Starting an LLC - nonresident and income tax

Discussion in 'Taxes and Accounting' started by sjfan, Dec 9, 2005.

  1. sjfan


    Please note that I'm not soliciting legal or accounting advice - just shooting the breeze with my fellow traders and doing some brainstorming. I've read some excellent tax perspectives here and want to get some inputs.

    So I live in NYC and want to start a trading strategy consulting business with some trading (before I get flamed, I'm not plugging it here - I'm not going into details of what it is). Looking around, NJ seems to be the best place to form an LLC - it's cheaper and faster.

    Now, I will not do business in NJ, only NYC. However, the LLC will be registered in NJ. So the key question is, is any of my business income and wages (earned outside of NJ) be subject to NJ income taxation? I can't seem to find a straight answer to that question on NJ's tax website.

    Perhaps someone here has already walked down this path and can shed some light. Again, I figured this discussion about tax and llc may interest members here, so I'm putting it out there.

  2. Hmmm. a NJ LLC could be ready in a few days, rather than a couple weeks waiting for NY. But it seems like the LLC operations will be exclusively in NYC, correct? So if there is absolutely no presence in NJ, all attributes will be allocated on the NJ tax returns over to NY... so you'll need to have a NJ registered agent and mail forwarding service.

    Then the LLC registers in NY as a foreign entity, but true you probably could already be opening bank account and brokerage account in the LLC name with just the NJ articles in hand, so there's no need to wait those extra 2 weeks for NY paperwork to start trading.

    Then for the rest of the life of the LLC you'll be filing NJ, NY and NYC tax returns and paying NJ and NY Secretary of State fees.

    Okay, I see the "faster" part here (2 days vrs. 2 weeks) but cheaper? Sounds like a lot of extra costs and red tape to try to cut the turnaround time of obtaining an LLC.
  3. sjfan


    It's true, there's some extra red tape. However, it's easy enough to open a business account in NYC with a NJ certification of formation. It's well accepted. The only issue is whether NJ would want a chunk of the income from earnings outside of NJ by virtue of the LLC being NJ registered.

    I gotta file and pay NY/NYC taxes anyway. Keep in mind also that NY charges a business tax on LLC income.

    Oh, you don't need an agent in NJ - almost all states will allow LLC being formed from outside of the state.
  4. First I've ever heard of it. :confused: Look around and I'm sure you will see how you got the wrong information.

    Well, good luck with it, anyway! The extra costs over and above all the normal NY and NYC costs for the NJ SOS fees, NJ registered agent and mail forwarding fees, NJ LLC tax prep fees and NJ minimum tax payments, and all the red tape that goes with it for the life of this LLC... not to mention that now even your NY SOS fees will be higher since they charge extra for foreign LLC's compared to domestic LLC's... sure is a lesson to others to PLAN AHEAD and not get into a bind where you simply can't wait 2 or 3 weeks for an LLC to be accepted by the appropriate State's SOS office in the first place.
  5. Hamlet


    Could you use NJ as the origin of your trading, thus avoiding New York taxes?
  6. Hamlet, sure, if a NYC resident commuted (likely, non-deductible) into a NJ office to work each day (such as if he traded in a trading room, rather than an office-in-the-home set-up) then the NJ entity would be registered, fee'd and taxed solely in NJ and not in NY. Then the individual owner would pay taxes to NJ and to NY/NYC.

    That could preclude somewhat many of the benefits that a trader might normally get by deducting items at home or close to home, such as auto & travel, meals, computer in the home, and so on. (without undue risking of causing a NY nexus that is).

    Let's put it this way, it just isn't done because it makes no tax sense, unless of course you WANT to travel into Jersey each morning to trade. or unless there are other overriding issues: estate planning, asset protection, legal issues, and so on, that is.

    BTW, if you WANTED to trade within NJ, you should first take a look at NJ income taxes, swallow hard, close your eyes and only then sign a lease for that NJ space.:mad:
  7. If I could suggest call Paul Mann at he offers a free consultation before becoming a client. He is in Colorado and did my Colorado LLC for trading. He charged me $500 and he specializes in traders of all kinds, not just day traders. He tells it like it is no fluff!

    Funny side note, I asked him if I could write off my bid screen tv, in the family room, and he said sure if you can fit it in the room you use to trade in. That was before I decided to move forward with him.

    I did my research on him and traders and decided he was a better value and business to deal with IMHO.

    Good luck
  8. An LLC is simply a pass through structure. The LLC is not taxed, the owner or partners are taxed. Any owner is taxed in his/her state of residence.
  9. I do not believe that the above statement is correct. Both NY and NJ tax departments (as well as other States like CA) in fact do. See NY form IT-204-LL NYC form NYC204 and NJ form PART-100
  10. Hamlet


    It is correct that an LLC itself pays no income taxes. It is a pass through entity much like a partnership in that respect.
    #10     Dec 10, 2005