Foreign incorporating in the USA for an online services bussines.

Which to choose, S-Corporation C-Corporation or LLC?

[fischermx]

Which is the preference for any of these options of incorporation for online business, mainly publishing services?
Could you share your experiences ...

[etechsupport]

I think LLC will be right option.

[fischermx]

Thanks for your opinion.
BTW, why it is told that a C-Corporation causes double taxation?
I mean, if you are a single man Corp, and assing your self a decent salary, of course you pay tax as employee, but then you deduct this expense from your earnings, therefore you don't pay again for this money, just pay for the remanent profit.
Am I missing something?

[etechsupport]

To understand it well you’ve to go through their taxation process, C-corporation has a 15% tax on the first $50,000 profit, 25% on the next $25,000 profit, 34% on the next 25,000 profit, 39% on the next $235,000 and so on variable as you grow on profit.

The shareholder pays taxes on the (W2) income and 15% tax on any C-corporation dividends that the C-corporation has already paid tax by the above brackets; this might be the reason that people assume it double tax.

[fischermx]

One question:
If I create my LLC in the USA, but I live in Mexico, could I use a private suite (mail drop service) as my USA address for signups?
Will be my private suite address the legal address of my company or the mexican address?

[John_Louis]

The LLC company in USA for non U.S. citizen will not be taxed on income done outside of the U.S. Such company can be taxed as corporation or partnership. If taxed as partnership, what is the reason for many outside of U.S. for formation of the LLC, the company will be taxed on personal level. That means, the the member of the company MUST declare the income of LLC on his personal tax report in US, and he is required to do so.

See the link:
[yu0.net...] regarding the effectively connected income (ECI) and the LLC company fits under wordings: "f you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States."

You can certainly deduct the income of LLC while paying out salaries to you, however, the same thing you can do with the corporation.

If you are doing business outside of U.S., your choice should be LLC company in U.S., recommended state Wyoming instead of much popular Nevada or Delaware, for the lowest yearly fees in comparison and for the best advantages. Wyoming is the state where LLC company is born.

If you are doing business inside of U.S. and outside of U.S., recommended is corporation and NOT PAYING dividends. You can pay salaries to yourself as director, officer or employee or both, but do not pay dividends. Make sure you have proper corporate resolution or contract between corporation and you for salaries or wages. If you perform services outside of U.S. and receive salaries from U.S. based income, you will not be required to declare such income on U.S. tax forms, but it is left to you to declare it where you want. You will certainly not be required to pay or declare your income from US corporation in US, if your services are not performed in US.

You can certainly use the maildrop forwarding address for signups of people. I recommend you this one: [yu0.net...]

And you can additionaly take the U.S. based toll free number, voice mail or fax. See [ww.j2.com...]

Additionally, it is recommended to get the U.S. based bank account for your coming U.S. based company.

John Louis

[fischermx]

John Louis,

Thanks for your good explanation.
However, I don't see the cases you cite covers mine:
A mexican individual already paying income tax for a salary day job on a company, who wants to setup a sort of company in the U.S. for the sake of paying taxes there for the income on advertising on their sites and due the benefits of being an amerircan based company.

[johntabita]

There is no "one size fits all" solution to this question. The answer depends on your situation.

For example, an LLC is a "pass through" tax entity; that is, the IRS doesn't tax the corporation, they tax you. All of the corporation's earning are taxed as personal income on your tax return. Conversely, if the corporation loses money, you can claim that as a deduction on your personal taxes. This can be helpful when you're a start-up and expect a loss for the first year or so.

In other cases, a C-Corp is more advantageous. Suppose your gross revenue for the year was $500,000, of which you took $100,000 for your personal income. As an LLC, you'll be taxed on the entire $500,000 as personal income, even if you leave the remainder in the corporation's bank account for future business purposes. As a C-Corp, the IRS will tax you on the $100,000 and the corporation on the remaining $400,000 (so long as you paid yourself the $100K as a salary and/or bonus, not a dividend). Keep in mind that, the more money flowing into a single tax return, the more likely you'll be kicked into a higher tax bracket. You'll pay less taxes on the same amount of money if you spread the income over more than one tax return.

[fischermx]

johntabita:

Thanks for your comment, you sound more like an accountant than the rest.

Sadly, I'm ashamed to say, that I am a CPA! Of course, that's in mexico, plus, as you can imagine, I know more about search engine updates, than tax regulations. After years of not working as CPA but as systems auditor, I know more about anything on computers than accounting. :(

Do they still using the "double entry" concept!? :) lol