The Best States to Form Your New Business

Looking to start your new business but not sure which is the best state to form it in?

Should you form it in your home state? Or take advantage of tax breaks and form it in another state? Check out this guide that helps you understand which are the best options for you.

The State Where You Live

This is one of the most common places that people chose to form their business, often because its where their business will be based. Forming an LLC in your own state is known as a ‘domestic LLC’.

But if your business is purely online or you don’t have a physical presence, then you have other state formation options to potentially take advantage of – which is known as a ‘foreign LLC’.

Advantages:

• You will have familiarity of your state and business taxes already
• You won’t be forced to use a registered agent (which saves you money)
• You save money on not needing to also register as a foreign LLC

Disadvantages:

• Taxes may be much lower in other states, particularly if you live in high tax states like New York or California.

Delaware

This is one of the most popular states to form businesses in because it has no corporation tax – many of the world’s biggest companies are formed there. Therefore many people think they should create their business too.

But its only good if you want to create a corporation, and many businesses only need to be an LLC. Therefore if you want to start an LLC there is no benefit of forming in Delaware.

Advantages:

• 0% corporation tax
• Increased privacy protection (you can remain anonymous)
• Only $90 filing fee for LLC (cheaper than many states)

Disadvantages:

• No tax breaks if you form an LLC there
• You will have to use a registered agent if you are not living in the state
• You need to register as a foreign LLC in addition to filing in your own state

Nevada

Creating a business in this state is now very popular. But is it worth it if you don’t live in that state? Here is an overview of the advantages and disadvantages of forming a business in Nevada:

Advantages:

• 0% corporation tax
• 0% personal income tax
• 0% franchise tax
• Increased privacy protection (you can remain anonymous)

Disadvantages:

• Has an expensive LLC filing fee of $325
• You will have to use a registered agent if you are not living in the state
• You need to register as a foreign LLC in addition to filing in your own state

Wyoming

If you are considering creating your business in other business, then this has even more advantages than Nevada, and less disadvantages. This is what we would recommend if you want to form a domestic LLC.

Advantages:

• 0% corporation tax
• 0% personal income tax
• Strongest asset protection laws in the nation
• Increased privacy protection (you can remain anonymous)
• Only $100 LLC filing fee (cheaper than many states)

Disadvantages:

• You will have to use a registered agent if you are not living in the state
• You need to register as a foreign LLC in addition to filing in your own state

Best to form in your own state or another state?

If you live in a state with high taxes (like New York or California) and you want to create an online business, then you should consider creating in another state to save on taxes. If you want to create a corporation then it may be best to go for Delaware. If you want to create and LLC then we suggest going with Wyoming or Nevada. However…

It depends on which state you live in

Trying to save on taxes? Its only worth forming in another state if you live in one of these states:

1. Alaska
2. Delaware
3. Montana
4. New Hampshire
5. Oregon

This is because you will always be taxed in the state where you live, not where your customers are. The only exception is those 5 states, who don’t have a physical presence rule. So you will only save on taxes if you live in one of those 5 states. That should help explain which state is best for you to form your new business in.