Semi-related, for anyone in the UK join the Federation of Small Businesses as they can help you out a load with this kind of thing especially with audits.

If HMRC tell you you are being audited, just say "thanks very much, my FSB contact will be getting in touch with you" and then let the FSB know. From that point on the FSB handles everything - normally resulting in the audit disappearing as HMRC know they are unlikely to get anything out of you and so would be a waste of tax payers money/time.

If they say "You owe us 3k", you argue about the 3k.

If they say "You owe use 130k", you argue about the 130k and end up ecstatic to pay 3k.

Either way, you argue and pay 3k. In option 1, you complain about the 3k. In option 2, you praise the 3k.

Just my opinion.

Then there is the options that you find fewer loop holes and pay 5k. Or are totally lazy and pay 130k. Or any shade in between.

Sounds like a good racket for them.

Yeah, this is a few years back, but as I recall, they originally claimed we owed ~$20k - and we disputed and negotiated and got supporting evidence, etc. and ended up with 3k. I was more commenting that it seemed like a lot of effort on the part of the city to end up with just $3k.

The high tax liability claims are based off of projected revenue (in a very market-optimistic year) -- not actual revenue. This is why usually the actual tax liability is significantly less.

It's only a racket if you assume that nobody cheats on their taxes. If that were the case we'd never need to have audits.

>> In option 2, you praise the 3k.

And shorten your life by 12 months from the initial shock :)

In return for providing the legal protections to both enforce contracts and protect your personally from the liability of a failed business.

As a small business the value of protection you receive from the state is incalculably larger than the price you pay.

I can get those protections from Texas for free until I exceed $1m in revenues. Not all states charge your business just to exist.

Texas instead charges your property just for existing (3rd-highest property tax in the nation). Different states choose different revenue mixes; Texas has largely chosen property taxes, sales taxes, and oil/gas severance taxes, plus in recent years the "margin tax" on larger companies.

- Texas doesn't have a state property tax; all property tax revenue goes to local tax authorities. You could argue this is just shifting a burden downstream, but I like that system better than a from-on-high budget distribution.

- Property tax applies to all real estate, not just businesses, so I'm not sure what this has to do with business taxes.

- We don't have a personal income tax.

<i>- Property tax applies to all real estate, not just businesses, so I'm not sure what this has to do with business taxes.</i>

Actually, Texas (or perhaps local authorities) levies a property tax on all business assets. If you host a website on a server in texas, they will levy a property tax on the server. Sometimes that's paid by the hosting firm. Sometimes, it's passed on to clients.

If you don't believe me, look it up.

I did not know such a thing existed. I find it rather surprising. In reading about it, though, none of the money from that tax goes to Austin, either. Additionally, if I am reading the law correctly, all businesses, incorporated or not, are subject to this.

Edit: I should also note that, as a resident of Texas, my hypothetical company would have to pay the exact same amount to various Texas tax authorities regardless of where it was incorporated.

I looked this up and found nothing of the sort. I've run a C-Corp in Texas for 7 years now and I'm quite sure our accountant would have brought this up at some point.

It's the "business personal property" tax. Here are Harris County's instructions on it: http://www.hcad.org/Help/BusPersonalProp.asp

For taxation purposes, your property is classified as either real property (land, buildings, and other items attached to land) or personal property (items that can be owned but are not attached to land). Tangible personal property that you use to produce income is subject to taxation in the state of Texas. Tangible personal property includes such things as furniture, fixtures, inventories, equipment, motor vehicles, vessels, and aircraft. These items are typically referred to as business personal property.

Real property is special. You only truly own it if you're a country. Otherwise you have an encumbered title to the land and taxation is just part of the deal.

Movable property taxes, on the other hand, are BS.

Well yes, but I'd argue owning a corporation is pretty similar. The right to organize in a form that lets you incur debts you're shielded from paying back isn't some kind of natural state, but a creation of law in order to encourage certain kinds of commercial activity. Things like corporate taxes are imo a perfect legitimate part of the deal, if a government chooses to impose them.

I do think sole proprietorships should not require registration as businesses or payment of a separate tax (besides any personal taxes), though.

> As a small business the value of protection you receive from the state is incalculably larger than the price you pay.

Unless you are in CA and are a small or side business with little revenue (thinking side consulting gigs, etc).

The minimum tax liability + biz license and other fees (base tax of $800 or more depending on revenue + biz license + other fees) quickly makes it not worth incorporating in CA if you can avoid it. That is, unless you are making more than a few thousand a year from your side gig.