Best State To Form An LLC 2024
Sara Parker
Updated July 20,2024
Home >> Best State to Form an LLC 2024
| 1. Need to save time & money? |
| Details about saving time and money. |
| 2. Domestic LLC vs. Foreign LLC |
| Information about Domestic vs. Foreign LLCs. |
| 3. State Fines and Penalties |
| Explanation of state fines and penalties. |
| 4. Taxes Are Paid Where Money Is Made |
| Details about tax payment rules. |
| 5. Nevada |
| Information about forming an LLC in Nevada. |
| 6. Wyoming |
| Information about forming an LLC in Wyoming. |
| 7. Delaware |
| Information about forming an LLC in Delaware. |
| 8. Home State vs. Other States |
| Comparison of forming an LLC in your home state vs. other states. |
| 9. Online Business |
| Considerations for forming an LLC for an online business. |
| 10. Seller’s Permits |
| Information about seller's permits for LLCs. |
| 11. Form an LLC in Your Home State |
| Reasons to form an LLC in your home state. |
| 12. Exceptions |
| General exceptions to consider when forming an LLC. |
| 12.1 California Residents |
| Considerations for California residents. |
| 12.2 Non-U.S. Residents |
| Guidelines for non-U.S. residents forming an LLC. |
| 12.3 Real Estate LLCs |
| Information about forming a real estate LLC. |
| 12.4 Wyoming Holding Company |
| Details about forming a Wyoming holding company. |
| 13. Frequently Asked Questions about Choosing the Best State for an LLC |
| Answers to common questions about the best state for forming an LLC. |
| 14. Real Examples |
| Case studies and real-life examples of LLC formations. |
Summary : For most individuals, it is generally advisable to establish your LLC in your home state. This is because your LLC is considered to be "conducting business" in that state. Even if you create an LLC in a different state, you will likely need to register it as a foreign LLC in your home state. This is true even if you operate your business from home. Setting up an LLC in states like Delaware, Nevada, or Wyoming can often be more complicated and expensive.
There are four exceptions to this recommendation:
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Need to save time & money?
Northwest($39 + state fee)
Learn why Northwest is #1 in Northwest VS Others
Exceptions
There are a few exceptions where forming an LLC outside your home state might be advantageous:
California Residents
If you live in California , you will likely be conducting business there, regardless of where you form your LLC. Therefore, it’s best to form an LLC in California or register your out-of-state LLC as a Foreign LLC.
Non-U.S. Residents
Non-U.S. residents can form LLCs in any state, but if you have a physical presence or employees in the U.S., you should form your LLC in that state. For online businesses with no physical presence in the U.S., any state can be chosen. Consult an accountant familiar with non-resident alien taxation to determine the best state for your specific business needs.
Real Estate LLCs
For real estate investments, form your LLC in the state where the property is located. If you form an LLC in your home state and purchase property in another state, you will need to register as a Foreign LLC in that state, resulting in additional costs and administrative requirements.
Wyoming Holding Company
Real estate investors with multiple properties in various states might consider setting up a holding company in Wyoming, which then owns LLCs in the states where the properties are located. Consult an attorney or accountant for guidance on setting up a holding company.
Frequently Asked Questions about Choosing the Best State for an LLC
No, forming an LLC does not exempt you from corporate income taxes, as LLCs are not subject to corporate income tax in the first place. An LLC is a Limited Liability Company, not a corporation, so it doesn't have corporate income taxes to pay.
Instead, LLCs use "pass-through taxation." This means the responsibility for taxes passes through the LLC to the individual owners, who then report the business's income on their personal tax returns (Form 1040).
Note: The exception is for LLCs that opt to be taxed as a C-Corporation, though this is uncommon.
Montana is often considered the least expensive state to form an LLC. However, it's advisable to form an LLC in Montana only if you live or conduct business there.
Montana offers tax advantages for residents or businesses operating within the state. If you don't live or do business in Montana, you'll need to register your LLC twice: as a domestic LLC in Montana and as a foreign LLC in your home state or where your business operates.
This dual registration results in paying annual fees in both states, possibly needing two registered agents, which quickly increases costs.
If you’re a non-US resident or non-US citizen (and you don’t have US employees or an office, store, or warehouse in the US), you can form your LLC in any state. Popular options are Wyoming and Delaware. However, we personally recommend Ohio because it’s more affordable (there’s no Annual Report) and the paperwork is very simple. We don’t think the “reputation” of Delaware is that important, or worth the extra cost.
Wyoming LLC Non-Resident costs: State fee is $100. Annual Report is $60 per year.
Delaware LLC Non-Resident costs: State fee is $90. Annual Report is $300 per year.
Ohio LLC Non-Resident costs: State fee is $99. There is no Annual Report.
If you have a physical location in the US (like an office, storefront, or warehouse) or you have employees in the US, it’s best to form your LLC in the state where you’re “transacting business”. For most, this is where their physical location is, or where most of their employees are located.
