Better to Incorporate in Delaware or NY?

———- Forwarded message ———-
From: Jonathan Vanasco
Date: 2009/5/1

It’s a little more complex than what people have stated so far…

People incorporate in DE , and now NV, because those states have decided to really focus on creating and managing laws to handle business disputes and transactions with clarity and efficiency.  The state governments basically said “Let’s make it REALLY attractive for people to ‘base’ their businesses here”.  So that’s why people incorporate there… for a very small yearly fee — based either on shares or profits — you get to take advantage of their legal system.

Whether you are incorporated in DE or NY, you will still pay taxes in NY if it is your place of business.

S-Corp isn’t a different type of corporation — it’s a C-Corp that files a form with the IRS before the tax year.
       The benefit  (short list)– profit/loss passes to owners
       The drawback (short list) — must be 100% owned by US Citizens

You always form a C corp, then elect / don’t elect S status.

Turning from a C into an S, or vice-versa , is not a long legal process.  It is a single form filed with the IRS.  Lawyers and Incorporation agents like to make this sound really complex, so they can bill a lot.  It is dead simple.

Now…

NY State will recognize a Federally recognized S-Corp if you ask it to , by filing a form upon incorporation or the start of a tax year.
NY City WILL NOT recognize a Federal/State S-Corp.

If your office / on-site clients will be in NYC, it might make sense to form an LLC.  An LLC will cost more to incorporate — NY State has this kickback law to some publishing lobbyists, and makes you run a $2,000 ‘Notice of Publication’ — however the LLC tax rate is something like 18% NY City & State combined…  vs ~ 35% and 45% for an S corp based in outside or within NY City respectively. Note that is just for the business entity level… not for profits or salaries distributed.  There’s also some extra S-Corp fuckery in NYC taxation law that puts a greater tax liability on the individual level.

So my personal advice is this…
       your best bet is sitting down with an accountant who has handled your exact type of business before, and have them suggest the best way to minimize your tax liability based on expected revenue.

In terms of states:
       If you’re doing a Corp, you’re usually better of in Delaware.  It’s cheaper , easier , and has a lot of advantages.
       If you’re doing an LLC, you’re often better off in NYS.

And…
       If you can base the business outside of NYC, do it!  For S-Corps, it’s a 10% + difference immediately.

// Jonathan Vanasco
w. http://findmeon.com/user/jvanasco
blog. http://destructuring.net


plus a great little slide show about why and when you should incorporate:
Why Incorporate

View more documents from Roman Fichman.
– Randall Noval
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s