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Why is it called a foreign entity when you’re in the US?
When you filed your initial incorporation paperwork (corporations) or your initial articles of organization (LLCs) in your home state, you would call that your state of domestication. You’d call your company a domestic corporation or a domestic LLC. Almost always, it’s more cost effective to base your company out of your home state that you actually live in.
Some people base their company, on paper, out of a different state like Delaware, Wyoming, or Nevada, for various reasons, myths, urban legends, or discussions they had with a friend that thought that’s how it should be done. It’s a common mistake for people to undergo this process and then want to open up a store or business office in their home state that they actually live in, and then they have a “foreign” corporation or LLC in their own state of residence. If you’re only operating in one state, this practice will almost always be unnecessary.
Why? Let me explain.
Let’s say you hear that it’s good to incorporate in Nevada because there’s no business income tax. Ok sure, there’s no business income tax in Nevada, but if you live in Colorado and are a Colorado resident, you will then file your income you make off the Nevada Company in Colorado anyway. Now you have your annual Nevada fees, your annual Colorado fees, and Colorado income tax anyway. Maybe you could make it a C corp, and keep the company profit in Nevada. Well, if you’re actually operating out of Colorado, and then pay yourself a W2 wage, you will have to register your Nevada Company as a foreign corporation or LLC in Colorado. Guess what? The fees you’ll pay to register a “foreign” corporation or LLC are higher than if you just made a domestic entity in Colorado. Let’s take it one step further. You will still have to pay Colorado the 4.63% corporate income tax. If you make it an S corp, you will then pay the Colorado personal income tax just the same as if you made your entity a Colorado-only company. You’ll pay 4.63% of your federal taxable income. How about an LLC? Well, you’ll still take the income at the end of the year on your personal income, and you’ll still pay Colorado personal income tax. This is the same whether you live in Vermont, Connecticut, Georgia, or any state.
Is this strategy helpful to some people? Yes. Definitely. Let’s say you operate in 30 states. The state you “domicile” your company in, is where you will pay tax for the entire revenue you make from the company. If you use a state like Wyoming or Nevada, where there’s no corporate or personal income tax, you then register your business as a foreign business in all the other states, and you only pay each state the tax due on what you make in that particular state. An Alaska company, as an S corp, is also another tax-free entity because Alaska has no personal income tax.
So…What does this mean?
Let’s say you’re in Texas, where you have a 1% franchise tax on your gross revenue. If you domicile your company in Texas, you will always pay Texas the taxes for your gross revenue, even if you do work in states outside of Texas. If you domicile your company in Wyoming, you’ll pay Texas the tax for what you do in Texas, Oklahoma for Oklahoma, Colorado for Colorado, etc., etc. If you make your entity an LLC or an S Corp, you then really benefit from Texas having no personal income tax. If you are only going to operate in Texas, this would be a big waste of your time and money. In the long run, it would cost you more, because you would then have to register your Wyoming Company as a foreign business in Texas, which costs $750 instead of $350 for a domestic company. It only helps if you do business in multiple states. Ultimately, if you take the income on a personal level from the company, you will have to pay your taxes on the personal level to whatever state your personal residency is in.
I Just Want to Register In Another State. Now What?
This is where you become a foreign corporation or a foreign LLC. We do foreign business qualification for people every day. We will take your home state company and register it to legally do business in the other state you want to work in. We register it with the Secretary of State or Corporation Commission. We act as your registered agent in that state, since you probably don’t have the physical location required to be your own agent. Every state requires you to maintain a registered agent and registered office in that state. To be a registered agent, you need to have a sound physical location, and be available all day long, so that someone could walk into your office and hand a document to you in person. The difference in hiring us to do your filing, is that we act as your agent. We don’t take your money and then go hire someone else.
You then will need to decide if you need a license for your field of work. You can look at our state resources page where we have a link to each different state licensing board.
Most states will require you to register your business with the Secretary of State or Corporation Commission before they will issue you the proper license.
Guess what? The Department of Revenue will want their taxes. Most states will tax you on the portion of income you make in their state.
How do they do this?
C Corporation: You’ll pay the corporation income tax. This varies by each state. Some states also have a minimum tax if you’re a C corp, regardless of your income.
S Corporation: You’ll pay personal income tax at the personal level. When you make your personal tax return at the end of the year, you’ll allocate a portion of your dividends, distributions, or wages to each state. If you make a lot of money, the state may make you pay estimates on your expected profit, in quarterly or even monthly reports.
