Which is the best state to start a business in the US?
One of the biggest doubts of entrepreneurs when starting a company in the US is which state to choose to register their business. Thinking about making this task easier, we brought the main differences between four states that attract the attention of entrepreneurs: Delaware, Florida, New Mexico and Texas.
Choose a state to start a business in the US
The process of opening a company in the US requires the entrepreneur to choose one of the states in the country to register the business. This step raises many doubts, after all, laws and taxes vary from one state to another and according to the type of company chosen: LLC or CORP.
There are both federal and state taxes and in this blog post we are going to cover the states of Delaware, Florida, New Mexico and Texas. To learn more about federal requirements, access this content.
Also, it is worth remembering that there are several taxes in the United States and that, in this content, we will address the State Income Tax, the country’s federal income tax, in addition to the Franchise Tax, which is the company’s annual renewal cost.
Before understanding how these taxes work, it is necessary to understand the differences between the types of companies (LLC and CORP) and what the laws are for each of them
LLC and CORP: What’s the difference between them?
LLC, Limited Liability Company, has some important information about profits. All profits are distributed at the end of the year among the partners and, for this reason, there is no requirement to pay state income tax as a company (State Income Tax), but as an individual. Taxes will be paid by members after distribution.
If your choice is an LLC, it is worth considering the states that do not charge the State Income Tax – state tax – from individuals. That way, you don’t have to pay this fee.
However, if your company is a CORP, you will need to pay the State Income Tax and the percentage varies depending on the state you choose. This is a modality that brings advantages, for example, for companies that intend to be traded on the stock exchange.
The downside, however, is double taxation, as partners pay taxes at the corporate level and then when profits are distributed to shareholders. In this case, as an individual.
After all, choose between Delaware, Florida, Texas or New Mexico?
To make this decision, which state to start your business in the US, you need to make an assessment based on your preferences and particularities of the company. For example, Florida is a state chosen by many Latinos, because in addition to not requiring the payment of the State Income Tax for individuals, it is a friendly state.
On the other hand, if your company is a CORP and earns more than US$50,000 per year, you will need to pay the State Income Tax for corporations at a rate of 4.5%.
Texas, in this case, may have advantages, since it does not apply this tax to companies registered in the state. For this reason, several entrepreneurs in California have chosen to transfer the registration of companies there.
Delaware, on the other hand, does not charge the State Income Tax as long as the company does not operate in the state. In addition, it is a region that offers advantages for entrepreneurs, such as, for example, the Delaware Corporation Law and the Supreme Court with the Court of Chancery, which is responsible for litigating possible company lawsuits.
Also, New Mexico, as its name suggests, is very sought after by the Hispanic Latino community, due to the cultural issues of the state. In addition, the State Income Tax rate starts at 1.70%, which is favorable for business owners, and there is no Franchise Tax for LLC.
Want to find out more?
To clear up your doubts and understand the best state for your LLC or CORP, you can schedule a free chat with one of our experts. Access here!