Incorporation and Tax Havens For Online Business

Even if your website or online business does not work out of a corporation or LLC, you have probably given some thought if there was any liability or tax benefit from incorporating. Online businesses have differences than can lead to advantages over businesses without a web presence. do you need an LLC for an online business

One great reason for incorporating is because of the legal separation it creates between you and your web business. Online business fudges the borders of traditional jurisdictions because the web business may be incorporated in one state, have its owners in another, while the web hosting company and server may be in completely different countries from the customer. Your business becomes its own legal entity that pays taxes and has the option of being incorporated in whatever country you decide. Therefore, there is no reason to limit yourself by incorporating in your home state. While businesses can be domiciled in whatever state they choose, they still have to register and pay taxes in each state in which they transact web business. While each state has different definitions, for the most part, if you have employees or office space in a particular state, you are conducting business there.

In a pure online business, your company may only exist in a virtual world. If you do not have office space and contract out services like programming, server administrators and web development, you are a perfect candidate for saving money in a tax haven. Contracting out hosting and web marketing saves money because the corporation is never legally domiciled.

Tax havens allow eCommerce sites to incorporate in states that have pro-business laws – no corporate tax, franchise tax or personal income tax. The two major tax havens in the US are Nevada and Wyoming. Wyoming has lower fees and less stigma which may be appealing to startup eCommerce sites.

For a truly virtual online business, all that is needed is a Nevada or Wyoming corporation. Remember, it cannot be a LLC unless you elect corporate taxation with the IRS. Otherwise, all income passes through your individual tax return in the state in which you reside. This means paying state taxes on the individual level for your we business as if it were income to yourself.

Forming a corporation requires going through red tape in a bureaucracy hundreds of miles away, so most recommend using a professional service. Although startup web developers may be used to going at it alone, specialized national companies with relationships with state agencies can expedite the process. It is important to remember that as soon as you issue yourself payroll, your corporation or LLC will need to register to transact business in your state. Your online business will now have to pay taxes on all income derived in that state. The away around this for online businesses is to take money out of the company in the form of loans and dividends.

Professional incorporation services in these states will help you set up (or you can do it yourself) a qualified registered agent who lives in the state to keep you updated on filings and in good standing with the state. Your must use the address of your registered agent and have a bank account opened in the state to look like you legitimately do business in that state. Think of it as a complete separation of yourself and your web business. Because you operate an online company it is easy, but it needs to appear as your business operates out of the state in which you are domiciled.