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Real Exmples
Case 1: Currency Trading LLC Formation
Background: Joshua Wilson and four friends, residing in different states (NY, Illinois, California, and Michigan), are involved in currency trading without outside investment or customers.
Situation: They need to form a business entity for their currency trading activities.
Challenge: Deciding which state to form their LLC in, considering they operate across multiple states.
Solution: Sara Parker advised that the state choice would not impact personal taxes, as the LLC would be a pass-through entity. She suggested forming the LLC in Michigan for simplicity and handling foreign qualifications if necessary.
Now: The group likely formed their LLC in Michigan, focusing on their trading activities without worrying too much about compliance details initially.
Case 2: YouTube Channel LLC Formation
Background: A father with a teenage son in Massachusetts who runs a successful YouTube channel generating ad revenue.
Situation: The father wants to set up an LLC for liability protection instead of operating as a sole proprietor.
Challenge: Massachusetts has high costs for LLC formation and maintenance ($500 setup and annual fees). The father is considering forming an LLC in another state to avoid these fees but is unsure if it will require foreign registration in Massachusetts.
Solution: Sara Parker explained that forming an LLC in another state could lead to the need to register as a foreign LLC in Massachusetts, incurring additional costs. The LLC would still be considered “transacting business” in Massachusetts because it operates from home.
Now: The father is considering forming an LLC in a state like Ohio, known for its simplicity and lower costs, while keeping in mind the possibility of needing to register as a foreign LLC in Massachusetts.
Case 3: Convention Organizer LLC Formation
Background: Oscar, a convention organizer, resides and operates from different states, primarily on the West Coast.
Situation: Oscar is considering forming an LLC in New Mexico for his business activities.
Challenge: Understanding the tax implications and whether New Mexico is the best choice for his LLC.
Solution: Sara Parker inquired about Oscar’s primary residence and work location, which would impact the state of formation and tax obligations.
Now: Oscar is evaluating his residency and business operations to determine the most suitable state for his LLC formation, possibly considering other states where he operates.
Case 4: International Business Owner LLC Formation
Background: Elvis Kelechian, residing outside the U.S., wants to form an LLC for his online web hosting business. He previously lived in Arizona.
Situation: Elvis is considering forming a Wyoming LLC due to its favorable regulations.
Challenge: Determining if Wyoming is the best choice and how his ties to Arizona might affect his decision.
Solution: Sara Parker confirmed that Wyoming is a good option, even with Elvis’s Arizona ties, and suggested considering Ohio for its low filing fees and ease of paperwork.
Now: Elvis is exploring Wyoming and Ohio as potential states for his LLC formation.
Case 5: Rebranding Business LLC Formation
Background: Jo lives in both Georgia and Florida and is rebranding a business offering online services.
Situation: Jo is considering forming an LLC in Ohio instead of one of her home states.
Challenge: Understanding if she would need foreign registration in her home states.
Solution: Sara Parker advised that foreign qualifications are not strictly enforced in Georgia and Florida, allowing Jo to form an LLC in Ohio if desired, while remaining mindful of potential future foreign qualification needs.
Now: Jo is likely forming an LLC in Ohio, aware of the possibility of needing foreign registration in Georgia or Florida later.
Case 6: Rental Arbitrage LLC Formation
Background: Tamika, based in Maryland, plans to start a rental arbitrage LLC for short-term and mid-term rentals.
Situation: Tamika is considering forming her LLC in Wyoming due to potential tax savings but is uncertain about the impact of generating income in other states.
Challenge: Determining if she should form the LLC in Maryland or one of the states where she plans to generate income.
Solution: Sara Parker clarified that LLCs are pass-through entities, and Tamika would pay taxes on her 1040 tax return. She would need to file state returns and apportion income appropriately if generating income in multiple states.
Now: Tamika is likely forming the LLC in Maryland, focusing on proper tax filings for her rental activities.
Case 7: Nomadic Business Owner LLC Formation
Background: Kevin, a mountain guide, has legal residence in Florida but operates nomadically, mainly in Utah and the Western U.S.
Situation: Kevin is considering forming an LLC in Florida versus where he does most of his business.
Challenge: Forming an LLC without a permanent physical address in the state.
Solution: Sara Parker suggested forming an LLC in Florida due to the stability of his Florida address and using a Registered Agent Service if needed.
Now: Kevin is likely forming an LLC in Florida, using a Registered Agent Service to handle state requirements.
Case 8: Anonymous LLC Formation
Background: Phil, based in Illinois, wants to create an anonymous LLC for his online retail business.
Situation: Phil is considering forming a New Mexico LLC for anonymity but needs to register it as a foreign LLC in Illinois.
Challenge: Ensuring owner anonymity while complying with Illinois requirements for foreign LLCs.
Solution: Sara Parker explained that Illinois requires Managers or Members to be listed, potentially exposing ownership. Phil could hire someone as the LLC Manager to maintain anonymity.
Now: Phil is considering forming a New Mexico LLC and hiring a Manager to keep ownership anonymous while registering as a foreign LLC in Illinois.
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