That's because your primary place of business is your home address in California (where you are operating your online store from). You form an LLC and elect for S Corporation taxation in neighboring Nevada, thinking you'll avoid California's state corporate income tax.Īlthough you formed your LLC in Nevada, California considers your LLC to be doing business in California. The store is starting to generate income, so you decide it’s time to get serious. You are located in California and opened an e-commerce store three months ago. You’ll pay the taxes you tried to avoid in the first place, plus you’ll pay double for formation, registered agent, and the annual report filing fee. If you have an out-of-state LLC, but your home state deems that your LLC is doing business in your home state, they will require you to register your LLC as a Foreign LLC.

If you live there, your business is considered to do business there. California, on the other hand, likes to keep things clear. Texas tells you to figure it out yourself. What qualifies as “doing business”? States can’t agree, of course. You will owe taxes in the state your LLC is “doing business” in. Your home state doesn’t care where you formed the LLC. Remember the following rule of thumb: Taxes are paid where the money is made.

You will likely pay twice for registered agents, annual filings, franchise taxes, and more.

You will end up paying your home state taxes anyway.

There are three key reasons to avoid forming your new LLC outside your home state: We highly recommend forming your LLC in your home state. If business entities could avoid business income taxes simply by forming in Nevada or Wyoming, then everyone would form their businesses there. If you form in one of these states, chances are you will actually end up paying more. Unfortunately, it is not so easy to escape the tax man. Nevada and Wyoming don’t tax any business income.Ī first-time business owner will often choose one of these three states when forming their LLC. Delaware doesn’t tax out-of-state income. Three states – Delaware, Nevada, and Wyoming – have state laws that are especially favorable to businesses.

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