Forming a corporation in any of the 50 states offers limited liability, privacy, and tax benefits to one degree or another. Forming a Nevada corporation, however, takes these same concepts to a higher level, offering numerous advantages to the businessman or entrepreneur. Those looking for ultra-low state tax, privacy and confidentiality, a business and corporation-friendly environment will find forming a corporation in Nevada at the top of their list. This is primarily because the Nevada legislative and judicial branches of government have proven quite corporate-friendly and savvy.
This pro-corporation approach is reflected in the numerous advantages afforded to Nevada corporations. Initially based at least partially on Delaware Corporate law, the Nevada legislators have taken the Nevada Corporate law even further with respect to high privacy and low taxation rights, as evidenced by their extensive corporate privacy and asset protection/limited liability statutes and regulations, and low to non-existent state taxation. Moreover the Nevada trust is one of the most powerful domestic tools for asset protection from lawsuits.
Privacy and Anonymity
Forming a corporation in Nevada practically guarantees privacy to shareholders, and privacy to vice presidents and other corporate officers. Shareholders are not a matter of public record in Nevada, and save for an appointed Director and Registered agents, the names of other officers in a Nevada corporation are protected and private under Nevada law. Unlike some other states, Nevada Corporations can hold their annual meetings anywhere, even a foreign country, with a majority sufficing for a quorum vote for any actions. These meetings can be held telephonically, or via various other “modern” means, leaving the door open to teleconferencing, the internet, etc.
Nevada Corporate law also allows for “nominee” Director and Officer appointments that can further enhance privacy and confidentiality. A nominee Director or Officer is one that stands in place of the “true” owner or controlling entity of the corporation. Because Nevada requires that the name of the Director (or Directors) of a corporation be a matter of public record, a nominee Director can be in place as the only publicly disclosed officer or representative of the corporation (along with the Registered Agents, of course). Most nominee Directors or officers usually have minimum signor authority within the corporation, with no control of corporate funds or operational control of the corporation, and can be “voted out” at any time by the majority shareholder or controlling interest in the corporation. Again, because of the flexibility of the by-laws allowed by Nevada, almost any rule with respect to the appointment of nominee officers can be addressed in the by laws. Basically, these nominee Directors or Officers are such in title only, for public view, with the real controlling entity kept confidential!
This is another area where a Nevada Corporation can truly benefit your bottom line. The individual nominal taxation rate at the Federal level is approximately 28%–and this is not factoring in such things as Social Security tax, and Medicare tax; these would amount to a total federal tax burden of close to 45% for a non-incorporated individual. If you were to form a Nevada Corporation, the first $50,000 in net income would be taxed at the nominal corporate rate of 15%. This is a difference of 30% of your income!
Now, bear in mind that Nevada Corporations pay zero state income tax. Nevada does not charge franchise tax, capital stock tax, stock transfer tax, estate taxes, corporate income taxes, nor does it tax corporate shares. Because there is no state income tax in Nevada, your corporation would only be subject to Federal taxation. Compare this to what state taxes would be in , say, California, and you can begin to get a clear picture of just what these savings can amount to. Other states, such as California, assess substantial state income tax on corporate income, stock transfers, etc. In addition, if you anticipate your California corporation to have a tax liability of $500 or more, they mandate that you estimate the taxes and make quarterly payments. There are no such requirements in Nevada, because the state tax amount is ZERO.
You can form Nevada Corporations in conjunction with a well-thought out tax reduction plan, and develop many tax-reduction strategies based on the proper utilization of your Nevada Corporation.
Limited Liability and Statutory Protection
Nevada is among the most sought after states to incorporate in due in large part because it offers excellent asset protection and limited liability protections to its shareholders, officers, and directors. By statue, shareholder liability is expressly limited to the amount invested in the Nevada corporation. Quoting directly from the statute: (NRS 78.225) “Stockholder’s liability: No individual liability except for payment for which shares were authorized to be issued or which was specified in subscription agreement…no stockholder of any corporation formed in this State is individually liable for the debts or liabilities of the corporation.” Further, with respect to Directors or Officers of the Corporation, (NRS 78.747) “…No stock holder, director, or officer of a corporation is individually liable for a debt or liability of a corporation, unless the stockholder, director or officer acts as the alter ego of the corporation.” It doesn’t get any more clear than that. This is the very definition of limited liability. And the protection doesn’t end at the statutory level. When it comes to Nevada corporations, the Nevada courts are reluctant to allow any piercing of the corporate veil, save for extreme case of fraud or in cases involving a complete disregard of the corporate formalities.
