Best State to Form an LLC

What’s the Best State to Form Your LLC in?

**Short Answer: It’s best to form your LLC in your home state. If you want to understand why, see the details below.**


Video Transcript:

In this video I’m going to tell you why you shouldn’t form your LLC in any of the hyped up states like Nevada, Wyoming, or Delaware and why it’s best for you to form your LLC in your home state. We hear stuff like this all the time. ‘Nevada has no corporate income tax. Wyoming LLCs are the most affordable. Delaware is the best state to form an LLC in.’ To be completely honest with you, it’s mostly a bunch of BS. The disadvantages of forming an LLC outside of your home state far outweigh the perceived advantages. Let’s first talk about domestic LLCs and foreign LLCs. If you form an LLC in the state where you reside, AKA your home state, this is known as a domestic LLC. If you form an LLC outside of your home state, you’ll be required to register that out of state LLC as a foreign LLC in your home state. For example, if you form an LLC in Nevada, but you don’t live there then you’ll be required to register that Nevada LLC in your home state as a foreign LLC in order to do business in your home state. This means you now have two LLCs. One in Nevada and one in your home state. You have to pay two state filing fees. You’ll be required to pay for a registered agent in order to use their address for your Nevada LLC and you have to pay two annual report fees. We used Nevada as an example, but this same thing applies to any out of state LLC. In short, this can easily add up to double the cost and double the headaches since you now have to maintain two LLCs. We know the reason that most people become interested in Nevada LLCs is because they think they are going to save money on taxes. Many people are misled into forming LLCs in other states to take advantage of tax savings. This is simply not true. In this example, if you’ve formed a Nevada LLC and that LLC is doing business in your home state, not in Nevada, you still need to pay taxes in your home state because that is where you’re making money. A helpful saying to remember is that, ‘Taxes are paid where the money is made.’ Again, your foreign LLC will need to pay taxes in your home state since that’s where you’re operating and doing business. Even worse, you may owe additional taxes and fees in Nevada. Why do so many websites talk about Nevada? It’s a great question. Let’s dive into it a little bit more. Again, most of the benefits of forming an LLC outside of your home state are a far stretch from the truth. Both the states themselves and the companies promoting those states stand to gain financially by LLCs being created within that state’s borders. For example, if 40,000 LLCs are formed each year in Nevada, that’s approximately $3 million in annual revenue for the state. That’s just for the state of Nevada alone. It doesn’t include the tens of millions of dollars made by the companies promoting Nevada as the place to form your LLC. The funny thing is, compared to how much Nevada is hyped up there really aren’t that many LLCs formed there each year. There are far more LLCs formed in the states that aren’t hyped up. Furthermore, Nevada companies rank the highest in fraudulent activity. Look, don’t get us wrong. If you live in Nevada and you’re forming your LLC in Nevada, there is nothing wrong with that. If you don’t live in Nevada, again, it’s much better to form your LLC in your home state. What about Wyoming? Although there’s less fraudulent activity that takes place in Wyoming compared to Nevada, this state is also hyped up. Again, the advantages of forming an LLC outside of your home state far outweigh the perceived advantages and they’re not worth the extra hassle, time, or money. In fact, it will cost you a lot more in the long run. Before we discuss forming an LLC in your home state, let’s talk about Delaware. Although small in geographical sense, Delaware is quite large in terms of business activity. In fact, according to Wikipedia, over 50% of US publicly traded corporations and 60% of the fortune 500 companies are incorporated in Delaware. Did you hear the two words that I emphasized? Corporations and incorporated. You’ll notice that these statistics say nothing about LLCs. The fact is that Delaware is a good state to form a company in if you’re a corporation. Delaware is best suited for publicly traded companies that sell shares on the stock market like Microsoft, Apple, IBM, Chase, Coca Cola, or companies that have multiple investors or need to raise venture capital. Most of our customers don’t fall into that category. If you form an LLC in Delaware, but you don’t live there, you’ll still run into the same situation. You’ll need to register your Delaware LLC as a foreign LLC in your home state, pay annually for a registered agent, and pay the annual reporting fees in both states every year. However, if you do live in Delaware then you should form your LLC in your home state. Takeaways. Again, forming your LLC outside of your home state is just not worth the hassle and costs. This goes for Nevada, Wyoming, Delaware, and any other magical state. Attorneys Alexander Davey and Dana Schultz agree. Most of these states are just hyped up. Form your LLC in your home state. What about internet based and online companies? Even if you have an internet based business, you cannot get around your state’s tax obligations simply by forming your LLC out of state. For example, if you live in Florida and you run your online business from your home or mostly from your home, then you have a Florida business. Your best bet is to form your LLC in Florida. Now, forming your LLC in your home state. This is the least expensive, easiest to set up, and the best long term strategy for your LLC. The reason it is the easiest is because it is the right way to do it. If you have any trouble determining where your home state is, ask yourself the following questions. What state are you a resident of? Where do your employees reside? Where do you pay state taxes? If you own property, where is it located? Where is your office or where do you work from? Where’s the business physically located? Where do the LLC members or owners have a physical address? We hope this information is helpful to you and that it has cleared up a lot of hype and misinformation about which state is best to form your LLC in. Now, there is one exception and that’s real estate LLCs. As we mentioned earlier, when operating a business it’s best to form your LLC in your home state. This is usually not the case for real estate LLCs. Of course, if you’re investing in real estate in the state where you live, then yes it makes sense to form your LLC in your home state. If you’re investing in real estate located in another state, it’s best to form your LLC there. Your LLC is doing business in that state if you’re generating rental income, buying and selling, wholesaling, or basically any method where you’re making money from your real estate investments. If you were to purchase property out of state with an LLC that was formed in your home state, you would run into the same issues that we mentioned earlier. You’ll be required to register the domestic LLC in your home state as a foreign LLC in the state where you are purchasing property. Which means you have to pay filing fees in both states, pay for a registered agent in the foreign state, pay annual fees in both states, and deal with the headaches of unnecessarily managing two LLCs. In summary it’s best to form your LLC in the state where you are buying property. I hope this information is helpful for you. If you have any questions, please contact us.

