In today’s rapidly changing job market, more and more people are deciding to work as freelancers. Like any other workers in the US, they have to balance a bevy of business concerns to reap the rewards of their careers. Besides focusing on work and searching for clients, freelancers may also want to consider living in the friendliest states for freelance work.
Picking the best state for business in the USA can be quite tricky because each state has its own laws and regulations. Naturally, you want to work in a state with the lowest cost so you can better grow your company over time. However, many more important factors come into play when deciding on the right state.
To narrow down your choice, we’ll compare two of the most favorable states for freelancers in the US, Delaware and Wyoming. We’ll also cover the main details to take into account when setting up your organization.
How Should I Choose the Best State to Do Business in the USA?
Before deciding on a state, consider the following issues associated with setting up a business:
When forming an LLC or corporation, you’ll be responsible for a one-off fee to the Secretary of State’s office in your state. Residents of Arkansas, Hawaii, Colorado, Oklahoma, Mississippi, and Iowa enjoy the lowest formation fees, which stand at $50. Conversely, the highest corporate formation fees are Connecticut ($455) and Texas at a slightly cheaper $310.
Given that this is a one-time fee, it may not be a deal-breaker for most.
Annual Filings and Fees
LLCs and corporations in most states are subject to annual fees for maintaining their operations. In addition, they also have to submit annual one-page reports and filing fees to the Department of State. Here’s how much certain states charge for annual filing fees:
· New York - $9
· California - $21
· South Dakota - $50
· Wyoming - $52
· Delaware - $300 for an LLC, $225 for a corporation
· Nevada - $325
The only states that don’t require annual reports are Alabama and Ohio.
Generally, franchise taxes are imposed in lieu of or along with annual report filing fees and income taxes. States levy franchise taxes for incorporating or registering businesses to conduct operations within the borders.
The determination of franchise taxes varies by state. For instance, franchise taxes in California are income-based, with at least $800 per year, even if the company isn’t making money. Conversely, Delaware’s franchise tax depends on the number of shares and the par value, which means that these taxes are irrelevant for smaller companies. Wyoming and Nevada have no franchise taxes.
Corporate Income Taxes
There are six states that don’t have corporate income taxes:
· South Dakota
However, Washington, Texas, and Ohio levy gross receipts taxes based on the company’s gross revenues. Moreover, among the above, South Dakota, Wyoming, and Nevada also don’t have personal income taxes.
The absence of personal income and corporate taxes is an enormous boon for companies based in the abovementioned states. But these benefits don’t apply to businesses present in another state. For instance, if your company is located in and operates from California, there’s no way to avoid paying income tax by incorporating your business in South Dakota. The laws of taxation will apply to you, no matter which state you conduct business in.
Bear in mind that you may not save money by forming your corporation in the most affordable state. For example, if you conduct business in your home state, it doesn’t matter if you incorporate a company in a different state. You’ll still have to register your company to conduct business operations in your home state, which comes with all the attendant taxes and filing fees.
In other words, there’s not a lot to gain from choosing an incorporation state based on taxes or filing fees.
If you’re looking to attract capital, your best bet may be to start your company in Delaware. This is because many investors there are familiar with Delaware’s corporate law.
Court and Legal System
Delaware is home to most Fortune 500 businesses in the USA. The main reason is Delaware’s court system that allows judges to settle business disputes rather than juries. As a result, cases are resolved much faster and companies are not subject to runaway verdicts.
Is Delaware or Wyoming the Best US State to Start a Business?
We’ll now take a closer look at two states conducive to freelancing businesses, Delaware and Wyoming.
Wyoming may be better suited for single-owner corporations due to lower fees and taxes. This is the state where the LLC was first established in the USA, so it’s worked with LLCs for longer than Delaware.
If you own a small business, incorporating your freelance company in Wyoming comes with many advantages. Typically, the state only charges an annual report fee of the greater of $50 or two-tenths of a million of a dollar, depending on your LLC’s assets in Wyoming.
When starting an LLC, you’ll also be charged a small filing fee of $100. Furthermore, there are no franchise or state income taxes and changing a Registered Agent in Wyoming comes free of charge.
Lastly, your LLC might be required to obtain a good standing certificate from the Department of State. You can get the certificate for free in Wyoming.
We’ve already covered some of the reasons why Delaware the best US state for business. Here’s why Delaware works great for freelancing:
A Highly Esteemed and Established Court System
As previously mentioned, Delaware’s court system is incredibly friendly to corporations. The Court of Chancery consists of experts in corporate matters. Hence, if you’re engaged in litigation, your case will be decided by a judge well-versed in complex business issues.
Additionally, most corporate attorneys know Delaware’s business laws out and out. Your business attorney will very likely be familiar and can provide you with outstanding legal advice.
Delaware Offers Flexible Corporation Structuring
Delaware’s corporate statutes are flexible with a corporation’s structure and board members. For instance, the officers, directors, and shareholders don’t have to be Delaware residents. Furthermore, a single person can be the director, officer, and shareholder of your corporation. In some states, you might need at least three people to hold these positions.
Delaware Provides Greater Privacy
The names of directors and officers don’t have to be disclosed in your formation documents. This offers a bit of privacy, if necessary.
Delaware Gives You Some Tax Benefits
Although Nevada and Wyoming are gaining popularity owing to the absence of income and corporate taxes, Delaware also has business-friendly taxation. In particular, Companies started in Delaware that don’t have operations there aren’t subject to corporate income taxes. Plus, Delaware taxes aren’t imposed on shares possessed by people outside of this state.
The State Is Conducive to Investments
Investment banks and venture capital firms generally prefer Delaware’s corporation to businesses in other states. So, if you’re considering going public or attracting VC funding, incorporating your business in Delaware will be a wise decision. You won’t have to convert your business when a venture capitalist or investment banker demands it somewhere down the line.
There Are Many Delaware LLC Advantages You Can Enjoy
Some of the most significant Delaware LLC benefits boil down to the filing fee. More specifically, LLCs in both Delaware and Wyoming must pay a filing fee at formation. However, the fee in Delaware stands at $90, making it slightly lower than Wyoming’s. The state also offers a same-day service for some procedures, which isn’t something you can find in Wyoming.
Finally, Delaware LLCs aren’t obligated to file annual reports.
All things considered, Delaware is the best option to start your freelance business. Even though Wyoming might be a bit more affordable due to not charging certain taxes and fees, Delaware’s business environment is unmatched.
The legal and court system works in your favor and ensures that only highly competent people resolve your litigation. You may also be able to attract more investments in Delaware since venture capitalists and bankers find the state ideal for funding. Lastly, Delaware’s LLCs are entitled to convenient services during their formation, and the state doesn’t jeopardize your privacy.
All in all, there’s no going wrong with forming your freelance company in Delaware. Many renowned companies have already launched their operations in this great state, and there’s no reason you shouldn’t follow suit.