Rule Number 1: If you learn nothing else from this post, learn this: don’t believe everything you read on the internet. Even if you read it in this article, you should always get some sort of definite confirmation of what I am telling you. There’s a lot of misinformation out there and some of the stuff can get you into big trouble with the IRS.
There’s a lot of hype these days about incorporating or setting up your LLC in Delaware or Nevada because these states have favorable business climates. But, unless your business is located in Delaware of Nevada, it doesn’t make sense to file your organization documents in these states. For one thing, tax law and business law don’t always go hand in hand. Here in Missouri, as with most states, if you’re earning the money here, you’re paying the taxes here—no matter where you incorporated.
Bottom line, if you own a small business, your business organization documents should be filed in the state that you live in, your employees live in, your customers live in, your shareholders live in, and where your offices are located.
Hiding or disguising your identity is another thing that doesn’t make sense for the legitimate small business owner. When you own a small business, you want people to know who you are and what kind of business you’re in. By the way, let me introduce myself. I’m Jan Roberg, I do taxes. I also write these blog posts myself. I want you to know who I am because I want you to remember me when you need tax help. That’s my picture up in the corner.
This is supposed to be tax blog, not a marketing blog, but seriously, if you own a small business—you want your clients and customers to know who you are, what you do, and how to find you. (By the way, my office is in Creve Coeur, MO and my phone number is (314) 872-2111—just sayin’.) See what I mean? The more people know you, the more likely they are to use your products or services or refer a friend who needs you.
But let’s talk about the tax implications with hiding your identity. You might even be thinking, gosh, how would a person even do that in the first place? This is where you hire a third party in another state to file your EIN for you– this keeps your personal identification off of your federal corporate registration. It doesn’t really sound like such a bad thing, really. You might even be thinking that sounds like a good idea, but it’s not if you’re running a legitimate business!
If you try to hide your identity, the IRS sees it as a red flag for things like: underreporting, not filing returns, money laundering, financial crimes, and my personal favorite: financing terrorists. How’d you like to be delayed at the airport because you wound up on a terrorist watch list because you incorporated in another state? Okay, I’m pretty sure that you’d have to do more than just incorporate in Nevada to wind up on a terrorist watch list. But the point is, why flag your business that way?
I know I post a lot of ideas on saving money on taxes. I preach the “don’t pay more than you have to” sermon all the time. But you should never do something as a tax strategy that isn’t also good for your business too. You remember the old acronym KISS? (Keep it Simple, Stupid!) If you have a small, one owner (or husband and wife) business working in a local market, you really have no need to be filing tax documents out of state.