When forming an entity in Nevada, whether it is a Corporation, Limited Liability Company or Limited Partnership it is critical that they are formed properly. Failure to do so may cause legal and tax challenges.
The business of forming Nevada corporations has skyrocketed over the last couple of years. Many people around the country are saving money in state taxes by incorporating in Nevada. States like California do not like losing state tax revenue to Nevada. They especially don't like it when people still live in California and operate their business there, while running all their profits through a Nevada bank account and not pay California taxes.
In any area, there is always misinformation that exists. For many years we thought the world was flat until there was some investigation to discover that was not true! That is also true in the business of forming Nevada corporations. The increase of companies forming Nevada corporations without doing their proper homework is taking many people down the path of uncertainly at best, and illegal activities at worst. We estimate that 70% of the people that incorporate in Nevada are NOT going to be able to take advantage of the tax benefits that Nevada offers. It is becoming economically profitable by other states to review their procedures to make sure their tax is being collected and to do some checking. You will begin to find people that thought they were getting away with tax savings start to become audited for things they have done improperly over the last few years.
In other words, just because you haven't been audited by the state taxing authorities does not mean you have structured your business properly. Remember, we rarely get audited for something we did last year; usually it was for something we did 2-3 years ago. And when states like California start auditing you and looking to collect penalties and interest for the previous 3 years because you should have registered to do business in California, you will be sorry!
Here are the most common mistakes people make when incorporating in Nevada, or strategies that don't work:
- Relying on Bearer Shares
- Not having an employee to the corporation
- Relying on privacy as your primary asset protection strategy
- Having an independent contractor take fringe benefits entitled to employees
- Not having substance of being based in Nevada
- Not issuing stock
- Thinking a Nevada corporation is an asset protection tool
- Having a Nevada corporation without a business license
Again, it is critical to set up things properly. When it comes to tax and asset protection planning strategies, they do change. As you know, every year there are many tax changes. You need to be aware of both new tax changes and new case law in regards to asset protection that may effect your situation.
At NCP, Inc. it is our job to research these things and let you know how they may effect your situation. If you have any questions about this article or would like a detailed FREE Report on these topics call the Nevada Corporate Planners, Inc. office at (888) 627-7007 and ask for the detailed report from the article that appeared in the 'Lectric Law Library.
To learn more about NCP, Inc., visit their website at www.nvinc.com or e-mail them at [email protected]