How to structure payroll between a Texas PLLC and a California PC for legal and tax compliance.
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How to structure payroll between a Texas PLLC and a California PC for legal and tax compliance.
I own a business in Texas (PLLC) that is a professional business where I am the owner and only W-2. I have moved to California and have remained owner/W-2 for this company in Texas, but also am registered with the California EDD to ensure taxes are paid in this state since that's where I live. I started another business in California (Professional Corporation), because I am not allowed to have an LLC in California therefore I cannot register my current PLLC in this state. This new business has not earned any income yet, so my initial questions are: 1. How do I make myself a W-2 for this new company? I will remain a W-2 for my other company as well. I had a tax professional do this for my previous business, but I am wanting to do this myself this time. 2. My current billing platforms directly pay my PLLC. Is it legal to just have my current PLLC pay the PC for services rendered because of how the platform works, or do I need to have services going directly to the company (either PLLC or PC)?
Hello! My name is Dolan and thank you so much for contacting me! I just had a few quick questions for you: You said you were registered with EDD, but to clarify, you aren't taking out any payroll taxes or anything yet, correct?
Hi, I use California EDD to take out payroll taxes for myself as the W-2 living in California. I have both businesses registered with EDD, but the PLLC is the only one making payments since my other business (PC) has not earned any income.
Ok! Did you need to tell me anything else? If not, I can start with answering your question.
Truthfully, this is all new to me so I am hoping I am providing all the information that you need. My biggest concern is the legality between the states and how to make sure I have everything lined up correctly before seeing patients through my new business. For reference, it might be easier to give you names. My PLLC is [REDACTED] and the PC is [REDACTED].
Ok! I just need a little time to draft up a high-quality answer. I'll be with you as soon as possible. It won't be terribly long, ok?
Ok so here's the skinny: 1. The law is not clear is no special method of making yourself an employee of the new company, but a common and recommended method is to have an employment agreement drafted between you and the new company that reflects your role, salary, and pay frequency. It can be super simple. I am a CA attorney so I can always draft agreements for you and you get a 10% discount. The normal drafting is $500 so you'd get a discount so it'd be $450 as a flat fee. 2. Oddly enough, the law isn't clear on this, either. Under CA law is not expressly prohibited for your PLLC to pay your PC for services rendered. The law only says that if you are a professional, you need a PC. The source of the income for the PC doesn't matter. I have a PC myself and I make money through selling forms, through representation in court, drafting documents, and even answering legal questions like this online so the source is just fine. In your case, if you have the money come from your PLLC, that's going to be just fine. It all rolls up to you anyway as taxable income since the entities are pass-through entities as it is. I would just recommend having some contract that shows what services the PC is doing for the PLLC. This can help avoid an unnecessary audit by the FTB or the IRS and it will help avoid triggering any gift tax obligations by you as well.
Thank you SO much for this information. Let me look at the documents I currently have and I can see what help I might need with that.
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