Best State to Form an LLC

If you've searched "best states to form an LLC," you've probably landed on advice pointing you toward Delaware, Wyoming, or Nevada. While those states do have some pretty great tax advantages, it doesn't mean that choosing to register your LLC there is the universal key to saving money on taxes. It's not. Here's the truth: for the majority of small business owners, the best state to form your LLC is the state where you already live and work.

Is Wyoming, Nevada, or Delaware the best state for LLCs?

The argument for forming in Wyoming, Nevada, or Delaware isn't baseless. Those states do offer real tax advantages. Wyoming charges only $100 to file and $60 per year in renewal fees, has no state income tax, and offers strong member privacy. Nevada has no corporate or personal income tax. Delaware has the most respected body of business case law in the country, the specialized Court of Chancery, and is the preferred home for venture-backed startups.

However, most business formation sites may not tell you that if you live in Ohio, California, Texas, or any other state and run your business from there, you'll almost certainly need to register your Wyoming or Nevada LLC as a foreign LLC in your home state anyway. That means paying two sets of filing fees, two annual report fees, and maintaining two registered agents... ugh.

More critically, your home state taxes your income based on where you live and where income is earned, not where your LLC is registered. Forming in a state with no income tax saves you nothing if you're a California resident conducting California business. California will still want its cut.

When does out-of-state formation actually make sense:

• Delaware if you're raising venture capital, issuing equity to investors, or plan to take the company public. Its legal predictability and investor-familiar governance framework are real benefits. Even many non-Delaware founders form holding companies in Delaware and operate through subsidiaries in their home state.
• Wyoming is worth considering if your business is entirely online, you have no physical nexus in any state, you're a non-U.S. resident, or you're setting up a holding company or asset protection structure.
• Nevada can make sense for businesses with actual Nevada operations. But its startup costs ($425 initial, $350 annually) are significantly higher than Wyoming for similar benefits.
• New Mexico is an underrated option for privacy-focused entrepreneurs. It requires no annual reports and no ongoing fees after formation, with a $50 initial filing fee. It doesn't get as much attention but deserves consideration for passive holding structures.

Where should I register a real estate LLC?

If your LLC is real-estate focused, then forming an LLC in your home state may not be in your best interest. One question our CPAs hear constantly is: "Should I form my rental property LLC in a tax-friendly state?"

It's best to form your real estate LLC in the state where the property is located. That's because real estate is subject to the laws and taxes of the jurisdiction where it sits. A Wyoming LLC that owns a Texas rental property will still owe Texas franchise tax and comply with Texas landlord-tenant law. The Wyoming registration doesn't change that.

If you’re an investor and intend to hold multiple properties in different states under one LLC, make sure you register a Foreign LLC in each state you own property in. You should also consider whether a holding company structure makes sense and how to best use the QBI deduction's rental real estate safe harbor (which requires 250+ hours of rental services annually and strong records).

If you need some help navigating this, sign up for Keeper to chat with a licensed tax pro! We can help you assess what makes the most sense for your situation.

{upsell_block}

How does it work for non-US citizens and non-US residents?

One of the most common questions CPAs hear from international entrepreneurs is: "Can I form a U.S. LLC if I'm not American?" The answer is yes! What's more - you can choose any state you want to form your LLC!

There are no citizenship or residency requirements imposed by any U.S. state for LLC ownership. You can form an LLC entirely online from abroad, as long as you appoint a registered agent with a physical U.S. address in the state where your LLC is formed.

• For most non-resident founders, Wyoming is the recommended starting point, because it has low fees ($100 to form, $60 annually), strong privacy, no state income tax, and minimal annual compliance burden.
• Delaware is the right call if you're building a startup that will seek institutional investment.

Every LLC needs an Employer Identification Number (EIN) from the IRS to open a bank account, file taxes, and operate legally. Non-residents can apply for an EIN without a Social Security Number. The IRS online portal requires an SSN or ITIN, so non-residents must apply by fax or mail using IRS Form SS-4. You do not need an ITIN simply to form the LLC or get an EIN, but you will likely need one if you have a personal U.S. tax filing obligation (for example, if your LLC generates income effectively connected to a U.S. trade or business).

Make sure to file Form 5472!