LLC: You can classify your LLC as either of the two classifications above (C corp or S corp) with the IRS, or you can pay yourself as a sole proprietor and you’ll pay your personal income tax to your home state, and you’ll pay the personal income tax rate of each different state, for the percent of income done in that state, at their specific rate.
**There are a few states that do not offer you a credit for income or taxes made in another state, and tax you on the whole amount!
Usually your home state will give you a deduction for part of the income done in another state and the taxes you paid the other state.
You can’t classify yourself differently for different states. These are just classifications you make with the IRS. However you pay your taxes in your home state, is how you’ll pay them in all the other states you register to do business in. The method you use to pay your taxes in your home state will be the same classification you made with the IRS.
Depending on which state you wish to register with, we need to get official documentation from your home state of incorporation (Corporation) or organization (LLC) and then take that document to register your business in the new state you need to work in.
If you are registering in Illinois, Alabama, Virginia, or Arizona, you need a certified copy of your Articles of Organization or Articles of Incorporation from your home state. In Arizona and Illinois, you not only need a certified copy, but also a Certificate of Good Standing.
All other states require certificates of good standing, a certificate of status, or a certificate of existence. These are all the same item. They are just worded differently in different states. You can look at all the various state links above to see more info on the required dates or type of these documents.
If you don’t want to worry about the hassle of registering your business in other states, we do this service for you for $100 plus state fees. We’ll have your company registered and qualified in the quickest, most efficient manner.
Top 7 Reasons Our Customers Love Our Foreign Qualification Service
We begin filing foreign qualifications immediately after you place your order. If you select the state’s expedited filing option, we don’t tack on extra fees. We know how to get documents from your home state fast. We don’t offer in-house fast tracking. We’re just always fast.
We don’t add fees on top of the state filing fees. We don’t charge extra to get your Certificate of Good Standing. You pay the state what you would if you did the filing yourself. Our price is a $100 filing service fee and a $125 registered agent fee. That’s it. No hidden fees. No gimmicks.
We work with each state agency on a daily basis and know how to obtain documents and complete filings fast. In California, for example, if you want a Certificate of Good Standing, you’ll probably have to wait 4 weeks to get it, but we know how to get the same document in 3 to 4 days. And this isn’t a service we charge extra for, it’s just what we do.
Additional Services Included!
When we register your corporation or LLC in a new state, you’ll also receive:
- Certificate of Good Standing Service (we’ll fetch your documents from your home state for you for no additional charge.)
- 1 Year of Registered Agent Service (What is a Registered Agent?)
Premium Registered Agent Service!
When you hire us to register your business in a new state, we will be your registered agent, which means we’ll be accepting any lawsuits, official mail, or tax notices on your business’ behalf. We take our responsibility seriously. We don’t farm our clients out to other registered agents like other filing services. We maintain our own offices in all 50 states, and we scan every document we receive on your behalf from those locations.
We make sure each of our clients receive premium registered agent service, which includes:
- Every document we receive for your business is scanned from the local office in the state where you’ve hired us for service.
- Your own Corporate Guide™. You can call and talk to a real human being whenever you have a question about your business.
- An online account where you can monitor your business.
- Annual report compliance.
- Every document you’ll need to file with the state, pre-populated with our information for easy filing.
Annual report compliance. Your foreign qualification documents will always be online so you can access them. Scans of every item we’ve ever received on behalf of your business. State resources, filing tips, and every form you can file with the state.
Corporate Guide™ Service!
When we register your business in a new state, we’ll be your registered agent.
Standing by, waiting for any question you have, will be one of our Corporate Guides™.
We don’t have automated operators, people reading from scripts, or someone trying to sell you something.
When you call us, you’ll speak with a Corporate Guide who can help you navigate the odd world of state bureaucracy.
When you order foreign qualification service, we will take your company and register it with the Secretary of State or Corporation Commission you desire to work in. If you already have a current certificate of good standing we will do this service for $100 plus state filing fees. If you don’t already have this document, we will get it from your home state for you, get you a copy of it for your records, and then take that document and file your application for authority to transact business in the new state you desire to expand to.
Price will consist of:
- $100 filing fee — One-time charge
- $125 Registered Agent fee — Annual fee
- State filing fee — State’s one time charge