are a couple of options to consider. You can create a joint venture agreement, whereby profits attributed to the Australia operations are directed to the Australia partner, or it may make sense to form a separate subsidiary entity with multiple share classes. Your company can own the voting shares while the Australian partner can retain the non voting common equity. Consideration should be given to the tax implications of the arrangement. There is an Australia-U.S. income tax treaty in place, so the treaty implications should be assessed to ensure its the most tax advantageous arrangement for both parties. If the subsidiary is formed in the U.S. there will likely be federal withholding taxes on the dividend distributions to the Australia partner.

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