What’s so special about the states of Delaware, Nevada, and Wyoming? If you say one’s a tiny state, one’s a gambling state, and one has Yellowstone National Park you’re correct. But this is business, so more precisely one answer fits them all. They’re popular business “tax havens.” Many LLC and S Corp business owners are drawn to these three states that promise relief from the long arm of Uncle Sam’s tax collection. A large percent of newly formed small businesses have embraced consultanting and the internet for conducting business, but find it hard to be profitable in the initial stages due to high taxes levied against them. Your LLC or S Corp are considered separate legal entities apart from yourself. They have their own tax identification number just like real people with social security numbers. As such they can live wherever they choose, which may or may not be the same state that you live in. This is great news if one of your major business goals is to drastically reduce your state’s tax liabilities.
Currently there are three US states ideally known as Tax Havens that allow you to maximize your tax benefits and drastically reduce the tax liabilities because of their pro-business tax laws. Before making a decision to domicile (register) your business in one of these tax havens, you should first consult a corporate attorney as to whether or not your business is a good candidate for this. If you’ve decide to embrace a Tax Haven for your business then it’s time to choose which location best suits your company.
Before getting started make sure you have a reliable registered agent for that state on hand. It’s important to find a trustworthy and reputable registered agent to keep you posted about that partcular state and its Secretary of State’s required filings. Your registered agent should also allow you to use their address as your business address. Create a checklist of pros and cons regarding a tax haven registration. If you’re a legal resident of such a state, your business location will most likely not be an issue. Here are a few things to consider before domiciling into a tax haven.
Does it benefit your type of business to relocate to a tax haven state.
Do you plan on holding on to the business or selling it once it gets profitable
Do you plan on bringing in investors or seeking startup capital from other investment firms.
Is your current business budget flexible enough to allow such a move (factoring in potential recurring travel expenses and meetings)
Your registered business needs a bank account also located in that state. To maintain the full appearance of legitimacy, DO NOT have your business domiciled in a tax haven state but have it’s related bank account in another state. Lets provide a simple overview of the big three tax haven US states.
The Delaware Tax Haven
You could easily say public corporations get preferrential treatment in Delaware. Many big US corporations are registered there creating the notion it’s the place for business. It’s an ideal state for large corporate registrations but slightly less advantagious for smaller businesses. The single biggest benefit to registering in Delaware is the existence of it’s Chancery Court which no other US state has. The Chancery Court makes very expedited business decisions and rulings. If your business is prone to law suits or other legal issues, the Delaware Chancery Courts resolve those matters very quickly and usually in favor of your business. In other states your business won’t be so lucky, you could be waiting for months and years to be heard and there’s no guarantee the ruling judge will specialize in business matters, whereas in Delaware it’s mandatory all preciding judges be versed in business related legal matters. also a Delaware business registration allows more freedom to conduct business in multiple states without additional fees or penalities.
The Nevada Tax Haven
By any standard, no other place in the world compares or has the reputation for gambling as Navada does. It’s the main reason its most famous city earned the nickname “Sin City.” Nevada is a near perfect Tax Haven state because it’s pro-business in nearly every legal and financial aspect you can think of. You barely have to revisit legal business documents or worry about filing annual reports because those requirements don’t exist. The only fee required up front is an annual fee of $125 per year and an annual business license of $200/year. Once the foundations of registering your LLC or Corporation are laid down, you might never have to visit the state for anything other than business networking or enjoying a round of poker and craps at the casino tables. Better known as “The Silver State” Nevada also has no business franchise fees. The following are additional benefits to registering your business in Nevada .
Business income tax does not exist.
Capital gains tax does not exist.
State corporation tax and inheritance tax don’t exist.
Isn’t that nice? Yes indeed. The architects of the laws governing business in Nevada have a single reason for this unbelievable generousity. The make way more money from combined state gambling revenue that pales any hyperthetical losses for lack of business fees. If your business follows the S Corporation model with shareholders, they remain anonymous under Nevada business laws and can easily elude law suits for this reason.
Additional benefits of a Nevada tax haven:
You and all elected members of your company don’t have to reside in Nevada to do business there.You don’t have to conduct official business meetings there either, it can be anywhere. You can where all hats in the company as CEO, CFO, COO, Vice President, Treasurer, etc. Nevada is one of several states that allow you to be a one man company owning all managerial titles.Your business privacy is almost rock solid too. The state does not require excessive personal or business disclosures giving you peace of mind about privacy concerns. Elected officers, employees, and outside investors can buy stake in a Nevada company using anything of value. Last but not least, Nevada is not legally bound to share your business information with the IRS, this reason alone attract good and bad intentioned business owners alike. Let’s hope your business intentions steer clear tax evasion if you are already liable to the IRS.
The Wyoming Tax Haven
Yellowstone National Park and the Rocky Mountains aren’t the only big things in Wyoming. Wyoming is credited with creating the idea and formation of the first Limited Liability Company. Wyoming is big geographically but small in notariety. This makes it an ideal state for business owners who want to take advantage of it’s ultra business friendly legal structure. Wyoming compares with Nevada as a tax haven without the glitz and glamour of the gambling industry. It too eliminated all franchise and business taxes. Company owners and elected officers also enjoy the anonymous factor similar to Navada LLCs and S Corporations. A very clever idea came out of Wyoming known as the “lifetime proxy” which basically is a business puppet system that allows you to use someone else to permanently represent you, your voting power, and your business interest (percent ownership) in a company. You however dictate how you want that person to vote on all business related issues. Having your own stand-in guy/gal holds an incredible advantage over states which require your presence for official business matters.