Tax Guru-Ker$tetter Letter

Sunday, March 20, 2005

Subject: Setting up corporation
Which state is most favorable for establishing a corporation? I will be operating out of Virginia.
At current, I operate a small business out of Georgia under Sole-proprietary structure.

That is not something that can answered quickly. There are pros and cons to each state.

Where you actually charter the corporation isn't as important as where your corporation actually conducts business. One of the most common mistakes I see people make is assuming that just by incorporating in a tax free state, they are automatically exempt from state income tax. It becomes a very expensive lesson for those people when they learn that any state in which your corp operates will require that you file corp tax returns and pay its state income and franchise taxes, regardless of where the corp is chartered.

There are ways to source and shift income into tax free states that will depend on what kind of business you will be running. You will need to work with a tax pro who is familiar with state taxes and strategies for shifting and sourcing income into the lowest tax states.

Good luck.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/20/2005 10:09:00 PM Send this post: