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I live in Mexico, near the border to the USA, and I'm considering the posibility to create a company in the USA to handle my web business(some content sites, some affiliate, etc, small but soon to grow).
I want to start by knowing the basics difference between "incorporate" and create an LLC (are they different, right?).
May be there's a site that explains this (besides those from goverment, please) or I can take the basis with your comments.
An LLC is considered a flow through entity which means that all income flows through to your personal tax return and will be taxed at your marginal rate plus fica. And you can not expense your wages. Basically income is taxed as an individual. This is the IRS personal tax bracket [irs.gov...]
A C corp (inc) is not a flow through entity, you can pay your self a resonable wage which is still taxed at your marginal but is deductible for the company, against the companies income you still have to pay fica (medicare, and social security) and your wage will still be taxed at your personal marginal, just like a regular pay check, then income of the corporation that is left over is taxed at the corporate rate, and you can pay dividends out to your self which are only taxed at 15%. Or the corporation can hold the earnings left over after taxes. (I couldnt find the corporate tax schedual for 2005)
They both offer protection of personal assets against creditors, etc... as long as you have not personally guarnteed anything. Another thing to look out for is if you miss use an LLC is can get classified as an alias by the IRS which will pretty much cause you to lose your liability protection.
This link explains quite a bit...
In the end it all comes down to planning you need to have a grasp on what your gonna make and run the scenarios to come up with which way will have the least tax liability.
Government sites about it are the best to use! The IRS site is actually really user friendly.
As always this info is just my opinion and you should all ways see a tax professional, before making any decisions, as they will be able to inform you of the exact laws and regulations that are applicable.
I wonder if anyone else know how taxes are in the US compared to MX.
The reason I'm considering the LLC there is just "to be an US company" and have the benefits that usually applies just to US individuals/corps.
Other thing I see is that in Mexico the IRS equivalent is very picky respecting expenses bills. I mean they need to be a legal mex-govn approved form and if you miss a bit or deduct something that is not properly documented you'd get big troubles, i.e. a bill printed in web form is invalid in Mexico, not deductable.
Still, I'm not sure if that worth the extra taxes/hassle/troubles of having a company on the other side of the border.
Not sure but I know thats the case as an american citizen, even If I own a Mexican Comapny I still pay american income tax on earnings.
There are treaties between Mexico and USA to avoid double taxation on individuals.
If I pay on either side I'm done.
I mean, if I take a dividends and pay taxes there, I have an exception here. Or if I claim an exception on USA, then I pay them here, but not both.
That may be true of individuals, but not of corporations. Keep in mind that corporations register at the State level, not the Federal level. This means you'll have to choose a state in which to incorporate. Many people choose Delaware or Nevada because those states do not have a corporate income tax.
There is a caveat to that, however. Any state you do business in, other than your home state, will require you to register as a foreign corporation for the purpose of... you guessed it, taxing you.
Even as an LLC operating outside of your home state, you still must register as a foreign corporation. Now, as Dpeper posted, an LLC is a pass-through tax entity, so you would not be taxed in the same manner as a foreign C-Corp would. But each state has its own laws regarding how they tax foreign LLC's, so count on being taxed in some fashion. California, for example, levies something like 1 or 2 percent of your LLC income, if I remember correctly.
The best advice I can give you is to contact a CPA or tax attorney familar with this particular issue. None of us here are truly qualified to give you the scope of advice you need.
And one thing, I really don't pretend to "save" in taxes.
I just want to be legal, and pay the proper taxes either here or there.
But I preferable would want to setup my company there, because the benefit of being an american company and have preference in better comissions, promotions, specials, etc.
Also, would you mind to tell why the standard C corporation is not a good option?
I'm still on doubt to decide whether to choose the C or the LLC. The thing I don't like the LLC is that I would have to pay taxes for the whole profits, and I really plan to reinvest a lot of my earnings, and take just a decent salary.