taxes for LLC

[ankita849]

Hi,

I am in California, I want to open LLC in california in partnership with my brother in India. I inquired that we can do that. But there some tax related questions I have.

1. If LLC even doesn't make any profit then also we have to pay 800$ as tax, is this right?

2. Is there any 'cons' if we open LLC in partnership with abroad guys?

3. What would be tax bracket in above scnerio?

4. What would be 'tax' imlication for person who is abroad?

Regards,
Ankita

[Atlanta Tax Guru]

1) Probably to California, yes; that sounds about right. I do NOT practice in California except to file individual tax returns, so I am not sure.

2) Not sure; you need to ask an attorney about the legal aspects of a foreign partnership.

3 & 4) The partnership is a "pass-through" entity, which means the profits (or losses) pass through the partnership to the partners. The partnership itself does NOT pay any income taxes (though it WILL have to withhold a portion of the foreign partners' share of the profits at a 30% rate). The partnership DOES file an information tax return (Form 1065) and issues Schedules K-1 to each partner.

[ankita849]

Hi Atlanta Tax Guru,

Thanks for reply..

One more thing want to confirm.
Tax bracket for LLC is 30%. If LLC make 10000 profit then you have to pay 3000 as tax and that will be shared among all partners, based on their share?

Regards,
Ankita

[Atlanta Tax Guru]

Ankita:

The 30% rate is NOT on the LLC; it is on YOUR BROTHER (see below).

Since you are in the United States, you would pay taxes at the progressive rates imposed for those who income effectively connected to the U.S.

Your brother, on the other hand, is taxed at a flat 30% for HIS share of the taxes. The partnership is required BY LAW to file a special form for foreign partners and withhold 30% of the foreign partner's share of the profit, then pay those withheld funds with the form. I cannot remember the Form number off-hand.

Since all of the deductions are done prior to the distribution of the profit, and since the flat 30% tax is already paid, your brother would have NO NEED to file a tax return on his partnership profits, since he could NOT recover anything in the form of a refund.