Nevada Corporate Services

Why are people pushing business owners to incorporate in Nevada even if they do not operate in Nevada?

An inquirer writes:

I have a question about formation on corporations in Nevada. I am incorporating my wife's daycare & tutoring business and we live in Arizona. I've been told (and have read) that people incorporate in Nevada due to the following reasons:

 ·    It is difficult to pierce the corporate veil

·    Privacy (no reciprocity with IRS)

·    No state income taxes

After much research, reading, etc… I have found the following:

 ·    Privacy is lost when you incorporate in NV but register within your home state as a foreign corporation (Arizona).

·    State income taxes must be paid to the state of operations (Arizona @ a rate 7.89%)

·    The corporate veil is not likely to be challenged in a business that has very low capitalization (is not worth much, i.e., nothing to liquidate) or in a business where the owner is the major source of income. This means there is no motivation to take over the business stock.

My question is this: 

Knowing all of this, why are people pushing business owners to incorporate in Nevada unless they operate in Nevada? It seems that the only ‘real benefit' is the corporate veil protection. The incorporation services always make it appear that if you incorporate in Nevada, you won't be subject to state income taxes. This is false however, since you ARE subject to the state income taxes in which you are operating! Am I missing something here?? Why should I incorporate in Nevada and go through all the additional hassles/paper work involved in registering in AZ as a foreign entity and be subject to annual reporting/filing fees in both states?

Answer -

Many people selling Nevada corporations oversimplify to the point of absurdity. You are absolutely right, in your case filing a corporation in Nevada for your wife to do day care in AZ would provide you very little benefit.

HOWEVER!!!

Under these specific criteria, a Nevada corporation could do you some good. If it is correctly structured and properly operated you could lower your overall taxes, reduce your liability and protect your assets.

Allow me to explain.

For taxes: if your wife operates the day care business AND it makes a profit then  setting up a separate corporation in Nevada makes sense. This Nevada company is NOT in the day care business, is NOT in AZ, and is not owned by your wife. It provides a service to your wife's business, such as accounting, or marketing, or being a supplies vendor. Each dollar she pays to the Nevada Corporation is an expense to her. This reduces the profit in AZ and therefore reduces her taxes. The payments going to Nevada are taxed less (at least 7.89%) and are not part of her AZ business. This reinforces the belief that the AZ business doesn't have much value and therefore is not worth suing; addressing the liability aspect perfectly. As for protecting assets, since an asset, such as real estate, is not purchased by her, then if she is sued for any reason, the real estate is not part of the lawsuit.

It really comes down to this: a Nevada Corporation will "DO" nothing, it will however, let you "DO EVERYTHING" better than not having a Nevada corporation. But  remember, a corporation is just a tool and like any good tool it has to used correctly to receive the desired result. In fact, like some very powerful tools, if used incorrectly it can have devastating affect.

Another potential advantage for your wife: if she intends to have any employees, and she intended to put in a Medical plan, or other employee fringe benefit, she would have to do so for every employee in the day care, but if that fringe benefit was offered through the Nevada corporation which had only 1 employee, she would not dilute the value of that fringe benefit.

A Nevada corporation is not a solution for everyone, done correctly it is not cheap, and if you're trying to save some tax on $1,000 of income, it is certainly not worth it. However, properly used a correctly structured corporation can more than pay for itself with less than $15,000 of cash flow.

Dear Reader, your circumstances may be similar but rarely the same. Therefore, let me invite you to call our office to discuss the particulars of your situation. Don’t you deserve special treatment? Call now 1-800-658-5105