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Incorporating an online business

Asked by: Sean Dorman - 26 June, 2012
I want to form an online, web-based business that 
(a) charges $20 to post job listings and 
(b) a customer (i.e. recruiter) could pay $20 a month to have access to our database. 
My questions are these: What is the best state to LLC or Corp in to maximize my tax position and earnings? I have been told DE or NV or WY are good, particularly DE for their court. Also, for filing taxes, since I am selling a web-based service would I be required to file as a foreign corp in each state? Would selling $20 job postings for companies create a "nexus" and force my hand into foreign corp territory?
Answered by: Robert Kowalski - 30 June, 2012
Dear Sean,

Your tax liability would depend greatly on the state that you, as the owner of that company, claim as your domicile, and the type of entity you choose.

If you choose LLC or S-Corp as your business vehicle the company profit (or loss) would pass through to your personal tax return and you will pay the federal and state taxes according to your personal situation. C-Corporations are taxed on corporate level first and then the dividends are paid to the shareholders and taxed at the shareholder level. In that case Wyoming, Nevada and a few of other states would work as they have no state income tax, however keep in mind the federal income tax that does not depend on the state.

As far as nexus goes, selling services or products online does not by itself create nexus in the states where you sell, so in your case no foreign qualification is required in other states. With that being said, you might be in a position to having to foreign qualify in the state where you run your business from, as your physical presence as the manager of the company and possible home office connection might warrant the need to foreign qualify.

I would suggest you to consult a tax specialist, licensed in your state, for all tax related questions, and legal specialis licensed in your state for the question of whether or not your business (if registered in another state like one of the incorporation heavens) is required to foreign qualify in your state.

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