Foreign-owned single-member LLCs must file Form 5472 with the IRS every year, even if the LLC has zero income. This is an informational return that discloses transactions between your LLC and you as the foreign owner (including capital contributions, loans, and distributions). It must be filed alongside a "pro forma" Form 1120. The penalty for failure to file Form 5472 when due is $25,000 per form, and it applies per related party, per year, with no cap. Many foreign founders have unknowingly accumulated years of unfiled 5472s and faced steep penalties as a result. If this is your situation, talk to a Keeper CPA ASAP. You might be able to pursue penalty abatement through the IRS's Delinquent International Information Return Submission Procedures.

Note: S-Corp election is only available for U.S. citizens or resident aliens

To elect S-Corporation tax treatment, all LLC members must be U.S. citizens or resident aliens. Non-resident foreign nationals cannot make the S-Corp election, which means the self-employment tax savings are generally not available to non-resident LLC owners.

What's the best state to form an LLC for my online business?

Psst! Running your business online doesn't mean you get to sidestep state tax obligations. This is an area where the myth of "just form in Wyoming and pay no taxes" does the most damage, particularly for e-commerce sellers who discover their real tax exposure only after they've already scaled.

For online businesses, your tax obligations are largely determined not by where your LLC is registered, but by where you've established nexus - the legal connection between your business and a state that triggers a tax obligation there. There are two kinds to know:

• Physical nexus is created by a tangible presence in a state: your office, your employees, your warehouse, or your inventory.
• Economic nexus is created purely by sales volume. Following the Supreme Court's landmark 2018 ruling in South Dakota v. Wayfair, virtually every state now requires remote sellers to collect and remit sales tax once they exceed approximately $100,000 in annual sales to customers in that state, regardless of any physical presence. States continue to update these thresholds; as of 2025, Alaska, Utah, and Illinois have all moved to revenue-only triggers, eliminating their prior transaction-count thresholds.

The Amazon FBA nexus trap

‍If you sell through Amazon FBA, your inventory doesn't stay in one place. Amazon distributes it across its fulfillment network to optimize shipping speed. That means your products may be sitting in warehouses in California, Texas, New York, and Pennsylvania simultaneously, creating physical nexus in each of those states whether you intended it or not.

Most of these states treat third-party inventory stored in an Amazon fulfillment center as sufficient to establish physical presence. California, for example, imposes a minimum $800 franchise tax the moment a business is "doing business" in the state. Amazon's Marketplace Facilitator laws do require Amazon to collect and remit sales tax on your behalf for most transactions, but that only covers sales tax, not income or franchise tax, and it doesn't eliminate your filing obligations in states where you have nexus.

SaaS and digital products

Unlike physical goods, SaaS taxability is not uniform across states. Some states treat SaaS as a taxable service or digital product; others exempt it entirely; and a growing number (including Washington and Maine) have expanded their digital automated services tax to capture subscription software and similar offerings. If your SaaS product bundles digital services with any physical component, many states will tax the entire transaction unless the components are separately invoiced. So be careful: SaaS businesses often assume they're in a simpler tax position than product sellers. That assumption tends to get expensive at scale.

A quick framework to help you decide

‍‍

Form your LLC in your home state if:

• You live there, work there, and your clients or customers are there
• You want simplicity, predictability, and a single compliance obligation
• You're a local service business, freelancer, or brick-and-mortar operation

Consider Wyoming or New Mexico if:

• You're a non-U.S. resident forming a U.S. entity
• Your business is entirely online with no physical presence in any state
• You're creating a passive holding structure or want maximum ownership privacy
• You want to minimize ongoing fees and annual compliance burden

Consider Delaware if:

• You're building a venture-backed startup and need institutional investor-friendly governance
• You plan to issue equity, options, or convertible notes
• You want access to Delaware's Court of Chancery for business dispute resolution

If you're looking to change the state of your LLC, make sure to read our guide. Regardless, when in doubt, it's best to talk to a CPA to account for the complexities of your unique situation.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws change frequently. Consult a qualified CPA or tax attorney for advice specific to your situation. For IRS guidance on LLC tax classifications, see IRS Publication 3402 and the IRS page on LLC filing classifications.