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  1. #1
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    Lightbulb What's the best state to form an LLC?

    Where are some of the best states to form an LLC in the US?

    I reside in California, here you must pay an annual $800.00 tax, I've heard that some other states are lower or even do not have a LLC franchise tax. As you can imagine I want to avoid this ridiculously high tax.

    If I'm not mistaken, anyone can form an LLC in any state of their liking. Is that right?

    Appreciate any advice. Thanks..

  2. Thread Summary web2k6 posted asking what the best state is to form an LLC.

    Nevada and Delaware were mentioned as potentially being the top states in which to form an LLC.

    It was cautioned by some members that consulting a CPA first may be ideal in order to avoid "double taxation". The costs of forming and maintaining an LLC (e.g. state taxes/fees and registered agent fees) were also discussed.

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  3. #2
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    Quote Originally Posted by web2k6 View Post
    If I'm not mistaken, anyone can form an LLC in any state of their liking. Is that right?.
    Yes and no. In order to register an LLC you must have a physical presence in that state, meaning no PO boxes or anything of that sort. So if you do not reside in the state where you wish to form your LLC, you're going have to pay a Registered Agent fee. When I was doing research, it's generally $100+ per year.

    Also make sure you do your research on foreign LLCs for CA. When I was looking, it was cheaper to form in Delaware and have a few tax breaks. But if I wanted a bank account here, I would have to pay a very large foreign corporation fee, which pretty much negated all of the breaks and everything else.

    So be sure to take things into consideration like that as well, I'm sure it will vary greatly depending on the state(s) you choose, but just be careful with things like that. Sometimes lawyers or accountants will you give free advice on things like that, so try hitting them up as well. And as always, when in doubt, consult a lawyer/accountant for things like this.

  4. #3
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    California will make you pay $800 even for LLC you formed outside of California - this is fee for permission to do business in California (check State website) - so, if you don't want to pay double tax (CA and other state) - you either should form LLC in California alone or do your business in other state (e.g. Nevada) and live here as well.

    ALL States have franchise tax - in one way or another (some states call it "Annual Business Registration")

  5. #4
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    We opted to form our LLC in the state of New Hampshire. We do not live there but paid LegalZoom a $100-200 fee for an active resident in that state to represent us.

    We chose NH because they have no sale tax and only take income tax when we pay ourselves. I'm not sure of all the legal fine print but wanted to letyou know how we chose to operate our business.

  6. #5
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    Legalzoom can incorporate you anywhere - but I would HIGHLY advise to talk to CPA in order to get advise, otherwise you will end-up to paying both states (your home state and other state).

  7. #6
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    Thanks for the advice. I never thought of double taxation. Guess I need a CPA.

    I'm interested to find out why some people opt for other states, like redcoat. Or is California one of the states that imposes this double tax. ugh, impatient me...

  8. #7
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    Some peoples have strange belives like they can get away with incorporating in another state to avoid local state tax - but, sooner or later your State Tax Board will contact you say "Why you haven't pay the Franchise Tax in our state ? Right now you own us for all previous years + hefty penalty" - Is this what you looking for ?

  9. #8
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    My sugestion is Nevada
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  10. #9
    The state in which you operate in.
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  11. #10
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    yes, but also because of all the tax brakets
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  12. #11
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    Most people say Delaware is the best since it's "tax free" but with all of the costs of everything and all the little stupid who-not's that come with forming an LLC, I don't think that's even the best case anymore.

    I guess anywhere you're screwed with ridiculous costs.

  13. #12
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    Quote Originally Posted by Trophimus View Post
    Most people say Delaware is the best since it's "tax free" but with all of the costs of everything and all the little stupid who-not's that come with forming an LLC, I don't think that's even the best case anymore.

    I guess anywhere you're screwed with ridiculous costs.
    No, they say nevada since the legal system is geared toward businesses... You still have to pay your state fees after you file the "DBA" in your state (in my case at least). Not "just about costs." Although, I generally agree it is best to do it in your own state, there can be some benefits of forming outside your state and going with a dba, if your business needs that setup.

    OP Talk to a lawyer or cpa... most people online don't know wtf they are talking about.
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  14. #13
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    Keep in mind that if you incorporate in another state, you may still have to pay a fee to the state that you actually do business in. In our case, we're a Delaware corporation, but since our office is in New York, we have to pay a fee to New York to be authorized to do business there as a foreign corporation.
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  15. #14
    if you are an online business do you still have to pay a fee in the state where you live?
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  16. #15
    Register a company in Panama, and then use that company to incorporate in Deleware.

