federal & state government level

Federal GovernmentInternal Revenue Service

IRS

State GovernmentCorporation Division

State GovernmentTaxation Division

LocalityCounty / City

Prepared by Tax Usa Inc www.taxusaonline.com

Where to incorporateTaxes (State Income Tax, Sales tax, Employment), Presence and Nexus , The Delaware Advantage.

Which type of entityLimited Liability Companies (LLC) Versus C Corporation

StructureU.S entity parent or Subsidiary? Maximize your Tax Advantages in both countries.


Basic Rule: incorporate in the state in which you are doing business

Corporations that do business in more than one state, or corporations that may eventually "go public", may wish to consider the benefits of incorporating in a state with more favorable corporate laws than the state in which they are headquartered.

A corporation that is incorporated in the laws of one state, but does business within another state, is considered to be a "foreign corporation" in that second state. Corporations must register to do business in each state in which they operate, and there are filing requirements and fees associated with registration.


When deciding if it will be beneficial to incorporate in another state, factors to consider include:

Tax Rates - What is the tax rate in your home state, as compared to the tax rate in the state in which you might instead opt to incorporate?

Costs & Fees - What are the costs and annual fees associated with incorporating in the other state, as compared to the costs and fees in your home state? If you will be doing business in more than one state, including the state in which you incorporated, what will be the cost of registering your corporation to do business in the other states?

Insolvency - If your corporation becomes insolvent, how are creditors treated under the laws of each state?

Simplicity - If you conduct business in only one state, it is almost always cheaper and easier to incorporate in that state.


Delaware is considered to have some of the most favorable corporate laws in the US.

Delaware is a popular state for the incorporation of businesses which intend to eventually go public.

Delaware is also a good choice for the incorporation of a business that has offices or operations in multiple states.

Businesses do not have to identify or provide addresses for their initial board of directors on their articles of incorporation;

Businesses which incorporate in Delaware but do not conduct business in the state are not required to pay Delaware's state corporate income tax;

For shareholders who are not residents of the State of Delaware, their shares of stock are not subject to either Delaware's personal income tax or its state inheritance tax;

Delaware maintains a separate court system, its "Court of Chancery", for businesses;

A Delaware corporation must have a registered agent within the State of Delaware, but need not have any other offices or operations within the state.


Limited Liability Companies (LLCs) Versus C Corporations. Similarities:

Both offer the same limited liability protection for owners, meaning that the owners are typically not personally responsible for the debts and liabilities of the business.

Both are separate legal entities created by a state filing.

Both have very few ownership restrictions. The owners are not required to be US residents, and the number of owners is without limitation. Additionally, owners are not required to be individuals (as with S corporations).

Ownership (stock with corporations and membership interest with LLCs) can be divided into numerous classes.


Taxation

C corporations are separately taxable entities. C corporations file a corporate tax return reporting profits or losses, and any profits are taxed at the corporate level. C corporations face the possibility of double taxation when profits are distributed to shareholders in the form of dividends, as the shareholders must report dividends as personal income and pay tax on them at the individual level.

Profit: $100,000 Corporate tax (34%) $34,000 Net $66,000Dividend: $66,000 Tax (15%) $9,900. Net $56,100.

LLCs are typically pass-through tax entities. While LLCs do complete a business tax return, the profit or loss of the business is passed-through to the owners’ personal tax returns, where it is reported and any necessary tax paid at the individual level. Profit: $100,000 goes to Individual Tax Return (26%) Net $74,000


Corporate Income Tax Rates—2008

Taxable income over Not over Tax rate$

$ 0 - $50,000 15% $50,000 $75,000 25%$75,000 $100,000 34%$100,000 $335,000 39%$335,000 $10,000,000 34%$10,000,000 $15,000,000 35%$15,000,000 $18,333,333 38%18,333,333 .......... 35%

In addition, if the income is distributed to shareholders in the form of dividends, the shareholders pay taxes on the dividends they receive, currently 15%.


Ongoing FormalitiesC corporations face more extensive internal formalities bylaws, issuing stock, holding initial and then annual meetings of directors and shareholders.

Transferability of InterestA shareholder of a C corporation typically is not required to get approval from the other shareholders before selling stock. A member of an LLC typically must receive the approval of the other members before ownership can be sold.