We see this all over the internet:

“Nevada has no corporate income tax.”

“Wyoming LLCs are the most affordable.”

“Delaware is the best state to form an LLC!”

To be completely honest with you, it’s a bunch of bullshit.

The disadvantages of forming an LLC outside of your home state far outweigh the perceived “advantages”.

Let us explain…

Domestic LLC vs. Foreign LLC

If you form an LLC in the state where you reside (aka your “home state”), this is known as a Domestic LLC.

If you form an LLC outside of your home state, you’ll be required to register that out-of-state LLC as a Foreign LLC in your home state.

For example, if you form an LLC in Nevada (but you don’t live there), then you’ll be required to register that Nevada LLC in your home state (as a Foreign LLC) in order to do business in your home state.

This means:

– you now have 2 LLCs (one in Nevada and one in your home state)

– you have to pay 2 State filing fees

– you will be required to pay for a Registered Agent in order to use their address for your Nevada LLC

– You have to pay 2 Annual Report fees

(Note: we used Nevada above as an example, but the same applies to any out-of-state LLC.)

In short, this can easily add up to DOUBLE the cost and DOUBLE the headaches since you have to maintain 2 LLCs.

Now, we know the reason that most people become interested in Nevada LLCs is because they think they are going to save money on taxes.

Taxes Are Paid Where Money Is Made

Many people are misled into forming LLCs in other States to take advantage of “tax savings”.

This is simply not true.

In this example, if you formed a Nevada LLC and that LLC is doing business in your home state (not in Nevada), you’ll still need to pay taxes in your home state because that is where you are making money.

A helpful saying to remember is:

“Taxes are paid where money is made.”

Again, your Foreign LLC will need to pay taxes in your home state since that is where you are operating and doing business.

Even worse, you may owe additional taxes and fees in Nevada.

So why do so many websites talk about Nevada?

Great question.

Nevada

Again, most of the benefits of forming an LLC outside your “home state” are a far stretch from the truth.

Both the states themselves and the companies promoting those states stand to gain financially by LLCs being created within THAT state’s borders.

For example, if 40,000 LLCs are formed each year in Nevada, that’s approximately $3 million dollars in annual revenue for the state.

And that is just for the state of Nevada alone.

It doesn’t include the tens of millions of dollars made by the companies promoting Nevada as “the” place to form your LLC.

The funny thing is, compared to how much Nevada is “hyped up”, there really aren’t that many LLCs formed there each year.

There are far more LLCs formed states that aren’t “hyped-up”.

Furthermore, Nevada companies rank the highest in fraudulent activity.

Look – don’t get us wrong, if you live in Nevada and you’re forming your LLC in Nevada, there is nothing wrong with that.