    Bingo. Corporate tax avoidance at its best.

    Of course, you still have to pay personal taxes on whatever income tax you declare personally in whatever country you live in.
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  17. #16
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    Quote Originally Posted by mrzippy View Post
    Register a company in Panama, and then use that company to incorporate in Deleware.

    Bingo. Corporate tax avoidance at its best.

    Of course, you still have to pay personal taxes on whatever income tax you declare personally in whatever country you live in.
    Not true, any US citizen who owns a controlling stake in a foreign company is required to report it and probably pay taxes on it. Avoid this and talk to a CPA who will explain it.

  18. #17
    A Panamanian foundation can be started without any link whatsoever to the "US citizen" who runs it.

    The Panamanian foundation owns the Panamanian company, which owns the Deleware company.

    Even if someone traces back to the Panamanian company, the owners of this would be the foundation, which, by law in panama, can be unnamed.
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  20. #19
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    Easy actually:

    Contact your DOL and SoS, typically what happens is:

    They cannot impose sales tax on your clients if your services (IE dedicated clients) are located elsewhere. If your services are out-of-state, and/or your clients are out of state, then you cannot impose local sales tax on them. With this, you will only be required to pay the annual renewal fee, income tax, and the other "necessities"
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  21. #20
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    I have a bit of an advantage as I'm a resident of nevada. Definitely helps there

  22. #21
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    Quote Originally Posted by mrzippy View Post
    A Panamanian foundation can be started without any link whatsoever to the "US citizen" who runs it.

    The Panamanian foundation owns the Panamanian company, which owns the Deleware company.

    Even if someone traces back to the Panamanian company, the owners of this would be the foundation, which, by law in panama, can be unnamed.
    That is illegal.
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  23. #22
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    Quote Originally Posted by mrzippy View Post
    A Panamanian foundation can be started without any link whatsoever to the "US citizen" who runs it.

    The Panamanian foundation owns the Panamanian company, which owns the Deleware company.

    Even if someone traces back to the Panamanian company, the owners of this would be the foundation, which, by law in panama, can be unnamed.
    I hope you didn't do that.

    Thanks to your post, you have probably helped another VaguHost pop up >.<
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  24. #23
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    Quote Originally Posted by mrzippy View Post
    A Panamanian foundation can be started without any link whatsoever to the "US citizen" who runs it.

    The Panamanian foundation owns the Panamanian company, which owns the Deleware company.

    Even if someone traces back to the Panamanian company, the owners of this would be the foundation, which, by law in panama, can be unnamed.

    Now why you saying stupid things like that on a public forum? *shakes head*. ILLEGAL doesn't describe it. Furthmore, you do have to claim that with your taxes to the IRS. If i recall right, they specifically ask if you own a business, and also ask about foreign businesses.

    I know one of the tax papers i fill out every year asks that.


    Just remember, the US govt always has ways to find people who cheats them. and the U.S.C has steep punishments *COUGH* Tax Evasion *COUGH* :p

  25. #24
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    Quote Originally Posted by mrzippy View Post
    Register a company in Panama, and then use that company to incorporate in Deleware.

    Bingo. Corporate tax avoidance at its best.

    Of course, you still have to pay personal taxes on whatever income tax you declare personally in whatever country you live in.
    Things like this are generally a waste of time and not worth looking at unless your doing over 1mil+ yr in profits.

    For most of the lemonade stands around just form in DE, get a PO box, use that for your address everywhere and your set. When you start making a few hundred k+ in profits you can bounce things between various corps. Get a good accountant to take care of everything for you so you wont end up in trouble. Also another tip is to pay quarterly taxes instead of annual it lowers you on the radar scale.
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  26. #25
    Does anyone know what other states offer good tax benefits (no corporate tax OR low corporate tax)? I heard New Hampshire is a good choice, any thoughts on benefits over Delaware?

  27. #26
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    I'm neither a lawyer nor an accountant, and this is not professional advice.

    But from what I read, Nevada and Wyoming are also frequently chosen. However, this probably has more meaning when you are creating a corporation, not an LLC, because the LLC's taxes usually just flow through to the owners on their private returns anyway, which are taxable in your own state.
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  28. #27
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    Generally, the best state to file is your home state, and just pay the taxes. That's because in many (most?) states, you are required to register as a foreign corporation/pay taxes anyway, if you have a physical presence in the state (your house, if you're a home business), conduct business within the state, etc.