ManagementC corporations have directors and officers. The management of an LLC can be by members, in which case the management is much like that of a partnership. If the management of an LLC is by managers, then the management structure more closely resembles that of a corporation, since the members will not be involved in the daily business decisions of the company.


ENTITY NAME Your entity's name should contain a valid corporate indicator for the state

in which you are incorporating (most state accept one of the following identifiers or a suitable abbreviation: Incorporated, Corporation, Company, or Limited), and must not match or be too similar to the name of an existing company registered in your desired state.

I’m making millions, Inc. Microsoft Just Bought Me, LLC.

D.B.A. – Doing Business As Corporations and Limited Liability Companies (LLCs) may register

alternate names for specific lines of business. For example, Helen's Food Service, Inc. might register the DBA name, "Helen's Catering."

TAX ID NUMBER Federal Tax ID Number also known as Employer Identification Number

(EIN) is a number given to your entity by the federal government for taxation purposes. You can not hire employees or open a bank account in your company's name without obtaining an Employer Identification Number.


BANK ACCOUNT

**Checking account: this is an operating account which allows you to deposit funds and then distribute these funds via checks and wire transfers. In most instances checking accounts do not carry interest. Some checking accounts could be designated to a special purpose such as payroll.

** Savings account: in this account the entity deposits excessive funds from the checking account. This account normally carries interest.

** Merchant Account: relationship between a retailer and a merchant bank that enables retailers to accept web-based credit card payments from their customers. This is the account into which a Merchant Account Provider deposits payments into your business checking account from the transactions made online.

National VS Local Banks:


The following is a sample list of documents you may be asked when opening a bank account:

Remember: The Patriot Act…, “The System” – don’t fight it work by it.

1. Corporate Papers (Certificate of formation or incorporation). 2. Copy of EIN (SS-4) and the number. 3. Minutes of the most recent board meeting showing the identities

of the board members.4. Copies of official identification such as passport or drivers license.5. Copy of individuals utility bill at same address. 6. A letter on company letterhead requesting account opening and

specifying authorized signers. 7. A letter from the company attorney confirming the state of

incorporation and authorized individuals who can act on the corporation's behalf.


Employees or subcontractors?

Benefits to attract talents: 401K, Medical Ins, FSA and more

Payroll management - timely, simple, and friendly


Businesses may receive significant economic benefits by working with independent contractors instead of hiring employees.

1. No employer contribution to Federal & State taxes, 2. no need to provide benefits, 3. no need to keep paying someone when a job is completed

4. pay out against unemployment claims.

Company FICA, FUTA and SUTA payments Workers' Compensation insurance cost Liability insurance cost Benefits coverage, such as paid time off and health

insurance Quarterly and/or year-end filing with the state and

IRS What kind of records you must keep


If you are working with an independent contractor:

Ask for a written contract.

Get a completed I-9 form from the subcontractor

Ask for a certificate of insurance.

Ask for business cards or other materials which help establish that the worker markets to the general public.

Get invoices for all work, especially if there isn't a contract.

Make all payments to the company name.



Employee Employer Max Wages

Social Security 6.20% 6.20% $97,500.00

Medicare 1.45% 1.45%

Federal Unemployment 0.80% $7,000.00

State Unemployment (varies by state)

2.30% $8,000.00

Worker Compensation 4.00% - 15.00%

Annual Taxable Income ($)

More than - Not more than Federal Tax Rate$0 - $37,885 15%$37,885.01 - $75,769 22%$75,769.01 - $123,184 26%$123,184.01 - and over 29%


How 401K works?


What are 401(K) plans?401(K) plans are tax-deferred retirement savings plans for employees. The employer sets them up and each company has a slightly different 401(K). They are part of a family of retirement plans known as "defined contribution" plans - the amount contributed is defined by the employer or the employee. 401(K) gets its name from the section and paragraph of the Internal Revenue Code - section 401, paragraph K.

Why should you invest in a 401(K) plan?

The money you contribute is free from Federal and State taxes.

Your employer receives tax benefits for contributing to your 401(K) - this is extra money for you.

There is a range of investment options and an expert does the actual investing according to your directions.

Any gains and earnings through this investment are also tax deferred.

You can take loans and hardship withdrawals from your 401(K) under certain circumstances.

The money is deducted even before you receive your salary, thus making it easy to stick with regular saving and investing


What happens to your 401(K) if you leave the USA country?

