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The U.S. has 50 states where you can open an LLC, including Texas and Nevada. LLC formation in both states comes with various advantages and disadvantages that you should consider. To help you make the right choice, NCH’s business formation experts have broken down these factors below.
Key Takeaways
- Texas LLC formation costs less than Nevada LLC formation. The former only costs $300.
- You don’t have to pay state-level income taxes in Texas and Nevada. However, Texas LLCs are subject to a franchise tax, increasing their maintenance costs over time.
- Both states also offer charging order protection to single-member and multi-member LLCs.
- If you’ve started a business outside of Texas or Nevada but want to operate in any of these states, you can register as a foreign LLC. Your business may need to collect and remit sales tax, though.
LLC Formation Costs & Requirements
If you’re starting an LLC in Texas, you’ll need to file a Certificate of Formation with the Texas Secretary of State. It costs $300 and is the only requirement you must meet for LLC registration in the Lone Star State.
LLC formation in Nevada requires filing the Articles of Organization and applying for a state business license with the Nevada Secretary of State. Moreover, new LLCs must file an Initial List of Managers or Members. All three will cost you a total of $425.
State Taxes
Texas and Nevada don’t impose personal and corporate income taxes. However, both states levy different taxes on LLCs, which vary depending on their business activity.
In Texas, LLCs must pay a franchise tax based on their taxable margin. This amount can be calculated using any of the following computation methods:
- Multiplying your LLC’s total revenue by 70%
- Subtracting your cost of goods sold (COGS) from total business revenue
- Subtracting compensation from your LLC’s total revenue
- Subtracting $1 million from total business revenue
The final amount must be reported on a franchise tax report that’s due on May 15 every year.
In contrast, Nevada levies no franchise tax but imposes other types of business taxes on LLCs. These taxes include the Modified Business Tax (MBT), a payroll tax imposed on Nevada-based employers. The MBT applies to the total gross wages with the amount of employee healthcare benefits paid by the employer deducted from it.
Asset Protection
Opening an LLC in Texas or in Nevada can help you protect your assets from creditors. Both states grant creditors a charging order that entitles them to their debtor’s financial rights. This legal remedy prevents creditors from forcing the LLC to pay them any distributions made to the debtor or managing the business to settle a debt.
The laws governing charging order protection in Texas and Nevada apply to single-member and multi-member LLCs. Additionally, the Lone Star State enforces statutes that protect the following types of assets from creditors:
- The homes of debtors (“homesteads”)
- Income and its equivalents
- Life insurance and annuities
- Retirement plans
- College savings plans and prepaid tuition
- Personal property that cost up to $50,000 for individual debtors
Related Resource
Discover how a Nevada LLC protects your assets on the NCH blog.
Foreign LLC Registration for Multi-State Operations
Finally, Texas and Nevada require out-of-state LLCs to register as foreign LLCs if they want to do business within their borders. Both states have different requirements for foreign qualification, so consider checking these guidelines first. NCH’s guide to foreign LLC registration in Nevada has more information about getting foreign qualification in the Silver State.
If you’re selling products or services as a foreign LLC in Texas or in Nevada, you may need to collect and pay state sales tax. Remote sellers that do business in Texas must do both once they earn $500,000 or more in total sales. Meanwhile, Nevada’s sales and transaction thresholds for remote sellers that conduct business there are set at $100,000 or more in total sales and 200 transactions or more, respectively.
Related Resources
- Learn why LLCs work best for online businesses here.
- Watch the video below for some good reasons to open a Nevada LLC.
Frequently Asked Questions
Can I form a Nevada LLC even if my business operates in Texas?
Yes, you can form a Nevada LLC even if your business operates in Texas. The Silver State allows entrepreneurs in other states to start an LLC by getting foreign qualification. This way, you can enjoy the tax and legal advantages of running a business in Nevada.
How much can I save in franchise taxes by choosing Nevada over Texas?
You can save a lot in franchise taxes by choosing Nevada over Texas. The former doesn’t impose these taxes nor levy personal and corporate income taxes, potentially easing your tax burden. However, the exact amount you can save depends on your LLC’s total revenue.
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Does a Nevada LLC need a physical address?
A Nevada LLC doesn’t need a physical address unless it operates from an office, warehouse, or similar facility in the state. You can use a registered agent’s address or a virtual business address for your LLC, but both come with potential drawbacks.
Which state is better for online businesses: Texas or Nevada?
If you’re after little to no state-level income taxes and superior asset protection, you can get both from Texas and Nevada. Still, the Silver State is a better choice for online businesses because it doesn’t collect franchise tax from LLCs. Texas imposes this tax that’s based on an LLC’s taxable margin.
Do I need to file an annual report in Texas & Nevada?
You only need to file an annual report in Nevada. Texas LLCs aren’t required to submit an annual report to the Texas Secretary of State, but they must file a franchise tax report.
Conversely, Nevada LLCs file an Annual List of Managers or Members every year. This filing costs $150.
Can I relocate my LLC to another state?
Yes, you can relocate your LLC to another state. This process is called “domestication,” which involves closing the business in its original jurisdiction and submitting the necessary paperwork to the LLC’s new state.
Do note that domestication may take a while to complete. Thus, staying in your LLC’s formation state is the best option.
Does a Nevada LLC need to pay franchise tax in Texas?
If a Nevada LLC operates as a foreign LLC in Texas, it needs to pay the state’s franchise tax. Texas taxes LLCs based on their taxable margin instead of their formation state. Simply put, a foreign LLC operating in Texas must fulfill its tax obligations to the state.
Do foreign LLCs in Texas & Nevada have other compliance obligations?
Yes, foreign LLCs in Texas and Nevada have other compliance obligations. They’re subject to the specific requirements of each state, including sales tax payments and registered agent maintenance.
Are LLCs attractive to investors in Texas & Nevada?
LLCs aren’t attractive to investors in Texas and Nevada (and other states). Instead, they fund corporations because of their more formal structure, something that LLCs lack. If an investor does decide to fund an LLC, they may request the business to change its structure.
Do LLCs need a registered agent in Texas & Nevada?
Yes, LLCs need a registered agent in Texas and Nevada. Each state has specific requirements for registered agents. But in general, your chosen agent should be able to receive official documents on your LLC’s behalf during regular business hours.
Expert Tips From NCH
- Consider the state-level taxes imposed by Texas and Nevada before choosing your formation state. Your LLC’s budget should cover its potential tax obligations to its chosen jurisdiction.
- Think about your LLC’s long-term growth as well. See how each state can help your business meet its changing needs and plan for potential relocation early on.
- Consult trusted business formation experts for an informed decision. Their advice can prove especially valuable if your LLC decides to operate in other states.
Open a Nevada LLC Today
Between Texas and Nevada, the Silver State emerges as the best choice for LLC formation due to its potential tax advantages and business-friendly legal environment. Both outweigh the high costs of starting a Nevada LLC.
Ready to launch a Nevada LLC? Get started with help from NCH’s business formation experts.
DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.