True story: I pay five times my salary in taxes every year as the business owner. For every dollar I take home to feed my family, I have to earn five just for taxes.
Too bad those tax dollars don’t go to feed other families. I’d rather use that money to take care of orphans.
But I digress.
California is much worse for taxes (business and personal) than all other states in the country.
So it is not surprising that I am asked constantly whether a business operating in my home town of San Diego would be better off incorporating in Nevada.
Nevada takes advantage of this and encourages businesses to incorporate in their state.
But for most small businesses, the answer to where they ought to incorporate is the state in which they are doing business. You can’t get away from California taxes by incorporating in Nevada if you are going to do business in California.
You didn’t really think California would let you get away from taxes that easily?
Can I incorporate in Nevada to avoid California taxes?
You can incorporate in Nevada.
But if you plan to do business in California, you cannot avoid paying taxes in California.
No matter where you’ve incorporated, if you’re running a business in California you must pay taxes on any income earned from California sources.
This is the rule for any combination of states that you mention. California, while tax-greedy, isn’t the only state to have these laws.
But sometimes there are good reasons for incorporating in another state.
For example, you may be able to divert some of the income you earn to the more tax-favorable state.
And there may be other taxes, business laws, and regulations that favor incorporating in one state versus another.
The best way to figure out how to structure your business is to have a great CPA and business lawyer help you along the way.
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