Is it really better to incorporate in Nevada?

Question

I hear mixed things about incorporating your business in Nevada instead of your home State. Everything from lower tax burden to reduced oversight.

I've also read things about you not actually saving on taxes because of what your taxed in the state you do business in, or issues with the Secretary of State.

Does anyone have any insight on this?

Tahra Wright · Answer

@Jay Hinrichs as they say an attorney who represents herself has a fool for a client. that's especially the case when the transaction in question is in an area of law in which she does not practice.  However, for corporations (not LLC's) where the business operations are not real estate we always recommend NV even over DE because DE has ridiculously high franchise taxes.  Both states a very favorable to management (directors). I always form my LLCs locally for our real estate investments and my wonderful hubby questioned it, so instead of debating it with him, I just asked a third party...lol...happy home life!

Tahra Wright · Answer

@Charles Miller I asked my attorney this same question.  I'm in NJ and have always formed my LLC's in NJ.  She said for real estate, there is literally NO benefit of having a NV (or any other state) entity.

Any rental income, or income earned upon the sale of a property, is taxed by the state in which the property is located. So you wouldn't avoid paying local state income tax by using a foreign entity. People sometimes talk about the added "anonymity" but if you're not involved in illicit activities, then this shouldn't be a concern?

She also checked with her CPA who said there is literally zero advantage for a NJ resident to have an LLC formed in any state. The only thing they’re accomplishing is potentially having to file a NV tax return in addition to NJ.

Casey Powers · Answer

Most states will require you to file the NV entity as a foreign company doing business in the state where property is located. That negates any tax or “anonymity” benefit. The only benefit that’s left is possibly better liability protections in NV. You would have to weigh whether you think that’s worth paying the extra cost to have an out of state entity in NV. Proper legal advice would be the way to determine that.

Jay Hinrichs · Answer

lots of people use Wyoming these days as well. I see a lot of Wyoming LLCs on huds on props we are buying..

Scott Smith · Answer

All states have their pros/cons. This is a pretty good article that explains 3 of the more popular choices, though it isn't a complete list it does give a sense for the reason people may favor certain states over others.

Bill B. · Answer

Nevada also has established series llc law and no charging orders, I believe a trait shared with Wyoming and hence their popularity as well.

Jay Hinrichs · Answer

I think primarily its the no state income tax and its probably very cheap..  to file and maintain. many high net worth folks have homes there and take residency there.. for enough time to be citizens of that state.. I think Vegas and Reno are getting the spill over effect from CA.. IE no income tax here in NV>.

Tahra Wright · Answer

@Jay Hinrichs interesting. I haven't heard anyone mention Wyoming...will look into it.

Jay Hinrichs · Answer

Tahra it says you are an attorney ??  but your exactly right the tax due is in the state the property is located in.. not incorporation or residency.. although there is something to Delaware statutory trusts.. never looked into them but i think there could be something there.

the only addition I would add is you dont file a tax return in Nevada as there is no state income tax.  Same with WA  FLA  WY come to mind.

Scott Smith · Answer

When is comes down to liability I often break it down into the "four pillars" of protecting your assets. Each state can vary on how LLCs are treated, this article can break down a few states that are known to be good for specific reasons. The first pillar is a good insurance policy as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.

After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The third pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.

It often just comes down to finding an experienced attorney who knows these entities inside-and-out who can explain the pros/cons of them in your situation. Be cautious about advice you get when people don't ask for all the details of your situation. You really want a pro who can help you understand what this stuff looks like specifically for you.

Is it really better to incorporate in Nevada?

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