But if you don’t live in Nevada, again, it is much better to form your LLC in your home state.

So what about Wyoming?

Wyoming

Although there is far less fraudulent activity in Wyoming compared to Nevada, this state is also hyped up.

Again, the disadvantages of forming an LLC outside of your home state far outweigh the perceived “advantages” and are not worth the extra hassle, time and money.

In fact, it will cost you a lot more in the long run.

Forming your LLC where you reside is your best bet.

Before we discuss forming an LLC in your home state, let’s talk about the first state to ratify the United States Constitution…

Delaware

Although small in a geographical sense, Delaware is quite large in terms of business activity.

In fact, according to Wikipedia, over 50% of U.S. publicly traded corporations and 60% of the Fortune 500 companies are incorporated in Delaware.

But, did you see the two words we underlined above?

Corporations” and “incorporated“.

You’ll notice these statistics say nothing about LLCs.

The fact is that Delaware is a good state to form a company in… if you’re a Corporation.

Delaware is best suited for publicly traded companies that sell shares on the stock market (like Microsoft, Apple, IBM, Chase, Coca-Cola), or companies that have multiple investors or need to raise venture capital.

But, most of our customers do not fall into that category.

If you form an LLC in Delaware (but don’t live there), you will still run into the same situation:

– you’ll need to register your Delaware LLC as a Foreign LLC in your home state
– pay annually for a Registered Agent, and
– pay the Annual Reporting fees in both states every year

However, if you do live in Delaware, then you should form your LLC in your home state.

Home State vs. “Magical States”

Again, forming your LLC outside of your home state is just not worth the hassle and cost.

This goes for Nevada, Wyoming, Delaware, and any other “magical” state.

Attorneys Alexander J. Davie & Dana Shultz agree: most of these states are just hyped up. Form an LLC in your home state.

Internet-Based & Online Companies

Even if you have an internet-based business, you cannot get around your state’s tax obligations simply by forming your LLC out-of-state.

For example, if you live in Florida and run your online business from your home (or mostly from your home), then you have a Florida business and your best bet is to form your LLC in Florida.

LLC in Your Home State

This is the least expensive, easiest to setup and the best long-term strategy for your LLC.

The reason it is the easiest is because it is the right way to do it.

Our friends at Northwest Registered Agent say it best:

“We get a lot of people these days coming up with some pretty goofy ideas. We always try to send them in the right direction before they go off and setup their ‘5 LLC asset protection strategy’ to protect their new Taco stand idea.”

If you have any trouble determining where your home state is, ask yourself the following questions:

– What state are you a resident of?
– Where do your employees reside?
– Where do you pay state taxes?
– If you own property, where is it located?
– Where is your office/where do you work from?
– Where is the business physically located?
– Where do the LLC members/owner have a physical address?

We hope this information is helpful to you.

We hope it cleared up a lot of the hype and misinformation about which state is best to form your LLC in.

Now, there is one exception…

Real Estate LLCs

As we mentioned earlier, when operating a business, it’s best to form your LLC in your home state.

This is usually not the case for real estate LLCs.

Of course, if you are investing in real estate in the state where you live, then – yes, it makes sense to form your LLC in your home state.

But if you are investing in real estate located in another state, it is best to form your LLC there.

Your LLC is doing business in that state if you’re generating rental income, buying and selling, wholesaling, or basically any method where you’re making money from your real estate investments.

If you were to purchase property out of state with an LLC that was formed in your home state, you would run into the same issue that we mentioned earlier.

You will be required to register the Domestic LLC in your home state as a Foreign LLC in the state where you are purchasing the property.

Which means that you now have to pay filing fees in both states, pay for a Registered Agent in the foreign state, pay annual fees in both states, and deal with the headaches of unnecessarily managing 2 LLCs.

In summary, it is best to form your LLC in the state where you are buying property.

References

• Wikipedia• Dana Shultz
• Alexander J. Davie on Nevada
• Alexander J. Davie on Delaware
• Northwest Registered Agent

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Matt Horwitz
Founder & Educator at LLC University
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! We teach LLC formation (for free) in all 50 states. We're here to help, so reach out with any questions!
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47 Comments

  1. Antonio Oliveira Neto December 18, 2016

    Hello, I want to start a LLC in the US just for investment in the Financial Markets. I live overseas and I don’t have a US address. I thought in starting it in a low cost State (NM, OH or SC).

