In this video I'm going to tell you why you shouldn't form your LLC in any of the hyped
up states like Nevada, Wyoming, or Delaware and why it's best for you to form your LLC
in your home state.
We hear stuff like this all the time.
'Nevada has no corporate income tax.
Wyoming LLCs are the most affordable.
Delaware is the best state to form an LLC in.'
To be completely honest with you, it's mostly a bunch of BS.
The disadvantages of forming an LLC outside of your home state far outweigh the perceived
advantages.
Let's first talk about domestic LLCs and foreign LLCs.
If you form an LLC in the state where you reside, AKA your home state, this is known
as a domestic LLC.
If you form an LLC outside of your home state, you'll be required to register that out of
state LLC as a foreign LLC in your home state.
For example, if you form an LLC in Nevada, but you don't live there then you'll be required
to register that Nevada LLC in your home state as a foreign LLC in order to do business in
your home state.
This means you now have two LLCs.
One in Nevada and one in your home state.
You have to pay two state filing fees.
You'll be required to pay for a registered agent in order to use their address for your
Nevada LLC and you have to pay two annual report fees.
We used Nevada as an example, but this same thing applies to any out of state LLC.
In short, this can easily add up to double the cost and double the headaches since you
now have to maintain two LLCs.
We know the reason that most people become interested in Nevada LLCs is because they
think they are going to save money on taxes.
Many people are misled into forming LLCs in other states to take advantage of tax savings.
This is simply not true.
In this example, if you've formed a Nevada LLC and that LLC is doing business in your
home state, not in Nevada, you still need to pay taxes in your home state because that
is where you're making money.
A helpful saying to remember is that, 'Taxes are paid where the money is made.'
Again, your foreign LLC will need to pay taxes in your home state since that's where you're
operating and doing business.
Even worse, you may owe additional taxes and fees in Nevada.
Why do so many websites talk about Nevada?
It's a great question.
Let's dive into it a little bit more.
Again, most of the benefits of forming an LLC outside of your home state are a far stretch
from the truth.
Both the states themselves and the companies promoting those states stand to gain financially
by LLCs being created within that state's borders.
For example, if 40,000 LLCs are formed each year in Nevada, that's approximately $3 million
in annual revenue for the state.
That's just for the state of Nevada alone.
It doesn't include the tens of millions of dollars made by the companies promoting Nevada
as the place to form your LLC.
The funny thing is, compared to how much Nevada is hyped up there really aren't that many
LLCs formed there each year.
There are far more LLCs formed in the states that aren't hyped up.
Furthermore, Nevada companies rank the highest in fraudulent activity.
Look, don't get us wrong.
If you live in Nevada and you're forming your LLC in Nevada, there is nothing wrong with
that.
If you don't live in Nevada, again, it's much better to form your LLC in your home state.
What about Wyoming?
Although there's less fraudulent activity that takes place in Wyoming compared to Nevada,
this state is also hyped up.
Again, the advantages of forming an LLC outside of your home state far outweigh the perceived
advantages and they're not worth the extra hassle, time, or money.
In fact, it will cost you a lot more in the long run.
Before we discuss forming an LLC in your home state, let's talk about Delaware.
Although small in geographical sense, Delaware is quite large in terms of business activity.
In fact, according to Wikipedia, over 50% of US publicly traded corporations and 60%
of the fortune 500 companies are incorporated in Delaware.
Did you hear the two words that I emphasized?
Corporations and incorporated.
You'll notice that these statistics say nothing about LLCs.
The fact is that Delaware is a good state to form a company in if you're a corporation.
Delaware is best suited for publicly traded companies that sell shares on the stock market
like Microsoft, Apple, IBM, Chase, Coca Cola, or companies that have multiple investors
or need to raise venture capital.
Most of our customers don't fall into that category.
If you form an LLC in Delaware, but you don't live there, you'll still run into the same
situation.
You'll need to register your Delaware LLC as a foreign LLC in your home state, pay annually
for a registered agent, and pay the annual reporting fees in both states every year.
However, if you do live in Delaware then you should form your LLC in your home state.
Takeaways.
Again, forming your LLC outside of your home state is just not worth the hassle and costs.
This goes for Nevada, Wyoming, Delaware, and any other magical state.
Attorneys Alexander Davey and Dana Schultz agree.
Most of these states are just hyped up.
Form your LLC in your home state.
What about internet based and online companies?
Even if you have an internet based business, you cannot get around your state's tax obligations
simply by forming your LLC out of state.
For example, if you live in Florida and you run your online business from your home or
mostly from your home, then you have a Florida business.
Your best bet is to form your LLC in Florida.
Now, forming your LLC in your home state.
This is the least expensive, easiest to set up, and the best long term strategy for your
LLC.
The reason it is the easiest is because it is the right way to do it.
If you have any trouble determining where your home state is, ask yourself the following
questions.
What state are you a resident of?
Where do your employees reside?
Where do you pay state taxes?
If you own property, where is it located?
Where is your office or where do you work from?
Where's the business physically located?
Where do the LLC members or owners have a physical address?
We hope this information is helpful to you and that it has cleared up a lot of hype and
misinformation about which state is best to form your LLC in.
Now, there is one exception and that's real estate LLCs.
As we mentioned earlier, when operating a business it's best to form your LLC in your
home state.
This is usually not the case for real estate LLCs.
Of course, if you're investing in real estate in the state where you live, then yes it makes
sense to form your LLC in your home state.
If you're investing in real estate located in another state, it's best to form your LLC
there.
Your LLC is doing business in that state if you're generating rental income, buying and
selling, wholesaling, or basically any method where you're making money from your real estate
investments.
If you were to purchase property out of state with an LLC that was formed in your home state,
you would run into the same issues that we mentioned earlier.
You'll be required to register the domestic LLC in your home state as a foreign LLC in
the state where you are purchasing property.
Which means you have to pay filing fees in both states, pay for a registered agent in
the foreign state, pay annual fees in both states, and deal with the headaches of unnecessarily
managing two LLCs.
In summary it's best to form your LLC in the state where you are buying property.
I hope this information is helpful for you.
If you have any questions, please contact us.