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My partner and I plan on starting a new business, the "Limited Liability Company" or LLC type. We plan on selling specialized software to other businesses and organizations. We have an option to file for LLC in the Washington state (where I live) or in California (San-Francisco area) where my partner lives.
Is there any benefit to filing for LLC in WA vs CA and vice versa?
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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1) Go talk to SCORE or SBDC (develop a revenue and Business costs estimate good enough to run income tax scenerio)
2) Run Scenerio in each state.
3) Validate with BUSINESS accountant (knowledgeable to business filing in each state).
Run 3, 5 and 10 yr scenerios.
I can't imagine WA not being the best choice, especially for a company with LOW capital equip needs. (subject to WADOR Personal Property Taxes). Don't forget your GROSS reciepts are taxable as WA B&O. (You can have negative business net return and still own WA B&O)
My profit margin is about 75% (self-employed, I do most most of my own work so very high profit margin since it's my labor generating the profit). WA (Seattle) B&O is 1.8%, equivalent to 1.8%/.75 or 2.67% income tax. CA my effective income tax is 5%. I also pay a 2 mill (.2%) tax on gross receipts. Seattle would clearly be better.
Now flip it.
Instead of doing my work, I'm an agency. Say I have a pool of ten contractors who work exclusively for me who each gross $100k per year. Standard split is 70/30, so I'm grossing $1.43 million per year and $1 million goes right out the door. I'm left with $430k. Then I have to rent an office $60,000/yr. Two office staff ($160k). Production (printing) costs $50,000/year. I'm left with $160k, profit margin of about 11%.
1.8% BO/.11 = 16%. I'd be better off in California.
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