As a business owner, one of the decision you need to make is where to establish your business. Rules — and costs — associated with establishing a business are determined by state law, so it’s important to understand the implications involved.
Here’s how to decide where to establish your business:
Ease of Starting Your Business
In some states, it’s easy to start a business. My first business was started in Utah. The paperwork was minimal, and the cost was pretty small as well. When I moved to Pennsylvania, I began researching what it would take to transfer my business. The paperwork involved was more extensive, but still manageable. In the end, though, I ended up dissolving the business and starting fresh in Idaho.
So far, Idaho’s requirements have been the easiest of the three. I filled out one form and sent in a small fee. There are reporting requirements starting next year, but those aren’t onerous.
Other states are more difficult to deal with. I’ve heard horror stories about starting a business in California or New York. However, if you live in one of those areas, it might make sense to grit your teeth and do what it takes to make it happen. A good accountant or small business attorney can help you navigate the twists and turns to make it work properly.
Cost of Living
Sometimes, deciding where to establish your business is more a matter of basic cost of living. I know a number of entrepreneurs who, like me, have small businesses that have few employees. A few of them have recently to Tennessee to take advantage of the low cost of living and favorable tax situation.
In my case, moving to Idaho has been a great help. Everything costs much less here. My housing is half what I paid in Pennsylvania — for twice the space. My insurance costs are also lower. New Jersey car insurance is quite expensive, and you might pay a higher home insurance rate in a state like Florida. Here in Idaho, I pay a fraction what I paid in Pennsylvania for everything. I can’t even imagine what it would cost to live in California, New York, New Jersey, or Washington, D.C. From food to utilities to insurance, making a choice based on cost of living can help you get your business off the ground.
Another great thing about a place like Idaho is the fact that it’s got more than you might think. While smaller towns and cities are not as exciting as San Francisco or Boston, the reality is that there are plenty of livable places that aren’t major cities. In fact, Boise, the capital of Idaho is considered exceptionally livable and was recently recognized as a great place for millennials.
When you establish a business, you have the option to go almost anywhere you want. The reality is that starting a business comes with a number of costs. If you live in an area with a high cost of living, you’ll have fewer financial resources to put toward your business. If you can manage to choose where to live, it makes sense to go with a lower cost of living.
Taxes
Finally, don’t forget to consider taxes. One of the biggest reasons that my entrepreneur friends choose Tennessee is due to the low taxes. Idaho has a higher personal income tax than Pennsylvania (which surprised me), but the cost of living is so much lower that it makes up for it.
You should consider the taxes involved, based on your business organization. A “pass-through” business comes with a different tax situation than a c-corporation. When you consider where to establish your business, you also need to consider what makes sense in terms of business organization. Make it a point to research how taxation works for your business in the state you choose.
Business Location vs. Where You Live
Finally, it’s possible in some cases to establish your business in a state where you don’t live. This isn’t an option that’s available, and there are complications that come with it, including how you get your mail if your business is located in a different state. I like to have my business in the same state as me, but I’m also registered as a single-member LLC and my income is passed through. Talk to a knowledgeable professional about your options as you decide the best location for your business.
The post How to Decide Where to Establish Your Business appeared first on AllBusiness.com
The post How to Decide Where to Establish Your Business appeared first on AllBusiness.com.
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