In this article, you will be able to analyze the best states in the USA to start a business so that you can determine which one is ideal according to your preferences and needs when creating your business.
You will see what you should consider when selecting the state, comparative tables between states, frequently asked questions, and more.
Let’s get started.
Difference between an LLC and a Corporation.
The first thing you need to know is whether you will start an LLC or a corporation, and to make it easier for you, we will tell you the difference between these two.
An LLC works like this:
Profits are distributed at the end of the year among the members of the LLC.
In this way, the company does not have to pay taxes (such as State Income Tax or Federal Income Tax), but each member pays them as individuals when they receive their share.
That’s why states like Wyoming and Florida are very attractive for LLCs since they do not levy state-level income taxes. The same goes for Wyoming for those who do not reside within the state.
A C Corp works like this:
C Corporations do pay taxes. Both at the corporate level (when the company generates income) and at the personal level (when these incomes are distributed in the form of dividends among shareholders).
For state taxes, the state in which you have registered your corporation will be responsible for collecting them. And for federal taxes, you will have to pay them to the IRS.
As a recommendation for corporations, we would have New Mexico, Florida, Delaware, Wyoming, and Texas, as they are states with low tax rates.
LLCs do not pay corporate-level taxes, but each member must pay taxes at a personal level. In a Corporation, double taxation applies, where both personal and corporate taxes are paid.
What to consider when choosing a state?
1. Business Structure
This is why we have shown the differences between corporations and LLCs. You need to decide on your business structure.
Once you have this clear, you can analyze the other important points based on the needs of that structure.
Choosing the state of registration can help you save on taxes.
If your business will have a physical presence, employees in the state, and physical operations within the country, you should look for states with the lowest tax rates.
But if you live outside the USA, and your business will not conduct physical operations within the country, then you should look for states that do not charge state taxes for non-residents (such as Texas or Florida for LLCs) or have tax exemptions for corporations (like Wyoming and Delaware).
3. Local Laws
If you have a specific state in mind, check if they have local laws that benefit your business activities.
For example, the protection for members and shareholders in Delaware, which has made this state one of the favorites due to having a court dedicated to resolving commercial and corporate issues.
4. Privacy Policies
Check whether the state you have in mind keeps member and manager information private or public.
Also, verify if they have local laws that provide better privacy for company information.
The best states for maintaining privacy (i.e., they are Closed Record) are Nevada, Wyoming, and Delaware.
Is Wyoming, Florida, or Delaware Better?
Each state has different laws and costs. Depending on your needs, you will know which one suits you best.
Take a look at this comparative table that will help you make a decision among the U.S. states to start a business in 2023.
|LLC: State Fee for Formation||$125 USD||$90 USD||$100 USD|
|C Corp: State Formation Fee||$70 USD||$89 USD||$100 USD|
|State Individual Income Tax||Does not exist||Does not exist for non-residents||Does not exist|
|State Corporate Income Tax (C Corps only)||4.5% for annual profits over $50,000td class=”has-text-align-center” data-align=”center”>8.7%||Does not exist|
|Sales Tax||Between 3% and 6%||Does not exist||4%|
|Franchise Tax or Annual Report||Between $138.75 and $150||From $225||From $62|
|Privacy||No anonymity, business records are public||LLCs can be anonymous||LLCs can be anonymous|
So, which US state should I choose to start a business in?
As we’ve been discussing, it depends a lot on your needs and budget.
For example, if you want to keep your LLC anonymous, you now know that Florida is not a good option. If you have physical business activity within the US, you know that in Delaware, you will have to pay state income taxes, but in Florida and Wyoming, you won’t be charged these taxes.
It’s a matter of carefully analyzing the pros and cons of each one so you can make your decision.
And if you didn’t find the table above sufficient, let’s explore two more options.
Nevada and Texas within the top 5 states
If you’re still not convinced by any of the three previous states, let us show you two more of the favorites.
One of the most renowned states for startups due to its tax benefits.
- It does not have state taxes, so you don’t have to pay state taxes (either corporate or personal), and you won’t have to pay franchise taxes.
- They provide you with privacy and anonymity, and you are not required to list your business’s assets at the state level.
Texas offers excellent advantages to entrepreneurs and investors. It also comes with tax benefits like:
- No corporate tax is levied.
- Small businesses are exempt from personal income tax.
Frequently Asked Questions
Where are the most businesses located in the United States?
Delaware is the state with the highest number of registered businesses.
Can I create my business in the US if I’m a foreigner?
Of course, you can. If you want to know how to do it, here’s our article on how to create a business in the United States as a foreigner.
Need help starting your business in the US?
Have you decided on one of the US states to start a business? Then it’s time to take the next step.
At Rex Legal, we want to help you establish your business effectively, securely, and swiftly.
If you need assistance with the step-by-step process, legal paperwork, and other procedures involved in creating your business in the United States, then contact us.