Incorporation in Nevada benefits outweigh disadvantages?

September 1, 2007 10:44 PM

I'm thinking about incorporating in Nevada for a business I will operate in CA for the tax benefits. Do you know of any disadvantages to incorporating in Nevada but working in CA?
posted by KimikoPi to work & money (9 comments total)

According to at least one lawyer the CA FTB aggressively looks for this and charges interest and penalties when they find you.
posted by BrotherCaine at 1:26 AM on September 2, 2007

More info. BTW, IANAL & IANACPA
posted by BrotherCaine at 1:29 AM on September 2, 2007

You aren't falling for one of those "incorporate in Nevada" scams, right? They are very common, well known to be dubious at best, and invite legal trouble down the line.

Besides, taxes exist for a reason. If you do business in my state you should pay taxes in my state. Thanks.
posted by fourcheesemac at 4:35 AM on September 2, 2007

To be a little more direct and clear: If you do business in California, you are subject to paying taxes in California, regardless of where you are incoporated. The only people who benefit from incorporating in Nevada or in any other state that does not tax corporate income are those who operate their businesses in Nevada. If you do your work in California but try to pretend that you are working in Nevada, you may postpone the inevitable but you will most likely be caught, and the fines, criminal penalties, and prison time that will follow will far outweigh the temporary financial benefit.

Incorporating in Nevada will do nothing to affect your liability for Federal taxes.

All of this is stuff that the Nevada corporation promoters do not mention.
posted by yclipse at 5:12 AM on September 2, 2007

A wiki on the topic
posted by disillusioned at 5:39 AM on September 2, 2007

Being incorporated in State A when based in State B (Nevada-California, or anything else, really) doesn't reduce state taxes on State B operations, because State B imposes them anyway, or even reduce legal and administrative costs, because of State B filing and foreign-corporation licensing requirements.

However, there are important non-tax benefits of doing this sometimes -- this is why so many companies are incorporated in Delaware despite being based elsewhere.

Also, being incorporated outside of the United States can have huge tax benefits, because U.S. corporations are taxed by U.S. federal government on their worldwide net income (subject to certain adjustments and credits), while corporations based in Bermuda (or other tax haven), only pay U.S. taxes on their U.S.-derived net income.
posted by MattD at 7:00 AM on September 2, 2007

Whoa, definitely not your lawyer. But if by "tax benefits" you are referring to the fact that Nevada businesses do not have to pay an income tax, the mere fact that you do business in California means that the state will be able to tax you. In this sense, where you do business is more important than where you incorporate your business.

But calling this a scam and suggesting this would cause legal trouble I think is a highly, highly dubious claim. More at Should California Businesses Incorporate in Nevada?
posted by phaedon at 7:25 AM on September 2, 2007

This is not a scam. I've got two nevada corporations. If you operate a storefront/bricks-n-mortar business, incorporate in your state, or at least make sure you're paying appropriate taxes. If you're a virtual corporation, incorporate in the state that makes sense for you.

I've worked in accounting departments for small and large organizations, some incorporated in Delaware, some Nevada. There are different reasons for incorporating in different states. Taxation is not necessarily one of them.
posted by kat at 7:55 AM on September 2, 2007

kat, when you say "this" is not a scam, do you mean all Nevada incorporations? Because there most definitely *are* highly dubious ("scam") operators who pitch Nevada incorporation at ridiculous prices to naive newbies starting a business and thinking this can get them out of state taxes where they are. It's a notorious business. I am sure there are plenty of legitimately incorporated-in-Nevada businesses, but the question sure makes it sound like the scam version.
posted by fourcheesemac at 6:33 PM on September 2, 2007