We’re guessing you’ve heard the old saying that there’s nothing certain in this world except for death and taxes. We can’t do anything about death, but when it comes to taxes—specifically business taxes—there are options.
Taxes can be challenging for small businesses, given that tax policies differ from state to state and can change yearly. The good news is those differences can work to your advantage. How? By incorporating in a different state. As you’re considering the legal requirements for creating a business, you should also be thinking about where to incorporate your business. Discovering the best state to incorporate your business can make a big difference to your bottom line.
What is the best state to start a corporation in?
In many instances, when to incorporate a small business is just as important to determine as where to incorporate it. Incorporating in a different state offers advantages to both parties; the state gains more job opportunities for residents, and small businesses enjoy a variety of advantages and lower taxes. Certain states even advertise as “corporate havens” for businesses looking to incorporate. While this may mean a decrease in that state’s immediate tax revenue, the influx of businesses often offsets any losses.
The best state to incorporate in may be up for a little debate, as there are two states that share the crown. While you’re considering where to incorporate your business, it’s important to look at Delaware and Nevada as your top options. Let’s look at each state and what they have to offer business owners:
Delaware: Delaware is called home by 60% of Fortune 500 companies and many startups, despite being the second smallest state in terms of area and the fifth smallest in population.
Delaware’s prevalence as a corporation capital isn’t surprising given its corporate laws. If you locate your corporation in Delaware but don’t operate within the state, Delaware doesn’t charge a corporate income tax. Even if your business does operate within the state, company purchases aren’t subject to sales tax and income is subject to a flat tax of 8.7%.
The Delaware Economic Development Office encourages small businesses to establish themselves within state boundaries. The state provides funding ideas, guidance, and support to any business that wants to establish in Delaware.
Nevada: Westerners have their own tax haven in Nevada. A low cost of living along with no inventory tax, no personal or corporate income tax, and low payroll taxes all make Nevada one of the most attractive incorporation locations in the United States. While there aren’t as many resources available to businesses as in Delaware, the low or non-existent tax rates can make starting a business in Nevada well worth it.
The Nevada Small Business Administration collaborated with the University of Nevada, Reno College of Business to launch an excellent resource called the Nevada Small Business Development Center. The website offers information and forms, frequently asked questions, and other resources to help incorporate and run your small business. Certain companies such as non-profits, high-tech start-ups, or businesses founded by groups such as minorities and veterans can also qualify for available tax dollars.
Are you a woman who runs her own business? There’s one more step you should consider. Women business owners should discuss becoming a Women-Owned Business Enterprise for additional benefits. Another option that can help businesses of all kinds is using business formation services to help you get set up, no matter which state you decide to launch in.
What is the best state to incorporate a small business?
Fortunately, the answer is the same as it is for larger businesses. Nevada and Delaware are also excellent options as states you can start and incorporate a small business in, for the same reasons detailed above. Wyoming may also be a good option, as they have similar benefits including easy to work with business rules, no business income or franchise taxes, and accessible courts that are steeped in business knowledge and awareness.
Which state is best for LLC incorporation?
If you’ve been struggling with how to incorporate an LLC, you may want to consider looking at doing so in a different state. Surprise—Delaware and Nevada are considered the best states for LLC incorporation. Wyoming is on this list too.
But they’re not the only states where you can incorporate your LLC. Some other top options include Alaska with a corporate tax rate of 9.4% and no taxes on income and sales; South Dakota, who offers no income or corporate taxes; and Florida, whose corporate tax rate is only 5.5%, no individual income tax, and the sales tax is only 6%.
What is the best state to register a business in?
If you guessed Delaware and Nevada, you’re right. Basically, the best states to register your business are the same ones you’d consider incorporating in. However, it helps to do research based on what you want and need for your business—and potentially speak with a lawyer who can help educate you on the best state to incorporate your LLC in.
The ins and outs of tax savings
Taxes are the necessary price of a functioning civil society, but that doesn’t mean that the bite out of your company’s bottom line stings any less on filing day. Incorporating in a different state like Delaware or Nevada can save you money on your taxes that can be put back into your company, but any business decision you make should be done with care and consideration. Be sure to do your research and talk with a lawyer to figure out which state offers the best environment for your corporation.
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