I am a freelance fabricator working mostly in NYC, and I am planning to start renting a small workshop in Brooklyn. I am looking to start an LLC.
Does it make sense to incorporate (LLC) my business in Wyoming to avoid New York income taxes even though I will be filing as a “foreign entity” in NYC? I would still be paying a “franchise tax” under NY regulation.
Since Wyoming has no income tax on LLC’s, I believe I would be saving my small business a good deal of taxation.
Any advice greatly appreciated.
Actually, no state has income tax on LLC, as LLCs are pass-through entities. A few notable exceptions exist, such as New York City tax on unincorporated businesses, however those are unavoidable if your business is physically located in NYC, which I understand is your case. Also, since you file taxes as New York resident, you would be subject to New York taxation regardless of where you have your company registered.
Technically, you could register your LLC in Wyoming and then have a foreign entity in New York (in fact, our company is a WY LLC with foreign entity in NY), however the reason to do so has little to do with taxation and a lot to do with the ease of maintaining all the company formalities, given the flexibility of Wyoming law.
Actually, New York law is not that bad either (I am not a law specialist, but some attorneys we work with gave us tips here and there), but we were debating on whether we will stay in New York or cross the river to Jersey, so having a foreign entity that can easily be closed and register a new one in New Jersey without the hasstle of changing company domicile or dissolving and reopening in new state, was an additonal factor in choosing Wyoming as state of registration. And, of course, the relatively high franchise tax in Delaware (not to mention the prohibitive state and license fees in Nevada), made the choice of Wyoming so much easier.
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