best state to file an llc (incorporated, fees, health insurance, attorney)

[grapico]

Thinking of starting an internet based entity and want to do it legit? I hear Delaware is good but nobody in the partnership or what have you will be located there... We have 3 people in Chicago metro and 2 in the SF Bay Area. Some side projects see a growth prospect and need to take some fast steps. Possibly one more but def less than 10 employees.

If somebody has to live in the area, then we'd probably do it in IL for lower tax but outside Cook County.

Quick Advice?

Lower Tax obviously the better as most profits are going to be direct commision based, no need for board members, yada yada and don't really want an s-corp or c-corp

I filed a DBA fictitious name before but not an LLC.

Thanks.

[StealthRabbit]

try a US protectorate, that's where friends I know in e-commerce head.

Are you doing a 'flow-through' or a corporate tax scenario ? LLC can go either way (ASAIK, in my income tax free state), but must be stated first and not ez to change.

[needmoreinfo]

Making an LLC is not especially hard.
I actually have two, and it is easy enough to do your own. Or pay an accountant to do it for $150 or so plus the filing fee.
I am looking at opening one in Wyoming now.
If you are out of state you need a registered agent ($100/year).
Wyoming has no state income tax on corporations. Neither do Delaware or Nevada but they both have higher fees.
There are other benefits to Wyoming as well.
I would go for Wyoming.
I just noticed the comment above about U.S. protectorates. I know nothing about them, they might be better.

Originally Posted by grapico

Thinking of starting an internet based entity and want to do it legit? I hear Delaware is good but nobody in the partnership or what have you will be located there... We have 3 people in Chicago metro and 2 in the SF Bay Area. Some side projects see a growth prospect and need to take some fast steps. Possibly one more but def less than 10 employees.

If somebody has to live in the area, then we'd probably do it in IL for lower tax but outside Cook County.

Quick Advice?

Lower Tax obviously the better as most profits are going to be direct commision based, no need for board members, yada yada and don't really want an s-corp or c-corp

I filed a DBA fictitious name before but not an LLC.

Thanks.

[Naptowner]

Forming a business, or advising someone about the best business entity to form, is the practice of law, and is beyond an accountant's area of expertise. Although many accountants are well-versed in tax law, and can advise you about the best way to pay the least amount of taxes, there is a lot more to consider. Most LLCs elected to be taxed as partnerships or as S Corporations, which are "flow-through" entities that don't pay any taxes themselves, so forming one in a state based on that state's corporate tax rates doesn't make much sense, particularly when you consider that you usually have to pay to be authorized to transact business in a state other than the one in which the entity is formed. Generally, an llc's members that are actively involved in the business must treat all of their share of the llc income as "wages," meaning they must pay self-employment tax on it. If an LLC elects tax treatment as an S-Corp, the members may pay themselves a reasonable salary, and only pay self-employment tax on that salary, which can save the members considerably.

Illinois fees are higher than some states, but if you are transacting business in Illinois you're going to have to pay them regardless of whether you're a domestic (Illinois) llc or foreign (Delaware) llc. And the same goes for taxes. Since you're probably going to set up the business as a pass-through, it doesn't matter where the llc is set up, it's where you live and earn the income that will count.

US protectorates are foreign countries. Even if you set up a business there, to transact business here you likely need a business entity here.

I would consult with an attorney who specializes in business formation to get advice, not depend on random comments on a message board, including mine.

[Gary Siete]

IANAL but AFAIK LLCs do not provide better tax benefits than a DBA or un-incorporated self employment. The benefit of having a LLC is that is a Limited Liability Company that protects your personal assets.

[Naptowner]

I agree the main purpose of an llc is to limit liability. The main tax advantage of an LLC is that you can elect to be treated as an S Corp for tax purposes. This way you can pay yourself a reasonable wage, and only pay self-employment tax on that wage. The rest of the LLC's profits are taxable income to the members, but they don't have to pay self-employment tax on anything but wages. This can save you thousands of dollars a year. If you are a dba or an LLC that's not treated as an S corp you claim all of your share of the LLC's profits as wage income (if you are active in the business, that is) and pay self-employment taxes on all of it. I do not specialize in tax law, but I believe there are also some tax advantages regarding health insurance and retirement savings.

[StoneOne]

I would file it in your own state, unless you live in a place like California that has onerous fees on LLCs. I have an LLC in North Carolina. It was very easy to set up - 3 pages of paperwork, $125 registration fee, and $200 per year tax/fee (deductible as a business expense on Schedule C).