| Thinking about starting a new venture in California? If | | | | live in the land of Hollywood and the Golden Gate |
| so, you've probably heard the rumors about | | | | Bridge, incorporate in-state. |
| incorporating in Nevada. Someone has surely | | | | Incorporating in Nevada: When This Option is the |
| whispered that you shouldn't incorporate in your own | | | | No-brainer Choice |
| high-tax, commerce-unfriendly state. Instead, so you've | | | | So when does Nevada incorporation or incorporation in |
| heard, smart businesses incorporate in the next-door | | | | some other state make sense? Well, if the firm's |
| low-tax neighbor. | | | | activity occurs and all or many of the shareholders |
| Incorporating in a low-tax state can seem like an | | | | reside in that another state, you may as well form the |
| attractive tax planning opportunity. And sometimes the | | | | entity in that other state. |
| option works. Before you leave for Las Vegas, | | | | Note, though, that if you setup a corporation (or a |
| consider the following scenarios: | | | | limited liability company) in another state but you do |
| Incorporating in California: When In-state Incorporation is | | | | operate (even a little bit) in California, you'll need to |
| the No-brainer Choice | | | | register your corporation or LLC with Secretary of |
| Let's start by talking about when you absolutely have | | | | State in Sacramento. |
| to incorporate in your home state--no matter how | | | | When Choosing the Right State Is Trickier |
| much greener the grass seems to be just next door: If | | | | Choosing the right state in which to incorporate in |
| you operate in and you're a resident of California, | | | | trickier when the entity operates across state lines or |
| forget about the idea of incorporating in Nevada to | | | | some chunk of the operation can be relocated to a |
| save taxes. You won't get this "tax planning" technique | | | | lower-tax state. In the case where a business |
| to work. | | | | operates in one state, for example, but can relocate |
| The problem with the Nevada incorporation option for | | | | (say) the office or warehouse to another lower-tax |
| you is that your out-of-state corporation will still need | | | | state, incorporating in the lower-tax state may make |
| to register with the Franchise Tax Board in | | | | sense. |
| Sacramento. This foreign corporation registration | | | | In this case, incorporating outside of, say, California |
| means you'll still pay all the same taxes and franchise | | | | becomes another step in moving the business or part |
| fees as a regular "in-state" corporation. | | | | of it anyway out of the state. But moving a business |
| Furthermore, the Franchise Tax Board (FTB) will be | | | | or part of it to another low-tax state will "move" part |
| able to tax the corporation on any of its income | | | | of all of the profits to that other state. |
| because the business activity occurs in-state. And the | | | | Note: Corporate profits get allocated to the states in |
| FTB will also be able to tax the shareholder and any | | | | which an entity pays payroll, owns property or makes |
| shareholder-employees on all of the shareholder's | | | | sales. If a corporation has payroll, property or sales in a |
| earned and unearned income because the | | | | state, therefore, the entity will probably pay at least |
| shareholder(s) reside(s) in California. | | | | some income tax to that state. |
| The bottom-line: If you operate in and the owners all | | | | |