Will an LLC save money on corporate income taxes?
No, forming an LLC won’t prevent you from having to pay corporate income taxes. This is because LLCs don’t have corporate income taxes at all.
Said another way, the term “LLC” stands for Limited Liability Company, not Limited Liability Corporation. So LLCs don’t have corporate income taxes to pay, because LLCs aren’t Corporations.
Instead, LLCs have what’s called “pass-through taxation”.
Pass-through taxation means that the tax-paying responsibility passes through the business structure (the LLC) to the business owner(s). The business owner(s) then pay taxes on any business income generated by the LLC on their individual income taxes (Form 1040).
Note: The only exception is for LLC owners who choose to have their LLC taxed as a C-Corporation. However, this is rare.
Which state is the cheapest to open an LLC?
The cheapest state to open an LLC is Montana.
That said, you should only open an LLC in Montana if you live in that state, or do business there.
While Montana may seem like a business friendly state due to their tax laws, those tax advantages only apply if you live there or do business there. Otherwise, you’ll have to register your LLC twice: once as a domestic LLC in Montana, and again as a foreign LLC where you live/do business.
That means you will also have to pay annual fees in both states. And you may have to pay for 2 Registered Agents.
The costs add up quickly and you end up spending more money on your business instead of saving money.
What’s the best state for a non-resident LLC?
If you’re a non-US resident or non-US citizen (and you don’t have US employees or an office, store, or warehouse in the US), you can form your LLC in any state. Popular options are Wyoming and Delaware. However, we personally recommend Ohio because it’s more affordable (there’s no Annual Report) and the paperwork is very simple. We don’t think the “reputation” of Delaware is that important, or worth the extra cost.
- Wyoming LLC Non-Resident costs: State fee is $100. Annual Report is $60 per year.
- Delaware LLC Non-Resident costs: State fee is $90. Annual Report is $300 per year.
- Ohio LLC Non-Resident costs: State fee is $99. There is no Annual Report.
If you have a physical location in the US (like an office, storefront, or warehouse) or you have employees in the US, it’s best to form your LLC in the state where you’re “transacting business”. For most, this is where there physical location is, or where most of their employees are located.