No IRS Information Sharing
Unlike most other states in the union, Nevada has no information sharing agreement with the IRS and does not provide personal or corporate financial records to the IRS. There is no reciprocal sharing of financial or business data whatsoever. This can also be a huge advantage to you in implementing your tax-reduction strategies!
Stock flexibility is also a huge advantage afforded to Nevada corporations. Corporate obligations for real estate, services, etc., may be handled by the issuance of stock, at a value determined by the Director. Stock can also be exchanged or sold for cash, goods, real estate, etc. Nevada Corporations can issue different series of stock, with different values and rights, though there must uniformity within the series, and these values and rights should be described in the articles of incorporation, or by resolution of the board of directors.
The stock or shares in a Nevada Corporation may even be in the form of “Bearer Shares”. Precisely as the name implies, bearer shares literally provide for direct ownership of the stock by whomever is currently holding the shares. This can ease the temporary transition of ownership of the corporation in the event of an emergency (asset search by potential hostile litigants, for example). This is a fantastic privacy and asset protection feature. Imagine that there was an intense asset search by a court or regulatory agency. If you knew the threat was imminent, you could place the bearer shares in a safe “location or custody” where they are not under your control, and then truthfully answer, when questioned, that you do not, at that moment, own or possess shares in a corporation. You could regain possession of the bearer shares at any convenient point thereafter, and you will not have spoken any mistruths.
Bearer shares could also ease the transition of significant shares of the corporation from one place to another, with the utmost privacy as they are not subject to a normal stock certificate ledger and are valuable merely by possession.
Fast, Simple Incorporation
Nevada corporate regulations make it a very quick and simple proposition to form a corporation. After paying the low initial fee (approximately $125 if net value is $75,000 or less), and an annual corporate fee of only $85 (for an annual filing requirement of a list of directors and officers), the requirements are as follow: (NRS 78.30)
- One or more persons may establish a corporation by:
- Signing and filing in the Office of the Secretary of State articles of incorporation; and
- Filing a certificate of acceptance of appointment, signed by the Resident Agent of the corporation, in the Office of the Secretary of State.
- The articles of incorporation must [adhere to Nevada statute], and the Secretary of State shall require them to be in the for prescribed.
Nevada corporations can even be formed telephonically or via the internet, and all within 24 hours. There is no minimum corporate capitalization requirement (other than the filing fee), and no minimum number of people required to hold the various corporate officer positions–in Nevada, one person can hold all officer positions if they so desire.
Nevada Corporate code has no residency requirements. Other than the mandated legal age of 18, a Nevada Corporation owner can live in any other state, or can literally be a foreigner in another country. This is especially helpful to those seeking to conduct business nationally, yet wishing to minimize their state income tax. However, in order to maximize on the tax reduction benefits of a Nevada corporation, the corporation must be a “resident” Corporation and must have a physical presence in Nevada. But don’t fret! There are ways to own “resident” Nevada Corporations from a distance–please see our “Nevada Corporation Headquarters Program” for more information on this valuable service.
Nevada Corporate Formalities Requirements
All states require certain actions on the part of the corporation in order for it to maintain its separate legal entity status. These actions, known as the “Corporate Formalities,” are the vehicle by which a corporation shields its shareholders from direct liability and provides for many of the tax and business benefits mentioned. Under Nevada corporate law, the formalities are very basic. These formalities can be summarized as follows:
- Establish clear, thorough Corporate bylaws
- Hold Director and Shareholder meetings at least annually
- Maintain accurate Corporate Minutes and Records in a Corporate Minutes book
- Conduct all Corporate Transactions in Writing
- Ensure that there is no co-mingling of corporate and stockholder funds.
These are the basic formalities that should be observed in order to maintain the corporate status of your company in Nevada. There are, of course, other requirements, such as annual filing of a list of Directors and officers, but these are also very straightforward and basic.
