We get asked all the time where to form an LLC for people. A lot of people here that they can form an LLC outside of their State and avoid the income tax they have in their State.To get the biggest point out there: The IRS is the federal government agency that collects your personal tax. There’s no way to get out of paying the IRS income tax on the LLC profits. You’re only saving the State income tax if you can avoid your home States personal income tax. The only real way to avoid your home States personal income tax is to form your LLC in a State like Wyoming or Nevada that has no corporate income tax, and then pay the IRS CORPORATE income tax on your LLC. Which is at a higher rate than the personal income tax rate the IRS has. Thus pretty much negating the benefits you were trying to accomplish.For 90% of businesses, you’ll be best to actually form the LLC in the State you reside in. Let’s say you form a Wyoming LLC, Delaware LLC, or Nevada LLC. (The famous States for no income tax) you end up making and profiting 50,000 at the end of the year. You’re going to have to report that income on your personal tax return with the IRS and the State you live in. You’ll pay the same amount that you would have paid in income tax if you would have just formed it in your own State.
Once your business gets bigger and you hire employees, you would have to register your Delaware LLC, Nevada LLC, or Wyoming LLC as a foreign LLC in your home State.
Now if you might move some day, establishing your company in a tax free State like Wyoming, Delaware, or Nevada has HUGE benefits. No one would want to buy a company that was formed in North Carolina when they aren’t doing any business there. It would also be pretty annoying to have to deal with North Carolina after moving to Tennessee. This is truly the only REAL reason to form an LLC in a State like Wyoming where there is no department of revenue for income tax. There’s no income tax return, there’s no forms, absolutely nothing. Wyoming also only costs $52.00 a year to keep the company going. (The cheapest of the 3 big incorporation States)