  29. #28
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    I have always heard Florida is one of the best states to incorporate in. Doing a quick search this site lists pretty much the reasons I have heard of and a few others. http://www.florida-corporations-onli...rporation.html

    Good Luck!
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  30. #29
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    If you do business in the state, incorporate. Why? So you cheat out the state for income tax.. big deal. IN certain situations it4 _could_ benifit you but state level income tax vs federal.. federal is the real kick in the nuts.

    If it is a single member LLC.. you better _LIVE_ in the state you are filing taxes in. Why? Single Member LLC corporations are a pass through to income. Whatever the corporation makes you make personally. Now you can federally file your corporate taxes as a S corporation but retain a LLC corporate structure. it really depends on your accounting/taxes and revenue.. if your sub 1mil/year LLC all the way is best but if your 1mil+ S corp filing is preferred due to the double taxation as a LLC.

  31. #30
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    We chose Wyoming .

  32. #31
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    Quote Originally Posted by Spudstr View Post
    Agree, why cheat the system? It will catch up to you and even out in the end anyway.
    It's not cheating the system. You pay taxes to the state you make the money in. Is working out of state cheating the system?

    Most people here are spreading enormous amounts of misinfo. You owe tax wherever you make it. As a US citizen you also owe that federal tax on worldwide income. You also owe tax to your state of residency. Most of the time you can claim foreign tax credits.

    When I say make money somewhere, I mean physically have employees (or yourself).
    Last edited by Luc - Servulous; 08-16-2012 at 12:09 PM.

  33. #32
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    Additionaly there usually is no point of forming an LLC in a different state than your own. It makes tax more complicated and you still owe the same thing to your state of residence.

  34. #33

    Form an S Corp

    Yes, California does have a franchise fee, but if you choose an S-Corporation which has all the benefits of an LLC.

  35. #34
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    Quote Originally Posted by formanllc View Post
    Yes, California does have a franchise fee, but if you choose an S-Corporation which has all the benefits of an LLC.
    What an S-Corp in Cali doesn't have franchise tax?

  36. #35
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    Quote Originally Posted by Luc - Servulous View Post
    What an S-Corp in Cali doesn't have franchise tax?
    No! It has the same franchise tax as any other corporation or LLC in California. It's the current tax rate (S-Corps are 1.5% last I remember) or $800 if the taxes owed are less than $800.

  37. #36
    The best state in which to incorporate is the state in which you will primarily operate.

    Avoid LegalZoom all together or ANY other quickie/discount online incorporation place...the best place to go for this service (if you aren't sure what to do) is your CPA or a corporate Attorney.

    You should also ask them what sort of entity will suit you best....LLC, S-Corp, Corp, etc. There are advantages and disadvantages to each of them.

    These other places may get you started, but you won't realize what a horrible / dysfunctional job they did until you have an issue down the road with the IRS or a partner perhaps.

    You need to make sure your documents are appropriate, complete and thorough (things like Bylaws, Shareholder Agreements, etc) and they need to be specific to your business not some cookie cutter templates that you get online.

    So IMHO you should spend the $500 - $1000 and have it done right.

    Hope that helps!

  38. #37
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    If you incorporate in another state, and you get sued for any reason, you may have to either fly out and represent yourself in that state or hire a local attorney to represent you. Both are very expensive options. You can put a choice of law clause in your TOS ("All litigation pertaining to this document shall be filed within the state of ____") but that doesn't mean the courts will enforce it.

    When it comes to incorporating, you really do need to sit down and chat with a lawyer or CPA. If you can't afford the $250 - $500 that this will cost, then you're not ready to incorporate.
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  39. #38
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    Registering a business/company in your own state will be the best and please don't register via 3rd parties like LegalZoom.com or FormACompany.com etc.

    Unless if you are a non-citizen, than I would suggest Delaware, New Hampshire, or Wyoming.

    Maybe you can have a look at this link http://usa-corporate.com/states.html and compare for yourself.

  40. #39
    Usually forming an LLC out of your state is perfectly fine, some states like California, people prefer to register in Deleware to cut costs. Also, from what ive heard if you become a large company, the tax benefits of being formed out of Deleware makes it well worth it. Starting out, i'd say stick with your state.

  41. #40
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    Quote Originally Posted by mrzippy View Post
    Register a company in Panama, and then use that company to incorporate in Deleware.

    Bingo. Corporate tax avoidance at its best.
    BINGO! Free room and board at a Federal Prison near you! What you suggest is illegal.
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