    My question is: Do I have to get a virtual address in that state or not? If so, any suggestion on a low cost alternative? Thanks and Kind Regards.

    reply
    • Matt Horwitz December 18, 2016

      Hey Antonio, non-US citizens and non-US residents have a lot of options when it comes to what state they choose. And apologies for any confusion, since the video and webpage don’t pertain to you. I recommend checking with a tax professional who understands international taxes, as you may (or may not) need to file/pay US taxes, as well as taxes in your own country. I recommending making a few tax phone calls and then selecting the US state with the most favorable tax treatment for how your income is derived. International tax law is quite gray, so I’d talk with at least 5 people to get clarity. In general, non-resident aliens who have capital gains, and have their money held in a USD denomination, in a US brokerage account, will not pay capital gains tax in US. But you likely need to pay capital gains tax in your country. Also, dividends are taxed differently. You likely need to pay a 30% tax on dividends that are paid by US companies. That is just “in general” though. There are many exceptions (ex: dividends paid by non-US companies) to your situation though, so again, best to consult a number of tax professionals knowledgable and experienced in US/international tax law. Hope that helps a bit :)

      reply
    • Matt Horwitz December 18, 2016

      And as far as an address goes, yes, you’ll need a physical/street address on your LLC forms. This is called the Registered Agent in most states. I would avoid the virtual office services, as those are more expensive. I recommend just hiring a Commercial Registered Agent. The company we recommend is just $99 per year: IncFile. Let me know if you need anything else!

      reply
  2. Karen December 28, 2016

    Hey Matt:

    Thank you for your information! I live in New York and I just formed an LLC here. But I just found out that the article publication fee is so high and I can’t afford it, since my company doesn’t make money in this moment. What will be my other options? And will I still pay lots of taxes even if there is no revenue?

    Thanks a lot! Karen

    reply
    • Matt Horwitz January 1, 2017

      Hi Karen! You’re very welcome. You will have to file taxes, but you will likely not owe anything with no revenue. You’ll need to pay for someone to do your taxes, so there might be some small fees there, but it shouldn’t be too bad. There aren’t really any other options, since if you closed this LLC ($60) and formed in another state, that wouldn’t help – it would actually be more expensive. If you form an out-of-state LLC, you’ll still be required to register your out-of-state LLC as a Foreign LLC in NY. Now you’ll have 2 LLCs, additional costs, 2 annual fees, AND you’ll still need to meet the publication requirements in New York. There’s a small catch, which I think will help though… you can fulfill the newspaper publication requirement at a later date (as in, after the deadline). Your LLC will still be valid, but you cannot sue in the NY court system until meeting this requirement, as per state law. In essence, your LLC is “not in good standing” but it will not prevent you from doing business and protecting your personal liability. We haven’t published an article on this yet, but please check out these resources: Ignoring the publication requirement and What if I don’t publish in NY (last section on page).

      reply
  3. cici January 13, 2017

    Hi Matt, thanks for the info.
    How do you form a ” Series LLC ” ?
    Been reading about asset protection -real state- not sure how to go about it. Please advise
    Thanks
    Cici.

    reply
    • Matt Horwitz January 13, 2017

      Hi Cici! We generally don’t recommend Series LLCs, as there is not a lot of case law supporting them, and taxes are quite “gray”. They can be overly complex, especially for businesses with less than $1M in assets, and for small business entrepreneurs. We currently don’t offer information/guides on Series LLCs, but recommend speaking with an attorney for more information. Thanks.

      reply
  4. John January 18, 2017

    Hello Matt. Thank you for all the information you provide. I and a partner are looking at purchasing a small existing company in our home state of CA. We are looking to establish an LLC during due diligence to protect us with the intent to later dissolve it since the business is already a corporation in CA. CA fees are high. If no income is made by the made by the LLC does creating in your home state matter at this point? Looking to not pay high state fees while we do research

    reply
    • Matt Horwitz January 18, 2017

      Hey John, you’re very welcome! Regarding your situation, this is not something I’ve come across, so let me ask, is there a liability risk in the due diligence process? Or do you just need a company name on an LOI or similar document? All LLCs in CA, regardless of activity or income are subject to the FTB’s annual franchise tax ($800 per year).

      reply
  5. Ami February 6, 2017

    Hi Matt,

    We are thinking of starting an LLC, we r 3 or 4 partners, one from Canada and 3 of us reside in NJ, PA, and CA. We r using this for investment purposes only, would it still be better to open in one of our home states or in one of the other ones – ie. Nevada, Delaware. The investments are in CA.

    reply
    • Matt Horwitz February 6, 2017

      Hey Ami, great question. I’m assuming you mean real estate? If that’s the case you’re “doing business” in the state where the property is located, so you’ll want to form your LLC in California. If you were to create the LLC out-of-state, you’d be be required to register as a Foreign LLC in California. Hope that helps! Let me know if you need anything else.

      reply
      • Ami February 6, 2017

        Hi Matt, Sorry I think I miss phrased the question. Its not real estate but the investment company office is in CA.

        reply
        • Matt Horwitz February 6, 2017

          Hey Ami, thanks for clarifying. It sounds like you’ll still be doing buisness in CA, so we would recommend filing there. This article may also be helpful: What defines doing business in California

          reply
  6. Samuel H. Saltzman February 14, 2017

    Hi Matt,

    Thanks for the article. Currently, we have a Delaware registered entity operation out of Arizona. We did this because we are going through a multistage divestment and were advised that Delaware is the most flexible. I am currently forming a related entity that will be responsible for the trading aspects of our business. This entity will not go through divestment. Would it be better to incorporate this in Arizona or Delaware? It consists of four members with equal control.

    reply
    • Matt Horwitz February 17, 2017

      Hi Samuel, apologies for the slow reply. It’s best to form the LLC in the state where you are transaction business, but this could be a bit gray in your setup (as in: what legally defines transaction business in AZ). I recommend getting in touch with a business lawyer to run this question by them. Hope that helps.

      reply
  7. George February 20, 2017

    What if I wanted more specific asset protection? Say for example, I wanted charging order protection for a single member LLC. Is it true that only some states provide this? Would it be beneficial to start a single member LLC out of state if my home state did not provide this protection?

    reply
    • Matt Horwitz February 20, 2017

      Hi George, yes, you are correct. A common setup for charging order protection is setting up an LLC in a state that offers charging order protection (you own that LLC), and that having that LLC own your LLC in your home state.

      reply
  8. goi February 21, 2017

    IF you form an LLC for R/E investing purposes (ie: take title in the LLC name), and then buy property in ‘4’ different states, WHICH state would be best for the ‘owners LLC’…? doesn’t make much sense IF you have to pay ‘4’ other states a ‘foreign LLC’ fee each year… let me know

    reply
    • Matt Horwitz February 21, 2017

      Hey Goi, you’d either form an LLC in each state where you own property, or form 1 LLC in your home state, then do a Foreign LLC registration in each of the other states. I’d check pricing on Foreign LLCs though, as they are usually more expensive. We have some info here on pricing for Foreign LLCs. Another setup in your situation is to form a holding company (say in Wyoming), then have that Wyoming LLC own each of the 4 other LLCs, each which are formed in their respective states.

      reply
  9. Andrew February 22, 2017

    Hi Matt,

    Appreciate the articles – very informative. We have a group with 4-5 partners (located in 3 different states but with equal control), and are looking for the best place to file for a domestic LLC. We will be primarily offering online courses via a membership-based platform and occasionally have live, in-person seminars, though they will never occur with any frequency in a specific state or locale. It seems as though we “could” be classified as doing business in multiple states and needing a few foreign LLC registrations, which could be cost-prohibitive to our startup. Is there a better way to approach this? Or, is an LLC not the best structure for our needs? Thank you!

    reply
    • Matt Horwitz February 22, 2017

      Hey Andrew, thank you! In a cross-state multi-member setup it’s common to the form the LLC in the more affordable state, then if Foreign qualifications are needed, worry about that as you expand and your business grows.

      reply
  10. Lang February 22, 2017

    Hello Matt,
    I have owned 3 different LLCs in 3 different states. We have moved every 5 years, and I have stopped the LLCs in the old states and registered in the new states. I am now without an LLC and want to register a new one. My last state was Arizona and it had no annual filing requirements of fees. I’m now in Maryland and the annual filing is $300. #1) Income will be solely from Android apps from google play store or pay per click ads from google in California either way. Not sure what state the business is transacted in. Do I have to file foreign LLC in all states? #2) I will be moving to Florida or California in 5 years. No employees… just me. Which state do I form LLC in? I realize I have to pay income tax in Maryland, but why should I have to register a foreign LLC in Maryland if I choose to register it in another state?

