Where to Incorporate My Business
Examine Your Options Before Deciding Where to Incorporate
You’ve heard the old saying that there is nothing certain in this world except for death and taxes. We can’t do anything about death, but let’s talk about taxes. Taxes can be challenging for small businesses, given that tax policy differs from state to state and can change yearly. Those differences can work to your advantage, as you do not necessarily have to incorporate in your home state.
Several states offer attractive corporate tax policies in an effort to entice small businesses to reside within that state's borders. Finding the right state for incorporation may be a boon to your business before you even sell your first product.
Corporate Tax Haven Benefits
Incorporating in a business-friendly state offers advantages to both parties; the state gains a job-producing entity, and small businesses enjoy reduced fees and tax bills. Certain states 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 lost revenue. Two business-friendly states that may be at the top of your list are Delaware and Nevada. Delaware is called home by 60% of Fortune 500 companies and the majority of startups, despite being the second smallest state in terms of area and the fifth smallest in population size.
Delaware: 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 are not subject to sales tax and income is subject to a flat tax of 8.7%. The Delaware Economic Development Office helps encourage 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. And the Nevada Small Business Administration, in cooperation with the University of Nevada, Reno College of Business, offers 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 qualify for available tax dollars as well.
Women-Owner Business Enterprise: Women business owners should also discuss becoming a Women-Owned Business Enterprise for additional benefits.
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 less on filing day. Locating your corporation in a 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 locale offers the best environment for your corporation.
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