Your status (Resident/H-1B or other visa/Citizen etc.) in the US at the time of contribution to the 401(K) and at the time of withdrawal is considered. It is best to consult a competent accountant or immigration lawyer about this matter. You have a few options:

At the time of leaving, if the amount vested in your account is more than $5,000, you can leave your 401(K) money in your former employer's plan.

You can take the lump-sum payment of the money in your account. You will have to pay the taxes and penalties associated with early withdrawal.

You can directly rollover the amount in your 401(K) account into an Individual Retirement Account or IRA. Please remember, your Social Security Number is always valid (whether you live in the US or abroad), however, your finances and investments here are affected by various factors including your status in the US and how often you visit or live in the US among other things. It is best to consult experts in the field before making these important decisions.


Types of Health Insurance Plans

Private Health Plans are the most common. These are health plans offered by employers to their employees. They can also be purchased by an individual.

Typically, a health benefit plan is a contract between your employer and a third party (an insurance company). These contracts vary widely depending on the benefits and coverage levels negotiated by your employer.

Medicaid is government funded health care, typically provided for low-income individuals and families.

Medicare is government funded health care, typically provided for individuals ages 65 and over.


A flexible spending arrangement (FSA), or Flexible Spending Account, as they are commonly called, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States.

An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings.

The most common FSA, the medical expense FSA (also medical FSA or health FSA), is similar to a health savings account (HSA) or a health reimbursement account (HRA). However, while HSAs and HRAs are almost exclusively used as components of a consumer driven health care plan, medical FSAs are commonly offered with more traditional health plans as well. An FSA may be utilized by paper claims or an FSA debit card also known as a Flexcard.


Payroll Management generally includes activities in two major areas, Payroll Accounting and Payroll Administration.

1) calculating the earnings of employees and the related withholding for taxes and other deductions,

2) recording the results of payroll activities, and

3) preparing required tax returns. The definition includes the task of reporting the results of payroll activities to the federal, state and local tax agencies.

Payroll Administration deals with the managerial aspects of maintaining a payroll, many of which are distinct from the accounting aspect of payroll. Payroll administration includes:

Managing employee personnel and payroll information Compliance with federal, state and local employment laws

Internal Revenue Service (IRS) Requirements and Penalties Computing an employee's taxable wages. Calculating the amount of employment taxes to be withheld and paid by the

employer. Depositing the correct amount of employment taxes with the government. Filing employment tax returns.


1. A/P, A/R / Employees management

2. Management reporting: Budget, Cash Flow Try to use similar formats for consolidation reports

3. Shareholders reporting: Income Statement, Balance Sheet

4. Tax Planning and Reporting: Transfer pricing (Marketing Company, Services between parent and subsidiary), Employment tax, Income Tax, Sales Tax


Preparing for Due Diligence


A due diligence review will usually include a detailed look at these main elements:

Legal review — your corporation's legal documents, contracts and other legal issues;

Financial Review — your company's financial status;

Management Review — your management team's capabilities;

Marketing Review — your marketing plan and activities; and

Operations and Technical Review — your equipment, plant and processes.

The information the investor wants is usually drawn from two sources:

interviews and documents. Interviews may be conducted with any or all of the following: your management team; your banker, lawyer and accountant; major clients or suppliers. Give these people advance notice that they may be called on to talk with the investor.


Financial Review

published financial statements for the last four or five years company-prepared interim financial reports and analyses recent business income tax returns and payment schedules auditors' working papers and all pertinent correspondence with the auditors recent appraisals of tangible assets

Management Review

a strategic plan that focusses on the big picture for the next 5 to 10 years and incorporates your vision of the company

historical and future forecasts, along with actual figures, to assess management's ability to produce accurate forecasts and to determine future expectations

all key management biographies and résumés an organization chart and copies of any employment, consulting and confidentiality agreements with

key employees a list of primary and backup suppliers (especially if you buy a speciality product or service)


Legal Review

corporate minute books and documents (e.g. articles of incorporation, by-laws). summary (and copies) of the main contracts in place (e.g. shareholders agreements, employment contracts, leases, patents, insurance policies, mortgage documents, and sales or supply contracts). a summary of all outstanding or pending litigation with an accompanying opinion letter from your lawyer explaining the expected outcome of each lawsuit

Marketing Review press releases, speeches by management and marketing materials released in the past few years. a list

of key customers with historical and projected sales data and order backlog, if available market due diligence.



The End

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