    reply
    • Matt Horwitz February 22, 2017

      Hey Lang, thanks for question. Your situation certainly doesn’t apply to our simplified article/video lol ;) Since you’ll be working out of MD, as it sounds from your message, you’ll want to form the LLC their. Later, when you move to CA or FL, you can either open a new LLC (and close the old), file a Foreign LLC qualification, or domesticate/re-domicile (if allowed). I know MD is a paid with their $300/year fee, but it’s cheaper than getting caught illegally operating in the state. Although your business is digital, you operate within state borders, therefore, transacting business in Maryland. Hope that helps. Let me know if you need anything else.

      reply
      • kurt April 12, 2017

        I have to say I really disagree. This article makes it sound like it’s always a good idea to be in your home state, but Lang is a perfect example of why that’s not true. No employees & no sales in the state.

        I agree taxes are not a good reason, but state fee’s and ease of filing and maintaining the company vary widely and can make a big difference in ongoing costs. Also registering in a state is not the same as a whole new incorporation.

        If working under a foreign llc applies to your business, and that is the real question as it doesn’t to all businesses as you noted, then this article misinforms people. Maybe the best of intentions, but it doesn’t make clear who this applies to.

        I have had foreign incorporations and lived worked out of NY and NC, in both cased I didn’t need to ‘create a duplicate’ of my incorporation to be compliant with the state.

        reply
        • Matt Horwitz April 13, 2017

          Hey Kurt, I appreciate your comment and insight. You’re right, this article does need to be expanded to cover more scenarios. However, in Lang’s situation, just because he does not have employees and does not need to collect sales tax, does not be mean he isn’t doing business in his home state. And you’re correct, a Foreign LLC registration does not “duplicate” the LLC, it simply gives it authority to transact in a certain state.

          But you mentioned your concern being about fees and annual fees. In that case, registering out of state, and then later needing to register as a Foreign LLC only increases your fees (filing fees, annual fees, and most likely Commercial Registered Agent fees for the out-of-state LLC). Let me know if I misunderstood, or missed something. I’d also advise digging into the “doing business” statutes of your home state to really get a good overview. I hope this reply has been helpful. Thank again for your comment.

          reply
  11. Deana March 5, 2017

    When we were researching the possibility of investing in Tax Liens & Deeds, we were advised to form two LLCs in Wyoming or Nevada even though our home state is Texas. The first LLC will run the business. We were also advised to establish a Qualified Retirement Plan (QRP) & roll our IRA’s & 401k into the QRP. (QRP is similar to a self-directed IRA but we are the plan administrator). Our QRP should be the member/owner of the 2nd LLC. Texas (& possibly AZ) properties and tax liens/deeds will be purchased with the QRP funds by the 2nd LLC & these funds must be returned to QRP upon sale.
    Do you have any advice concerning this plan? Do you still recommend forming both LLCs in our home state?

    reply
    • Matt Horwitz March 5, 2017

      Hi Deana, in this case, if you want the extra asset protection (WY has the advantage over NV), you can form 2 LLCs in WY and then have them own an LLC in Texas. Or form them in WY and Foreign Qualify in Texas. Regarding the setup of the QRP as owner, I’d recommend getting professional help on that one. Seems like there are a lot of nuanced maneuvers that require experience. In short, you’re supposed to either form a domestic LLC in TX (again, can be owned by a WY LLC), or Foreign quality a WY LLC to do business in Texas. Hope that helps.

      reply
  12. Deana March 5, 2017

    Hi Matt, Thank you for your prompt reply. So are you suggesting WY for extra asset protection due to the fact that we may invest in tax liens/deeds? If we are only investing in real estate (not tax liens/deeds) in TX do you recommend forming it in our home state of TX instead of WY?

    reply
    • Matt Horwitz March 6, 2017

      Hey Deana, it’s really hard to say and we can’t advise in “black and white”. In short, whichever you are more comfortable with. If you’re investing in TX, you can either form a Texas LLC (owned by you) or you can form a Wyoming LLC (also owned by you), which then in turn owns your Texas LLC. Hope that helps! If you want to flesh it out with an attorney, check out Avvo Advisor. It’s a great service: https://www.avvo.com/advisor

      reply
  13. Robert March 8, 2017

    Hi Matt,

    My partners and I are buying real estate in TN for investment purposes. We want to form a LLC; is your recommendation that we should form the LLC in TN, because that’s where we will be “doing business”? Or, because it’s passive income, can we form the LLC in another state with lower annual fees (such as Wyoming), and not have to worry about registering as a foreign LLC?

