Many businesses are beginning to understand the flexibility and usefulness of a limited liability company as a way to conduct business within California. However, with tax season approaching, many successful business owners are stunned to discover the Gross Receipts tax levied upon California limited liability companies and foreign LLC’s which register to do business in California.
The gross receipts tax is a state tax imposed upon LLC’s conducting business in California. The minimum gross receipts tax for an LLC is $800. However, the gross receipts tax works on a graduated scale based upon the gross receipts of the company. Once a company has gross receipts in excess of $250,000, the tax increases from $800 up to $11,970, depending on the level of gross receipts.
Tredway, Lumsdaine and Doyle partner, Mark C. Doyle, with the help of associate Brooke M. Pollard, recently helped an existing LLC convert to a California corporation pursuant to California Corporations Code section 1150 et. seq. The existing LLC had increased its revenues over the past four years, and was paying in excess of $6,000 per year to the State of California under the gross receipts tax, exclusive of Federal and California income taxes. By converting the existing LLC to a corporation, the business was able to save significant amounts of money and lower their annual tax liability.
The conversion of an LLC to a corporation or a corporation to an LLC can have significant tax implications above and beyond the gross receipts tax. These implications must be reviewed by both the attorney and CPA of the company to determine if this is in the business’ best interest. Please call us if you have any questions or would like additional information about either the gross receipts tax or the conversion of an LLC to a corporation.
Clients often come to my office requesting a limited liability company (an “LLC”) for “asset protection” purposes. They normally want to transfer an income-producing property out of their own name and into the name of an LLC, believing this will give them increased “asset protection,” but are not sure exactly what this entails. There are two different types of creditors from which clients need protection, and we call them “inside creditors” and “outside creditors.”
Asset Protection for Medical Professionals. Medical professionals need to protect themselves and their assets in this highly litigious society, even though they have malpractice insurance. Asset protection involves the structuring of assets to preserve and protect their value to the extent possible against potential creditors. This can be accomplished by creating structures for estate and business planning, but also includes other areas of law such as family law, litigation and bankruptcy.
In California, all transfers are subject to the California Fraudulent Transfers Act (“CFTA”). If a transfer is deemed a fraudulent conveyance, a court can void the transaction to allow the creditor to reach the assets. As such, it is important to identify business, investment, and estate planning reasons for establishing the structure.
Estate planning provides planning for assets before those assets reach the beneficiary debtor. It provides the opportunity to maximize asset protection by using trusts to minimize federal estate taxes that can also keep assets insulated from creditors.
We hope that you are doing well and that you had a wonderful holiday season. As we have done for the past few years as the New Year begins we notify you of certain acts of Congress, the Courts and IRS (and some cases the failure to act) that we believe require your attention. This is a brief summary of some of the changes in the law that occurred on January 1, 2010, and what you can do to learn more about these changes. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable for you, your family and your investments.
