Best and Worst States for Filing an LLC?

22 replies
I know that people generally reference Wyoming, Deleware, and Nevada as the top 3 states for filing an LLC. But, I'm looking into other options that are favorable for internet-based businesses.

I've read that California, while it has great legal ramifications for the businesses anchored there, is one of the worst states for an LLC because of the franchise fees.

Texas has some high formation fees, and that's generally for any kind of legal business entity. I'm assuming that's due in part to the fact that there is no personal income tax here, so they recoup it from the businesses. There's also a franchise fee, and I believe there is also some other kind of annual tax as well. Just too much for me to handle right now.

So, any suggestions? Which states should I avoid? Are there any states that interest you in particular, and why? Please consider the cost of formation, annual fees, reporting requirements, and other operating costs. Assume that nexus will be obtained and strictly maintained in any state.

I know that I could just do a lot of research here and come up with an answer on my own. But, I'm looking for insight from people who have experience with this sort of thing. Theory is nice, but FACT is better.
#filing #llc #states #worst
  • Profile picture of the author Cool Hand Luke
    You answered your own question in the first sentence of your post. Those three are the best for ALL of the criteria you mentioned, to varying amounts.


    <<< Is a California resident with a NV-based LLC(taxed as an S-Corp)
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    • Profile picture of the author sherrieb
      Delaware and Wyoming don't have a sales tax. Something you may choose to consider as well.

      http://www.taxadmin.org/fta/rate/sales.pdf
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      • Profile picture of the author KMP
        California's prohibitive fees is the main reason I don't currently have an LLC. Because I am a California resident, forming an LLC in another state doesn't really do me any good. If you have a business "presence" in California you still need to pay the fees.
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        • Profile picture of the author Cool Hand Luke
          Originally Posted by KMP View Post

          California's prohibitive fees is the main reason I don't currently have an LLC. Because I am a California resident, forming an LLC in another state doesn't really do me any good. If you have a business "presence" in California you still need to pay the fees.
          :rolleyes:
          Actually it WOULD do you good, you just need to know what a "presence" actually means in the eyes of the law; sorry to see you're misinformed.

          Again, I'm a San Diego,CA resident with an LLC based in Henderson, NV. I have a resident agent and address there, and all the money goes through NV.

          I still pay my personal taxes as a Cali resident, but the way the business is structured, the company itself does not pay a dime to California. This arrangement is VERY beneficial to me
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          • Profile picture of the author sherrieb
            Originally Posted by Cool Hand Luke View Post

            Again, I'm a San Diego,CA resident with an LLC based in Henderson, NV. I have a resident agent and address there, and all the money goes through NV.

            I still pay my personal taxes as a Cali resident, but the way the business is structured, the company itself does not pay a dime to California. This arrangement is VERY beneficial to me
            If I'm not mistaken, these are key factors. I've heard you owe CA and I've heard you don't owe CA by living in CA but incorporating outside of CA, (LLC too) and I think it all boils down to how it is structured as to whether or not you owe, ultimately.
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            • Profile picture of the author Cool Hand Luke
              Originally Posted by sherrieb View Post

              If I'm not mistaken, these are key factors. I've heard you owe CA and I've heard you don't owe CA by living in CA but incorporating outside of CA, (LLC too) and I think it all boils down to how it is structured as to whether or not you owe, ultimately.
              I don't like to play "internet lawyer" so I won't mention anything further, but I will mention that I only know what I know and have the 100% legal structure I do because I consulted with a reputable NV tax professional; anyone else interested in incorporating outside of their home states should do the same.
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              • Profile picture of the author sherrieb
                Originally Posted by Cool Hand Luke View Post

                I don't like to play "internet lawyer" so I won't mention anything further, but I will mention that I only know what I know and have the 100% legal structure I do because I consulted with a reputable NV tax professional; anyone else interested in incorporating outside of their home states should do the same.
                Yet another nugget for those who will pay attention. Wise to seek advice from the right people.
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                • Profile picture of the author Alan Petersen
                  Originally Posted by sherrieb View Post

                  Yet another nugget for those who will pay attention. Wise to seek advice from the right people.
                  Exactly. Don't listen to CoolHandLuke or KMP or me or anyone in a forum for these very important business decisions.

                  Hire a CPA. What works for one person in one state varies. Asking advice from a qualified, licensed professional isn't that expensive. Some even offer a free initial consultation.
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                  • Profile picture of the author Kay King
                    I agree - you don't need "opinions" on this. All states now allow LLCs but many states are now in financial turmoil as well. Professional advice is what you need.

