I always get questions from folks wanting to know if they should set up a Nevada LLC or corporation because they’ve seen one on the internet or been to some seminar where they were told that they should form a Nevada company to avoid paying state income tax.
Um…how shall I say this? That’s a gamble.
If your business only earns income in Nevada, then cash in your chips…you win! But, if your business makes money in another state (e.g. has a location in that state or rental property in that state) that has a state income tax, then pack your bags…you lose!
Setting up a Nevada company to avoid paying state income tax is not a valuable strategy because whether you will owe state income taxes has nothing to do with which state your business was formed in. It has everything to do with which state your company earned income in. So, if you are organized as a Nevada corporation, but earn income in Illinois, then you will owe income taxes in Illinois.
Oh, and don’t forget that if you form a Nevada LLC but your business is located in another state, you will likely have to register as a foreign entity in that state as well (which can cost you anywhere from $100 to several hundreds of dollars). So, don’t gamble important business decisions like this on what you heard, or saw on the internet. Get answers from an experienced small business law attorney (I know a great attorney I can recommend for you, lol!) who can help you figure out what’s best for you.
Have you heard that Nevada (or some other state) is the best place to form an LLC to avoid taxes?
hmmmm….Interesting. I see and hear a lot about this — opening an LLC in another state. I would never think of it. Seems too complicated – right? Rachel
Hi Rachel, it can be a lot of work (not to mention money) to incorporate in one state, but operate in another. For most small business owners, it’s not worth it.