If youve done much web research about setting up a limited liability company, or llc, youve seen the advertisements that tout Nevada. The pitch is pretty simple. Because Nevada doesnt levy an income tax on individuals or corporations, you should form your llc in Nevada. The implied promise is that youll save big on state income taxes.
Okay. Dont get me wrong. I like saving income taxes as much as the next tax accountant. But the Nevada llc formation question is trickier than most new entrepreneurs seem to understand.
Unless all of your business activity is in Nevadaand it probably isnt unless youre a Nevada resident operating a business in Nevadayoull need to apportion your business income among the states where you operate.
This apportionment amounts to a three-step process as outlined in the paragraphs that follow. To make the steps concrete, lets assume that your business makes $300,000 a year.
Step #1: Apportion One-third Based on Payroll
One third of your income gets apportioned to the states where you operate based on payroll. In other words, if your business does make $300,000 a year, $100,000 of the profit is apportioned, or...
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