BiggerPockets

It is my understanding that if an LLC is formed in Nevada and I buy property in another state I will have to register as a foreign entity. I believe that in CA this is the same annual fee, 600.00 that is charged to an LLC formed in CA. Wouldn't this get to be a big expense? Also, would you have to have a registered agent in each state? With an LLC do you have to get the checking account in the state where formed and would each foreign entity have to have the checking account in that state?

Nick, a lot of people do that. CA is a high-tax jurisdiction so many small business owners incorporate in Nevada, Wyoming, etc. The problem, as Charlotte noted, is that it is not easy to avoid CA taxes if you are doing business in California.

Charlotte, I am pretty sure you will have to register as a foreign LLC and pay taxes in Californiaa for California source income. If the only asset of your LLC is a California rental property, then there may not be much point in doing this. But if you have rental properties in multiple states, then it might make sense to have them owned by one entity. Perhaps someone like Rich or Jim, who own properties in multiple states, can answer this.

Regarding the bank account, I have always had a Nevada bank account for my Navada corporations (BofA) and never had a problem receiving payments from throughout the country and depositing it into the account. We used to have an office in NYC where we received all checks and we made the deposit locally at the NYC branch of our bank.

Finally, I must mention that saving taxes need not be the only reason for setting up an entity in Nevada. Nevada also offers easier rules regarding management, privacy of information, etc. Nevada courts are also more cautious in piercing the corporate veil, although this benefit might not accrue to you if you get sued in California for liability arising from your CA rental property.

Thanks to everyoine. My LLC is in Nev and so far I have not purchased any property in CA but what if I purchase in OK or TX. Guess I have to register as a foreign entity there and hopefully they are not as expensive as CA. Am currently checking properties also in Nev.

Bill, so would that make it not worth living in and doing business in CA but creating an entity in NV?

Vikram is right.

If you have a business that is online etc and does decent volume, it might make sense to setup out of California. So you'd pay yourself very little and have the C-Corp hold and invest the profits. But when you personally touch those profits you will be paying taxes on them.

LLC is a pass through entity and you'd end up paying CA tax on your profits anyways. All these sites and services (AKA Legal Zoom) that recommend out-of-state incorporation (Deleware and Nevada mostly) are over thinking things for most small businesses (in my opinion). If you're going to be investing on a small scale (under 1-2 million), I would just make a CA entity and pay taxes on it. Once you get big enough for your accountant/laywer to recommend something more creative you can cross that bridge.

And yes, say you have a Deleware Corporation (like I do), that does business in California, you still have to pay $800/year to "do business in California."

Nick,

Both Vikram and Steve are spot on with their answers. I would only say that if your only business at this time is real estate and you live and invest in CA, then establish your entity there as a domestic entity. It will save you a lot of extra paperwork and expense.

regards,

Bill

I was off saying it would cost 600.00. Did not know that the cost had gone up to 800.00 to do business as a corp in CA until I checked today. Poor CA.