It should be evident that choosing Nevada as the state to incorporate offers substantial advantages not readily found in other, so-called low regulation states. From privacy to ultra-low taxation, Nevada’s favorable business laws are hard to beat!
Under Nevada Corporate law, much like the corporate code in any other state, a corporation’s officers and directors are required to be listed and are a matter of public record. Even after the initial filing of the articles of incorporation listing that lists these officers and directors, a listing of the officers and directors is an annual reporting requirement. That’s the bad news. The good news is that Nevada corporate law also allows for the appointment of “Nominee” officers and directors. A nominee Director or Officer is one that stands in place of the “true” owner or controlling entity of the corporation. Because Nevada requires that the name of the Director (or Directors) of a corporation be a matter of public record, a nominee Director can be in place as the only publicly disclosed officer or representative of the Nevada corporation (along with the Registered Agents, of course). Most nominee Directors or officers have NO signor authority within the corporation, with NO control of corporate funds, NO operational control of the corporation, and can be “voted out” at any time by the majority shareholder or controlling interest in the corporation. Again, because of the flexibility of the by-laws allowed by Nevada, almost any rule with respect to the appointment of nominee officers can be addressed in the by laws. And that can amount to a huge privacy and confidentiality advantage! Not having your name listed publicly as an officer in a corporation can serve to limit your liability and substantially increase your privacy.
For example, when faced with potentially following a lawsuit against you, it is common practice that the attorney contemplating the lawsuit conducts a search for your assets. If you have formed, and are properly operating, a Nevada corporation, expensive assets such as real estate, financial accounts, automobiles, etc. can be owned by the corporation, and hence not immediately detectable as a “personal asset” owned by you. Further, by appointing nominee officers and directors of a corporation (remember one person can simultaneously fulfill director and officer responsibilities in a Nevada corporation), these assets are kept that much more private and difficult to find–your name does not have to appear anywhere on the list of officers and directors of a corporation over which you have complete control of. And it is just this type of situation for which we are poised to help!
Using Nevada Businesses to Reduce Taxes
The reduction of your tax liability is not only a smart business practice, but it is your right and duty. Every savvy business person should have a tax reduction strategy in place. Forming a Nevada corporation is a great place to start. The advantages available to Nevada corporations are substantial, and available to you no matter where you actually reside. Learning the advantages, and making them a part of your tax reduction strategy can add up to a substantial savings in your ultimate tax burden.
Corporate Tax Reduction Basics
Let’s start with the basics. Corporations are taxed at a much lower rate than the nominal individual rate, no matter what the income level is. The nominal Federal tax rate for an individual is about 28% for the first $50,000 in earnings. Corporations are only liable for 15% for the first $50,000 in income (and about 22.5% for earnings between $50,000 and $100,000). So if we were talking about an individual who earned $50,0000 in income, that person would be liable for approximately $14,000 in taxes. If a C Corporation earned that same $50,0000 in net income, it would only be liable for $7,500. That is a huge difference. And this is before the corporation utilized any of its legally-available tools to minimize reportable income and maximize its deductions. And we should also consider that the nominal individual rate of 28% does not include other applicable federal taxes like Social Security and Medicare that must be paid by the individual and that can add up to a total federal tax burden of closer to 45%! So the tax advantage of any corporation is readily apparent.
But there are even greater tax savings advantages available if you incorporate in a state that minimizes it’s state taxes. Nevada Corporation offers:
- ZERO Corporate Tax
- ZERO Corporate Shares Tax
- ZERO Stock Transfer Tax
- ZERO Capital Stock Tax
- ZERO Franchise Tax
- ZERO IRS information sharing agreements
Nevada Corporations, in stark contrast to states that charge a substantial corporate income tax, like California for example, are not taxed by the state. And this fact leads to a substantial difference in tax liability between a California corporation and a Nevada Corporation. In California, for example, if a corporation anticipates it will have a tax liability of at least $500, it must estimate the tax and make quarterly payments or be subject to heavy fines. This is simply not the case with Corporation in Nevada. And many other states, California included, have a reciprocal arrangement with the IRS wherein they agree to share relevant corporate, business, and financial information. Again, this is simply not the case with a Nevada Corporation because Nevada has no such agreement.
