i am debating whether to incorporate an investment (stocks only) partnership as a LP or GP. the partnership would be for investment purposes.the problem i have is at least one of the partners would be in Massachusetts, whereas i am in California. i don't want to have them have to fill out California tax forms if i can help it! the partnership does not manage any property owned in California, and does not do business in California.is this like C-Corp incorporation, where i can choose any state to incorporate in? can i incorporate in Mass to avoid Calif tax returns to non-Calif tax partners?greyJester
Why would you want to incorporate and lose the advantage of long term capital gains tax laws? All income to a corporation is taxed as ordinary income.
sorry, i wasn't being clear. i don't want to "incorporate" the partnership if you take that to mean making it a C-corporation.what i want to do is create a partnership (either a general partnership or limited partnership), and the question is can i form it in a state where another partner or a limited partner is...i should have probably referred to the issue as one of "partnership formation".greyJester
>>greyJester wrote: what i want to do is create a partnership (either a general partnership or limited partnership), and the question is can i form it in a state where another partner or a limited partner is...Grey,Is your hope to avoid state income taxes? If so the type of property is important (i.e. if the asset is land in Georgia, and you form a Florida partnership/corporation, GA is still going to look for tax on sale of the property).
my hope is to avoid complexity for other partners. the sole assets of the partnership will be securities. the partnership is being formed so i can direct the investments of the partners. i don't want them to have to create state tax forms unnecessarily. i noticed (i think) that a partnership formed in california must have all its partners file california tax forms even if they don't reside in california and the partnership does no business in california...greyJester
Most states require a partner of a partnership formed in that state to file as either a resident or a non-resident of that state. If the partnership does no business in that state, then the partnership must register as a foreign partnership with the state it does business in. I really don't see what you are trying to accomplish. In any case, you will have to furnish K-1s to the partners for reporting on their federal and (if applicable) state income tax returns. What difference does the state of the partnership make to either you or them? Someone will be filing a non-resident return in any case, you, them and/or the partnership. It seems most logical to form the partnership where you are conducting business.
okay, let's try again:i am in CA.another partner is in WI.as i understand it, if i form the partnership in CA, then the WI partner, according to CA law, will have to file nonresident tax returns for CA. since it's a partnership there is pass-thru taxation. and since they probably have to pay WI state tax on the income they probably can avoid paying CA state tax on the income. however, they still have to go through alot of paperwork.if i form in WI, then the WI partner will not have to file a nonresident tax return. i will have to file a WI nonresident tax return myself, possibly; i will pay CA state income tax on any income received thru the partnership. the partnership may have to register as a foreign partnership if it does business in CA. in either scenario both partners have to pay federal income tax.my question is not about decreasing the taxes i pay. instead, i want to know if by forming the partnership in another state i can reduce the number of tax forms my partners have to fill out.since the partnership is for the purposes of directing investments, where it does business is open to interpretation, i think.greyJester
I think you folks are confusing each other with this discussion of 'where' you're forming this partnership.I believe that a partnership that is engaged only in the investing in stocks and bonds can be formed by a telephone conversation between the partners, or a written document, if you'd like a record of what you're agreeing to.The partnership is not 'formed' in one state or another, it simply exists. It is not 'doing business' in any state, in the context of the need to register anywhere as a foreign partnership. If you think you need a domicile, then that would be where the managing partner is located.And don't further confuse the issue by considering a limited partnership. An LP does have to file a certificate of formation with a state, and file annual reports, etc., etc. But there's no need to limit anyone's liability if you're only investing in stocks.
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