    reply
    • Matt Horwitz March 9, 2017

      Hi Robert, in this setup, you’re doing business in Tennessee, so that’s the state where you should be forming the LLC. With Real Estate LLCs, forming an LLC in the state where the property is located is the route to go. The income being passive does not matter in this case. You’re still doing business in TN. Hope that helps.

      reply
  14. Web Trekker March 22, 2017

    Hi Matt,

    Recently, I have been exploring the possibility of starting a business and veered towards establishing that business as an LLC. The information that you have provided has helped out a lot, thank you so much for getting the information out there, but there are a few other matters that I am unsure about.

    Backstory: I have a YouTube channel that I would like to monetize but won’t do so until I have established a business in connection to the channel. I would like to link affiliate websites that correspond to the topics that I plan to cover in my videos.

    Question 1: If my LLC receives commissions paid from the Corporation that I would be affiliated with is located in another state in the U.S.A., would my LLC owe taxes to that state?

    Question 2: Could my domestic LLC do business with a company located in another state in the U.S.A.?

    Question 3: If I decided to establish my business as a domestic, single-member LLC, how would I find insurance to provide an extra veil of protection for my assets?

    Question 4: If my LLC is established by April 15th 2017, would my LLC be required to file the annual required on May 1st 2017, or would that roll over to May 1st 2018?

    I hope that I didn’t overstep and ask too many questions.

    Kind regards,
    WT

    reply
    • Matt Horwitz March 22, 2017

      Hey WT, thanks for the kind words. I’m glad to hear our information has been helpful.

      1) Most likely no, but please check with your accountant. If you need help finding one, take a look at this article. 2) Yes. 3) You’ll need to shop around and make calls to insurance agents. The search term is “general liability business insurance”. 4) Which state is this for? Having asked that, the answer is most likely no. In most states, the first Annual Report is due in the year following the year of formation. Hope that helps! Let me know if you need anything else.

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  15. denise April 8, 2017

    I want to set up an LLC or LLP with my daughter and her two friends. They are a performing group and I manage them. I live in Ohio and they live in California. Can I set up the LLC in Ohio if there will be a K-1 issued to all four of us individually?

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    • Matt Horwitz April 8, 2017

      Hey Denise, it sounds like you’re doing business in both states actually. In that case, if most of the business is being done from Ohio, you can form an LLC in Ohio, and if later, you need to register in California, you can then register your Ohio LLC as a Foreign LLC in California. We recommend working with an accountant after the LLC is formed (helpful article on that here), but yes, your accountant should issue K-1s to the members, file your Partnership Return (Form 1065), and also help each member file personally for federal, state, and local taxes. Hope that helps!

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  16. Roger April 18, 2017

    Matt — some good advice here, but I’ve got a unique situation not yet completely covered in this blog. I’m looking to open an onshore IRA LLC (probably in WY at this point). Ultimately, that IRA LLC will invest in an offshore IRA LLC (as well as some USA-based passive investments). I currently live and am a non-citizen resident of Peru (SA, not Indiana). When I leave Peru in a couple of years I’ll probably live in the Caribbean somewhere from where I’ll manage the passive investments. Since I’m required by law to declare a state of residency for income tax purposes I chose California since it was where I lived before moving to Peru. But, like others, I have no desire to cough-up $800/yr in franchise fee. I’m probably stuck with being a CA resident until I establish residency in another state even though I don’t own RE or live there. Any thoughts?

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    • Matt Horwitz April 20, 2017

      Hey Roger, although you are not really operating in a particular state, because you have California as your state of residence, one could argue that you are “doing business” there. I recommend running this question by a few California attorneys though as interpreting the CA statutes regarding “doing business” can be gray. I recommend using Avvo: https://www.avvo.com/business-lawyer/ca.html. Additionally, I recommend speaking with your accountant (or a few accountants) regarding changing your residency to a more tax-friendly state. Apologies I could not be more specific here. There is no black and white answer to this one. Feel free to keep me posted. I’d love to hear what you come up with. Hope that helps a bit.

