The cost to start a business refers to all expenses incurred in the process of creating a new entity in the US. The cost varies depending on where you want to establish your business entity. For instance, establishing an entity in Florida is different from doing it in Delaware or Wyoming. Keep reading to discover more about the cost of starting a business in the US, including incorporation, EIN & ITIN, business license, trademark registration, bookkeeping, and tax filing. You’ll also learn about tax-friendly states to enable you to make the most informed decisions when it comes to establishing a business in the US.
Company formation in the US is overseen at the state and not the federal level, which applies to US citizens and foreigners. The entire process differs from one state to another, but generally, it comprises two main steps, including establishing a registered agent with a physical address and applying to register a new entity.
The state where you want to establish your business entity will determine the cost of filing incorporation or articles of organization. Articles of organization or incorporation filing costs vary depending on the state and usually range between $50 and $800.
EIN & ITIN
Employer Identification Number (EIN) in the US is a nine-digit number an internal revenue service (IRS) uses to identify business entities such as LLCs and corporations for tax purposes. On the other hand, Individual Taxpayer Identification Number (ITIN) is a nine-digit ID number only available to some non-US residents and resident aliens – together with their dependents and spouses who aren’t able to obtain the Social Security Number (SSN).
Your EIN or ITIN is a unique identifier for your business that can be used for unique formal operations such as filing taxes and opening a bank account. Since these unique numbers aren’t part of the incorporation process, you’ll have to obtain them independently when required. You can apply to the IRS personally to obtain an EIN or ITIN free of charge, or you can get support from professional firms by paying an additional fee for quick approval and making them track the application process on your behalf.
Before your business starts to operate, you need to apply for a license or a permit, depending on your company type. Applying for a business license ensures you confirm and understand which rules apply to your business in advance. While it varies from one state to another, a business license cost ranges from $50 to $200, depending on the type of permit needed. The cost includes filing and processing costs.
Applying for trademark registration in the US is a fairly inexpensive proposition. The application form is available online on the US Patent and Trademark Office’s official website. Based on your willingness to communicate with the US Patent and Trademark Office and the application type, the filing costs between $225 and $400 per class. You’ll need to pay the trademark registration fee for every class of services and goods you will offer.
Bookkeeping and tax filing
In any US state, the penalties for not filing taxes correctly are tough, with defaulters required to pay a minimum fee of $10,000. As a business owner, you’re required to pay a fee of between $1,000 and $5,000 per year to avoid incurring a heavy penalty. To ensure you’re on the right path and save some money, you need to have a firm to help you keep your bookkeeping up-to-date.
Before establishing or expanding your business in the US, comparing all tax-friendly states you’re considering is worth comparing. In most cases, LLCs and small businesses are taxed as a partnership or a sole proprietorship.
When taxed as a partnership or a sole proprietorship, small businesses operate as pass-through entity – meaning their incomes are passed to the members who report them on their personal tax returns. With that in mind, here are the most tax-friendly states where you can establish a company or a business entity.
Delaware is popular for being the most tax-friendly state for all types of businesses, from small and medium-sized enterprises to huge corporations. According to the Delaware Division of Corporations’ official website annual report statistics, the state is the go-to option for Fortune 500 companies, which are currently at approximately 66.80%.
While establishing a business in Delaware offers many benefits, such as an established and savvy court system, and enhanced privacy, the tax-friendliness benefit is the most attractive one. Once you form a corporation in Delaware, you need to file an income tax with the Delaware Division of Revenue at an 8.70% rate.
With the state’s business-friendly tax laws, Delaware offers numerous clear benefits for company owners. Some of these benefits include an affordable filing fee of approximately $90 and incentives like no tax on capital stock transfer, no tax on business transactions, and no sales tax.
Another state that’s tax-friendly for businesses is Wyoming. The state charges neither personal income nor corporate tax. As the sixth lowest sales tax in the US, Wyoming’s 4% sales tax is still affordable and pretty low. And what’s more? The filing fee is about $100, and the annual report costs only $60.
On top of that, Wyoming’s business-friendly legal system provides one of the strongest business laws in the United States. When you combine these factors, you’ll conclude that Wyoming is the second-best tax and business-friendly state in the US.
Apart from taxes, Wyoming offers low registration costs and protects all businesses against personal liabilities. You can start and complete the entire registration process online, and it’s possible to operate a business without listing managers or members with the state, which is great for much-needed privacy.
Florida provides a range of benefits to potential business owners. When you compare it to many other states, including Wyoming and Delaware, small business regulations in this state are minimal. Additionally, Florida imposes fewer obstacles to entry for all new businesses, whether small, medium-sized, or large.
The main attraction for small businesses is the low and friendly tax rate. Florida has a 6% sales tax and doesn’t impose any income tax on individuals. While corporations that operate in the state are subject to a 5.5% income tax, limited liability companies, S corporations, and sole proprietorships are exempt from state income tax.
Establish your company in the US with Workhy
Now that you understand the cost of starting a business in the US, it’s time to apply it to your unique situation. If you cannot handle everything yourself, there is no need to worry since Workhy can help. Workhy offers end-to-end company formation services for entrepreneurs who want to establish businesses in the United States.
With Workhy, entrepreneurs can set up their businesses online without traveling or residing in any part of the US, including tax-friendly states such as Florida, Wyoming, and Delaware. Additional services that Workhy offers include tax filing, opening online bank accounts, trademark registration, online bookkeeping software, EIN & ITIN applications, and providing registered agents. To establish your company with Workhy, visit our website now.