So I started my software services LLC about 2 years ago in Delaware. It was registered, legit setup, everything proper. About 18 months ago my partner and I decided we wanted to travel while we worked so we both moved to Mexico. We figured since the company is Delaware registered and we're just working remotely, we were fine. We filed our federal returns, paid federal taxes, thought we were good.
Tonight I was doing some spring cleaning of old files and found an email from our accountant from like 8 months ago that I apparently never fully read. I pulled up the email again just now and started reading and I'm going to throw up. Apparently when you operate a US business, even if you're physically located outside the US, you may owe state taxes in any state where you have economic nexus or where your clients are located. We have clients in California, New York, Texas, Florida, and Illinois.
I immediately called my accountant , we apparently should have been filing and paying state taxes in all five of those states this whole time. We didn't do any of that. Not a single return. Not a single payment. He said in the best case scenario we're looking at maybe $15k-20k if we do a voluntary disclosure right now. But if the states audit us first without us coming forward, the penalties could be way worse.
I have no idea why I thought that. I should have asked more questions. Our accountant literally emailed me about this and I just… didn't read it properly. The worst part is my partner is going to absolutely lose it when I tell him tomorrow. We're splitting the bill on this nightmare and he's going to think I'm incompetent which… fair.
I'm trying to figure out if there's any way this doesn't completely tank our business or if we just have to bite the bullet and deal with it.
LLC in mexico for 18 months and might owe back taxes to 5 states
byu/Vast_Musician_6150 intax
Posted by Vast_Musician_6150
2 Comments
This honestly sounds overstated. For a software services LLC, having clients in a state does NOT automatically mean you owe state income taxes there. That’s much more common with physical products, employees, offices, or actual in-state operations.
If you and your partner were working remotely from Mexico and just servicing clients in those states, there may be far less exposure than your accountant made it sound like. California is the main one that can get aggressive, but even then it depends on the facts.
Before panicking, get a second opinion from a SALT (state and local tax) specialist who deals with remote service businesses and digital nomads. You may not actually owe filings in all five states or any at all.
% amount in the states also matter. You need a 2nd opinion