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      • Roger April 22, 2017

        Thanks, Matt. I’m a retired tax accountant and financial consultant but, this is indeed a “gray” area. Changing residencies is not a slam-dunk and generally requires one to actively live in the new state. Many states (particularly CA) take a very dim view of retirees (or any citizen for that matter) just changing addresses to avoid taxes or for other business reasons. I have children that live out-of-state so maybe I should just surrender my CA driver’s license and “move in with them.” I’ll will keep you posted on what the attorneys say.

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        • Matt Horwitz April 22, 2017

          Hey Roger, I completely understand. I think moving in with the kids is a good route to consider. Thanks for the followup!

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          • Roger April 26, 2017

            As recommended, I did talk with a few attorneys. Some were more concerned with my unnecessarily complex proposed structure that might bring unwanted attention from the IRS (Form 5498). As you correctly pointed out in other blogs, filing requirements and the definition of “doing business” does vary from state-to-state and is akin to trying to grab a greased pig. Therefore, it would be very wise to consult with a business formation attorney and particularly one that has experience in e-commerce for internet-based businesses. This is NOT something that you want to do on your own unless you have this background. For CA, they have safe-harbor provision in their business code which provides some, but not complete guidance. A lot seems to be predicated on the extent of “entering into repeated and successive transactions within the state” and/or other “activities common to businesses” to determine whether registration is required. If in doubt, get a legal opinion letter or contact the Secretary of State’s office.

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            • Matt Horwitz April 27, 2017

              Hey Roger, thanks for the update. A lot of tax code is intentionally ambiguous and open-ended (open to interpretation). This helps the state collect more tax revenue. The “greased pig” analogy had be cracking up lol! So true.

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  17. Meg April 20, 2017

    I am planning on investing in RE in Texas and wanted to set up a LLC there since that is where the money will be made. My CPA has recommended that i register that LLC in my home state of CA as well as Foreign LLC.

    Do i really have to register it in CA?

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    • Matt Horwitz April 20, 2017

      Hey Meg, if you’re buying real estate in Texas, then yes, a Texas LLC is the way to go. Whether or not you really need to register your Texas LLC as a Foreign LLC in California is a bit gray. Your accountant is implying that you are doing business in California, and therefore should also register there. I’d also run this question by a few California attorneys because the statutes around “doing business” in California are open to interpretation. Apologies I can’t be more specific, but this one isn’t very black and white. If you make any progress or get any new information, please keep me updated. I’d love to hear what you come up with. Hope that helps. You can find CA attorneys here: https://www.avvo.com/business-lawyer/ca.html

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  18. George Boshae April 24, 2017

    Hi Matt, Thanks for the information. I own several rental properties in Colorado but I reside in Nebraska. I plan to start an LLC in Colorado as you’re video suggests. However, to one property from liability on another property, should I start an LLC for each property. or, Is there a rule of thumb for number of properties or equity value an LLC should be before starting a second LLC ? Also, do you know if I need to register the LLC in Nebraska as a Foreign LLC?

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    • Matt Horwitz April 24, 2017

      Hi George, you’re correct, Colorado is where the LLCs should be formed. You do not need to register your Colorado LLCs as Foreign LLCs in Nebraska, since you working from home on real estate matters is considered “telecommuting”. I just spoke to the Nebraska Secretary of State’s office to confirm this. How many properties per LLC is an interesting question. I’d say in Colorado, since the filing and annual fees are so low, you tend to see 1 or 2 properties per LLC. Of course you can also put 5 properties in one LLC, but then all of your eggs are in one basket, and this isn’t the best setup from an asset protection standpoint. Having said that, you’ll also need to consider internal logistics and organization. Meaning, managing 12 banks accounts for 12 rental properties can be a little tedious. But then again, it’s often done. In summary, the answer is gray re: how many properties per LLC. I recommend going with whatever makes you feel most comfortable when balancing asset protection and internal organization.

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  19. Mike H April 27, 2017

    Matt – thanks for the very informative article.
    I’m looking to set up an LLC to hold title to an agricultural development in Panama. Currently residence is Illinois, but anticipate move to Florida. Establishing a FL LLC seems more appealing, but you suggest I’d have to set up a foreign LLC in IL.

    Since LLC will not be doing business in US, let alone IL, is an Illinois LLC required?

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    • Matt Horwitz April 28, 2017

      Hi Mike, you’re welcome! In this case, you would not be doing business in Illinois, so you won’t need to register as a Foreign LLC there. I also recommend speaking with a few accountants and attorneys (both state-side and in Panama) as you may want to look at the pros and cons of a US LLC vs. a Panamanian LLC. Hope that helps.

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