Lower Your Taxes With A Wyoming Company
By: Drake Forester | Last Updated July 30, 2021
Wyoming has no corporate or personal income tax. There is no tax return to file with the state. This does NOT mean if you form a Wyoming LLC or a Wyoming corporation that all your profits will instantly be tax free. Although it will be tax free in Wyoming, you should understand that just forming a Wyoming company does not magically get you out of taxes in your home state where you reside.
HOW TO LOWER YOUR BUSINESS TAXES IN YOUR STATE:
If you have a business in a state with income taxes, you may be able to utilize a Wyoming company, just like all the massive fortune 500 companies utilize subsidiaries to minimize their tax liabilities. The concept is extremely simple when you get down to it. Many people form a Closed Wyoming LLC to own intellectual property. This Wyoming LLC is a holding company. It owns your websites, your trademarks, your copyrights, your patents, your bank accounts, your assets, and probably your accounts receivables.
You have your business you’ve always had in your home state, but that business pays a substantial royalty fee to the Wyoming LLC holding company to use the intellectual property it owns. If the Wyoming holding company owns assets like trucks, the home state business pays rent to the Wyoming holding company to use the assets. This lowers your home state business income taxes almost down to zero, and basically controls the profit of the business and pushes it up to your holding company. This is basically 101 accounting for big corporations. You’re doing exactly what every big company in America does.
In this scenario, your home state business lowers it’s income taxes. But now the profits are up in a holding company. What will you do with that profit now? You have a couple options:
Have the holding company be taxed like a C corporation:
In this scenario, the Wyoming LLC holding company, must have filed an election with the IRS to be treated as a C Corporation. A C corporation keeps it’s profits at the company level. A C Corporation will pay the IRS C Corporation (otherwise known as corporate income tax) tax rates. This strategy is only beneficial if your home state charges you a lot of corporate or personal income tax rates.
Have the holding company be disregarded or a S Corporation:
If you live in a state with minimal income tax, it will probably be the simplest to keep the holding company as disregarded or have the LLC elect to be taxed as an S corporation with the IRS and your home state. This keeps the profits flowing through your control and taxed at personal income tax rates. This gives you options to take some of your income and profits through unearned income tax methods, and could lower your personal income tax percentages.
How to lower your business taxes if you operate in multiple states:
If you have a business that operates in many states, you end up owing net income tax to those states you work in. A common strategy that all the huge public companies employ, is to form a holding company in a state like Wyoming where there’s no corporate or personal income tax, and for that company to charge your working company a fee to use it’s good name and intellectual property. This can substantially lower the amount of tax you pay each state.
If you live in a state with a low personal tax rate, this is only minimizing what you pay each state, and the money will ultimately, just come back to them personally through the holding company, and pay your personal tax rates.
If you live in a state with a high personal tax rate, many people elect to have the holding company be a C Corporation with the IRS, so that you only pay the IRS corporate income taxes on the profit of the holding company, and the extra profit does not flow down to you personally in the state where you reside with high income taxes.
How to lower your personal income taxes:
There’s no fantastic way to lower your personal income taxes with the IRS, unless you have tons of income you’re paying on and want to pay hundreds of thousands of dollars to basically start up legitimate businesses offshore, embark in running them, and basically employing the strategy of holding cash offshore for a later day.
You can lower your personal income taxes with the state you reside in, by simply doing what all the massive corporations do. You form a holding company. That holding company might own some investments, some intellectual property, and that holding company is a C Corporation and you’ll pay corporate income tax to the IRS, but the profits can be held in the holding company. ANY LLC CAN ELECT TO BE TAXED AS A C CORPORATION. There is no need to actually form a “corporation” to be taxed like a “c corporation”.
Some pitfalls to keep in mind:
- If you want personal money out of a c corporation, you will get taxed twice. You’ll distribute money to you personally after you already paid corporate tax rates on it.
- If you need to become an employee of the c corporation, you’ll end up registering it in your home state.
- You’ll spend an extra $500-5,000 in CPA fees depending on how complex you make everything.
There are lots of advantages beyond taxes as well. We recommend you learn about asset protection and how a Wyoming holding company can help with your needs besides taxes.
YOU MUST TAKE THIS TO A LOCAL CPA AND LAWYER:
Lawyers and CPA’s typically aren’t the most creative people. They have spent years digging into finite details and formalities. It’s very very important that you print out this page, and take it to your CPA and your lawyer. Minimizing taxes is not something you just wing it on.
The point of this page is to give you and your LOCAL attorney and CPA something to work off of. We are presenting a concept that may or may not work for you locally. Your local CPA can punch in your numbers of your actual business and see if this will pencil out to be worth it. Your local lawyer will understand your local laws and if this makes sense locally.
You should NEVER just take some random website as fact. These concepts are only situations that work for some people.
What it would take to start and maintain a Wyoming Holding Company:
Each year, you’ll owe $50 to the State of Wyoming to keep your Wyoming company in good standing and $125 a year to us as your Wyoming Registered Agent. We also include free Wyoming mail forwarding with our registered agent services so you can get some mail delivered to our office in Wyoming and we scan it to you.
So your initial costs:
- $1000 or so to talk to your CPA
- $1000 or so to talk to your local lawyer
- $327 to have us form the Wyoming LLC for you
- Get a quote from your CPA and Lawyer
- $50 to the State of Wyoming
- $125 to us to maintain the LLC