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I recently submitted paperwork to form a LLC in California. About a week after submitting my paper work, I came across this post:

http://answers.google.com/answers/threadview/id/107228.html

One of the repliers to the post, taxmama-ga , suggested the following:

"You could form two LLCs or S-Corps in Nevada. Set up a general partnership (GP) in California (no minimum fees). Make the partners be the two LLCs or S-Corps (since a partnership must include two or more entities). Run the whole business through the California GP. You will have no State of California taxes."

Has anyone heard of something like this? Should I instead look to do something like this in the future?

Thanks!

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3 Answers

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This issue comes up so frequently that I posted "Why (not) form an LLC in Nevada".

I see that you are here in the Bay Area. Assuming that this is where you will operate the business, you did the right thing to form a California LLC.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

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Sounds kinda shady, and California has been very aggressive in collecting taxes in the last couple of years.

I would look for a CPA that is willing to take on the risk of running the scheme. But in reality I would avoid it altogether. Why not set your structure up in a straightforward, non-sneaky-looking way and then pay a good CPA to do their magic to minimize the taxes you will have to pay?

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+1 for kinda shady. It is and you should really think about what you want to achieve. I know paying taxes kind of sucks but it does do some good and you get the benefits of pretty good protection. So, I would recommend being straightforward. In the end, it will be much better. – Jarie Bolander Feb 12 '10 at 19:26
Yeah, paying taxes sucks... But at least in the USA your taxes really do get back to you in services and benefits. Being a native of Mexico I know how paying taxes and never getting a benefit out of them can be. and their taxes are roughly the same as in the USA (if not a little bit higher). Anyway, that's another topic altogether. Suffice it to say I don't mind at all paying my fair share (after my accountant has optimized it :-)). – Gabriel Magana Feb 12 '10 at 19:54
I am in no way trying to do anything illegal, but if there are loopholes available to me to take advantage of, I will certainly do so. – AAC Feb 12 '10 at 19:55
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The thing about loopholes is that they usually end up getting closed. You may end up with a paperwork nightmare of 3 entities rather than just one with little to show for it. – TimJ♦ Feb 12 '10 at 20:37
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If it is legal and it is done to avoid taxation, etc. you can bet that they will change the laws to disallow what they see as subversion/avoidance.

Do what is easiest for you to manage.

It is unfortunate that so many states see socialism as the answer...

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