                    The point of choosing another state is the tax/legal benefits - and those may be changing with the economy.
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  • Profile picture of the author Anewbist
    new mexico
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  • Profile picture of the author corsleymaxwell
    The fact is that LLCs have been getting lots of attention, if for no other reason than that they are still relatively new.
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    • Profile picture of the author sepia
      I believe Washington doesn't have state tax. Don't know if that refers to personal or corporate taxes.
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  • Profile picture of the author Presto Smith
    You may also want to take into account what your business will be doing? In other words, some states do not allow certain affiliate programs (like Amazon).
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  • Profile picture of the author truly_gifted
    The reason I asked is because I DO want the opinions of other people based on what they have actually encountered. I will be consulting with a CPA and attorney on the matter, but I don't want to go in blindly. I'd like to hear the experiences of other people and what they've done in terms of incorporating.

    Also, I see people mentioning that certain states are tax-free. Sadly, that is becoming the exception rather than the norm among those states that "claim" to be tax-free for businesses.

    Take Wyoming for example. Many businesses that chose to anchor themselves in Wyoming are coming under a watchful eye. They are having to prove that their business has even a legitimate purpose for being in that state rather than their own. With so many states having budget deficits, many of these companies are actually seeing losses due to back taxes and penalties they are being found to owe due to new nexus interpretations.

    I had been considering Wyoming as my top choice, but now, I'm reluctant because I live in Texas. I don't mind the personal income tax here in Texas (because there is NONE), but corporate taxes do concern me. I've even begun to look into other countries because of all the tax drama that we seem to be having as of late.
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    • Profile picture of the author bigbrian76
      Hey guys,

      I have to jump in on this conversation to back up what many of you have already said. I too, am looking to create an LLC (very important to protect yourself from personal liability related to the business). I am a California resident, and wanted to do my LLC in Nevada. Everything I have read points to this not being a good idea, since the fact is you are still running the business FROM California. If CA (or whatever state you live in) is there the majority of your business operations are handled from, you are likely subject to the laws of said state.

      However, what I say or anyone else here should be taken with a grain of salt and is NOT intended to be advice of a legal nature. Definitely contact a CPA and/or business attorney to make sure you protect yourself and your family properly.

      CA for example, has an $800 annual tax on business owners....sucks, but I would rather pay that than penalties for trying to circumvent the system. Sure, we are all trying to save a buck - but what most people don't realize is that it is almost ALWAYS cheaper to do things by the books than deal with problems later.

      Hope this helps!

      Brian
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      • Profile picture of the author Blaine Moore
        I'm not a lawyer, and only created my LLC in my own state because I like to keep money local and because it makes things easier to figure out come tax time, but I am currently reading Mike Young's new book that covers the basics of internet law and he explicitly states the hazards and lack of liability protection when trying to create an LLC in another state than that which you actually do business in.

        I assume he knows more about it than I do, but since his opinion jives with what I was doing I haven't really researched it past that. For $10, so far it seems like a worthwhile book (I'm not too far into it yet, just read about this last night in one of the early chapters.)

        Amazon.com: Internet Laws: How to Protect Your Business Website Without a Lawyer eBook: Mike Young Esq: Kindle Store
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  • Profile picture of the author Todd Pedersen
    I thought I would throw my 2 cents in also. I recently set up an LLC in Delaware (through Harvard business services- no affiliation). It was extremely easy to do with an initial cost of $350 with an ongoing cost of $200 per year. I was forced to due this do to Amazon banning people who live in Illinois and North Carolina. I didn't want to lose the income so an LLC in Delaware turned out to be the best choice for me. It took all of 30 minutes to set up the LLC and the registered agent so I could have a Delaware address.
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  • Profile picture of the author HairyPoppins
    Being in California blows. I'm getting outa here one day. With that said find a good CPA and they will take acre of you. You don't want to deal with the lawyers or the state, they'll win.
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    • Profile picture of the author Centurian
      I incorporated my first business in 1988 and spent many years researching benefits of Delaware, Nevada, and Wyoming. As has been stated, these three states offer the best structures.

      Each state has it's positives and negatives. They attempt to compete for the best structure.

      Nevada claims it is a benefit it doesn't share information with the IRS, yet the Secretary of State sells your information to private information companies. You can connect the dots on this claim. There are additional company operation costs that exceed other states.

      Delaware does not request company ownership details. There are no state income taxes for an LLC and no annual reports of any kind. You only pay $250 annual franchise fee online. There are no state sales taxes, either.

      While Wyoming invented the LLC, after evaluating all three state's pros and cons, I selected Delaware for an LLC as the lowest start-up and operating costs and requirements. You can operate a Delaware LLC from your location worldwide for less than $500 a year.

      If you want more information on all the advantages and benefits, I offer turn-key Delaware ecommerce LLC's complete with federal identification number, online U.S. business banking, and bankcard merchant services with direct deposit to your account.
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      • Profile picture of the author kyk007
        Warrior - this post was from a couple years ago. Are you still in business assisting others in turnkey Delaware corporations? If so, I would be very interested. Please private message me with more details. Thank you in advance.
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