When you are starting a business, you have to make every dollar count. You may have no idea how much revenue you will bring in at first – and you know you are going to have to work out some kinks before your business becomes more stable. So, it makes sense to try to find the lowest cost state to form your LLC. Of course, there are multiple ways to measure “lowest cost” when it comes to forming a business. Are we talking about which state has the lowest LLC formation fees, or are we talking about which state is the most affordable to do business in?
There are many states that try to make doing business affordable, from Texas to Florida and throughout the country. But there are some that try to go the extra mile, either by making taxes extremely low, licenses and filing fees low, or both. Since you may have your own idea of what “affordable” means, we will examine this question from two angles. First, we can look at which three states are best for overall affordability for business, then we will take a quick look at which three states have the lowest LLC formation fees.
3 Most Affordable States to Form an LLC
The state of Wyoming does a lot to make starting a business as easy and attractive as possible. For one thing, it has a 0 percent corporate tax rate and a 0 percent individual income tax rate. That’s right, you don’t have to worry about paying either corporate state tax or individual state income tax. You will still be hit with federal taxes, but Wyoming is easy on businesses as far as taxes go. The effective property tax rate is also extremely low – at .61 percent. When you consider that the average property tax rate in the country is 1.19 percent, the affordability of the Wyoming tax system is readily apparent.
The sales tax rate in Wyoming is also quite low at 4 percent. That means your customers will not be as likely to experience sticker shock when they buy products from you since the sales tax they see will not be too high.
Nevada is another one of the most popular states to form an LLC because it offers multiple tax advantages to businesses that make the state home. Just like Wyoming, Nevada has a 0 percent corporate tax rate and a 0 percent individual income tax rate. Your business won’t have to pay corporate state taxes and you won’t have to pay state income taxes. Again, you will still face federal taxes, but every little bit helps. The effective property tax rate in Nevada is also extremely low at .77 percent.
The sales tax rate in Nevada is higher than Wyoming at 6.85 percent.
3. South Dakota
South Dakota also strives to set itself apart as a business haven by making its taxes quite low. You will find a 0 percent corporate tax rate and a 0 percent individual income tax rate in the state and an effective property tax rate of 1.32 percent. So, it can be more expensive to own property – like your brick and mortar store – in South Dakota than Wyoming or Nevada – but if you don’t own property in the state then the property taxes are less of a concern for your business.
The sales tax rate in South Dakota is 4.50 percent.
Cheapest LLC Formation Fees
If you are just looking for states with the lowest fees for forming an LLC, you should consider the following locations:
- Arizona. You only have to pay $50 to file your LLC formation documents in Arizona. Even better, there is no annual fee and no report due each year.
- Missouri. The fee for filing in Missouri is higher than some other states at $105, but you don’t have to pay an annual fee each year nor do you have to file a report. That makes Missouri quite low to form an LLC in over the long-term.
- New Mexico. The fee for filing an LLC in New Mexico is only $50 and there is no annual fee and no report due. That makes New Mexico just as affordable as Arizona.
- Kentucky. The state of Kentucky has the lowest filing fee of any state in the country. They only charge $40 for you to file. However, they do expect you to pay $15 every year to keep your LLC official with the state.
Where Should You File Your LLC?
When you start looking more closely at your options for forming an LLC, you realize that there are plenty of different states that offer attractive deals. Some are extremely affordable to do business in and others make it very cheap to file your LLC. So, what should your main priority be?
The answer is, “It depends.” Deciding where to form your LLC is a personal decision that needs to be made based on what is most important to you. For absolute convenience, there is probably nothing better than forming your LLC in your home state. That’s because it is often simpler to handle paperwork and deal with government entities when you can go down the street to do so. But if you want to save money on filing fees or gain tax advantages, you may want to consider forming an LLC in a state that offers you the most of what you want for your business.