Strategic Tax Reduction Examples
Because it is reasonable to expect that your corporation needs to acquire business equipment, supplies, and transportation, your Nevada Corporation can purchase, lease, or rent these, and then take the appropriate federal tax deductions. So long as they are purchased for legitimate business needs, it is legal to acquire these through the corporation.
Now for an example: Let’s say your corporation needed a new, expensive lap top computer system for business purposes. The lap top costs $2500. If you were to purchase this lap top as an individual, you would have to pay with your personal “post tax” money, meaning that the $2500 you would shell out for the computer would be closer to an actual $4,500 of your earnings, after the 45% federal tax chunk is taken out. Wow. On the other hand, if you used your Nevada Corporation to make the acquisition from money it earned, and then deducted the acquisition as a business expense, the lap top will have only cost an actual $2,500, saving you $2,000!! And this strategy would hold true for any legitimate business acquisition, such as a vehicle for business transportation purposes, etc.
Another example of successfully utilizing your Nevada corporation for tax reduction could involve legitimate business trips. These trips could include, for example, site inspections of potential office locations, anywhere in the world (think Cancun, the Bahamas, or even Las Vegas, etc.). You and any other officers of the corporation could make this trip, and all necessary room and board accommodations, part of a legitimate business expense that would be deducted. And even “team building” activities during these trips would be potential candidates for expense deductions. So long as more than half of each trip day was spent on actual business (more than 4 hours a day), this could be a completely legitimate tax deduction.
Yet another example where your tax savings could be maximized with a Nevada Corporation would be in the area of retirement planning. While you as an individual are strictly limited to a maximum IRA amount every year (approximately $12,500 if you’re under 50 years old), this is not true for a Corporate Pension Plan. Your corporation could implement a pension plan with significantly higher, tax-free deposit limits, and these deposits can grow in the pension plans (with proper fund management and investment) also tax free! Further, these deposits towards the Pension Plan would be tax deductible for your corporation! This can amount to tens of thousands of dollars being legitimately secured, tax free, in an approved corporate pension plan!
And the examples seem endless! Here is a more extensive, yet plausible manner in which to utilize the excellent Nevada corporate tax treatment to your advantage. Imagine that you live in a high-tax state that just hammers you on “passive” income–that is, income earned via investments, capital gains, etc. Passive income is usually taxed at a much higher rate than “active” income (through the management of your corporation, for example). You can utilize your Corporation in Nevada to manage your investments, and set-up a Nevada Limited Liability Company (LLC) to hold these investments. The LLC can pay the Nevada corporation management fees for this service, and these fees are earned state-tax free in Nevada! So long as these Nevada corporations were properly organized, and all corporate formalities observed, they would be completely separate entities from you and hence all tax liabilities (however minimized) would be incurred directly by the corporations and not by you.
Additionally, your Nevada Corporation could pay you a salary for your services. This would avoid the dreaded “double taxation” that occurs with any sort of dividend distribution, and your corporation would even be able to take a tax deduction on the amount it pays you as salary!
Resident Nevada Corporation?
Successfully implementing a Nevada Corporation tax saving strategy does depend on a few key requirements, however. For one, while there are no residency requirements for the ownership of a Corporation in Nevada, in order to fully enjoy the tax reduction benefits, your corporation must “reside” in Nevada. This means that you must be able to show that your corporation operates or conducts its business primarily in Nevada. As proof of this, Nevada has the following requirements:
- The Corporation must have a Nevada business address, with receipts, or supporting documentation as proof.
- The Corporation must have a Nevada business telephone number.
- The Corporation must have a Nevada business license
- The Corporation must have a Nevada Bank account of some sort (checking, brokerage account, etc.).
As is evident by these requirements, a simple P.O. Box or answering service won’t suffice. In order to pass muster, there must be a living, breathing office supporting your Corporation in Nevada. The downside of opening and then sustaining an office is that it can be quite expensive, especially if the Nevada Corporation is an extension of your tax-reductions strategy and you are looking to maximize your investment in your corporation. When opening an office, you would have to factor rent, staff, utilities, telephone and data services, employment taxes, supplies, and insurance. Let’s put these into “monthly cost” perspective:
|Telephone & Data
This little office just added up to a $3,500 monthly cost, and that’s with conservative estimates as to cost. Multiply this by 12, and you can see that even a basic “base of operations” office can cost your corporation $42,000 a year!