Are you a freelancer looking for the best state to start your business? With more people working for themselves and doing remote jobs, where you set up shop matters a lot.
Small businesses make up almost all of America’s companies and pay a lot in taxes each year. But, 16% of these businesses say taxes are their biggest problem.
In 2022, states got 11.2% of their income from taxes, the highest in years. Federal taxes range from 10% to 37%.
That’s why picking the right state is key where the tax is not much. So, let’s look at the top 5 best states for freelancers to register their business in the USA.
Key Takeaways
- Small businesses account for 99.9% of American companies and contribute billions in taxes annually.
- Taxes are a top operational issue for 16% of small businesses, up from 11% the previous year.
- The average state income from state and local taxes was 11.2% in 2022, the highest in decades.
- Freelancers should consider factors like cost of living, tax rates, and job growth when choosing a state to register their business.
Why Does Location Matters for Freelancers?
For a freelancer, where you work can really affect your money. The cost of living, like rent and food, changes a lot in different places.
For example, starting an LLC in Oregon costs about $100, while in Washington it’s around $200. But, places like California and New York are much more expensive.
They need you to spend around $800 and $1,000, respectively, because of extra steps like publishing in newspapers.
Tax Benefits
The taxes in each state matter a lot. One of the biggest considerations for freelancers is the state’s tax.
Some of the states offer no personal income tax, which can be a huge advantage for a freelancer maximizing earnings.
Additionally, states with no sales tax or franchise tax can provide you with significant savings for your business.
According to research, about 10 million Americans work for themselves, showing a big part of the workforce is freelancing.
Some areas have more freelancers than others, showing a good place for them to work. Many places have affordable housing, which is good for freelancers.
The top cities for freelancers saw more people working in 2020, showing they’re in demand. Taxes in these places are often low, which helps freelancers financially.
Registration Costs and Administrative Ease
The cost and how difficult is to register a business are different by state. Some states have simplified filing processes and low registration fees.
It makes it easier and more affordable to start running your business. Others may have more tough requirements that could increase your administrative burden.
Factors to Consider
Before you choose a state to register your business, consider the following factors:
- Tax benefits
- Registration costs
- Administrative ease
- Legal protections
- State economy
- Cost of living
How We Chose the Top 5 States?
We focused on several factors before deciding the best states for freelancers to register their businesses. First of all, we figured out states with no or low-income taxes.
It enables freelancers to retain a greater portion of their earnings. Second, we have checked registration costs and paperwork, looking for those states that provide simple and affordable ways to register a business.
Third, we have looked at legal support and protections, discovering those states that provide proper working conditions for freelancers.
Finally, we focused on the state economy and the cost of living in that state because it is one of the most important things for foreigners to look at.
The state with a lower cost of living helps freelancers stretch their income further, making them more attractive options.
Key factors we used include:
- Business-friendly tax structures
- Affordable registration costs
- Legal protections for freelancers
- Low cost of living
Top 5 Best States for Freelancers to Register Their Business
Let’s discover the 5 best states that are famous for freelancers when it comes to registering a business in the US.
1. Delaware
Delaware is a well-known business-friendly state in the US, especially when it comes to LLCs (Limited Liability Companies). It has business-friendly laws.
The state has no sales tax and offers low-cost registration fees. Privacy is another key benefit, as business owners are not required to publicly list their names.
Key Benefits:
- No sales tax
- Privacy for business owners (your personal info isn’t listed publicly)
- Simple and affordable filing process
2. Florida
Florida is known to be the dream state for freelancers because it does not require any state income tax. It means much of your money will be saved.
Moreover, Florida has a warm climate and low living costs, making it an appealing destination for digital workers and freelancers.
Key Benefits:
- No state income tax
- Affordable living costs
- High potential for small business growth
3. Texas
Texas is also like Florida, it does not charge any state income tax. It’s a top choice for freelancers. The state has a strong and diverse economy that provides many opportunities for growth.
Texas has an affordable cost of doing any business, making it ideal for small business owners.
Key Benefits:
- No personal income tax
- Strong and diverse economy
- Lower business costs compared to other states
4. Wyoming
Wyoming is one of the best states for registering a business, although it is often overlooked. The state does not take any personal tax.
The LLC fees of this state are the lowest compared to other states. If you want privacy and affordability, Wyoming is an excellent choice for you.
Key Benefits:
- No state or corporate income tax
- Very low registration fees
- Strong privacy protections for business owners
5. Nevada
Nevada is another state well-known as a business-friendly state. It does not take any income tax and no franchise tax for LLCs.
It has a very simple registration process that helps freelancers to get started with their business. If you want to save money and avoid extra taxes, then Nevada could be the right option for you.
Key Benefits:
- No state income tax
- No franchise tax for LLCs
- Easy registration process
Pros and Cons of Registering a Business in a Different State
Keep in mind that starting your own small business in the above states can be an advantage. But, at the same time, it might have some side effects as well.
That’s why when you are choosing the state for your business, look at things such as tax, privacy, and living costs if you are a foreigner.
If you find any issues that you think you can tackle, then look for another state that best fits your business needs. Following are some of the pros and cons of registering a business in different states:
Pros of Registering a Business in Different States:
- Lower taxes: Some states offer no income tax or other tax advantages.
- More favorable business laws: States like Delaware and Wyoming are well-known for being business-friendly.
- Privacy protections: Certain states allow you to keep your name and personal info private.
Cons of Registering a Business in Different States:
- Additional paperwork: Registering in a state you don’t live in could lead to more administrative work.
- Compliance challenges: Managing legal and tax compliance remotely might be more difficult.
How to Register Your Business as a Freelancer in The USA?
If you have started your freelance business and want to register it. Here is how you are going to register your business in 6 simple steps:
- Choose a business structure: Most freelancers register as an LLC for liability protection.
- File formation documents: Visit the official state website and file your business formation documents (such as Articles of Organization for an LLC).
- Pay state fees: Each state has its own registration fees (Delaware, for example, charges around $90 for an LLC).
- Get an EIN: Apply for an Employer Identification Number (EIN) with the IRS. This is similar to a social security number for your business.
- Register for state taxes: Depending on the state, you may need to register for certain state taxes (e.g., sales tax).
- Open a business bank account: To separate your business and personal finances.
Things to Consider Before Registering Your Business
Make sure to check these things before you take any final step towards registering your business in any state:
State and Federal Tax Implications
Find how state and federal taxes will affect your business. Some states may provide tax benefits, but it is critical to understand the overall tax burden.
Cost of Living and Economic Growth
Think about the cost of living and the state’s economic growth. A lower cost of living can help you save money, whereas a strong economy can open up new business opportunities for you.
Seek Professional Advice
Before you make any final decision, consult with a tax or legal professional. They can offer personalized advice based on your specific situation, allowing you to make an informed decision.
The Bottom Line
Keep in mind that the state is chosen for its good tax laws, low living costs, and strong freelance communities. Freelancers should think about what they need and want when picking a state for their business.
The cost to start and run an LLC varies a lot that’s why it is important to look at taxes and other costs to make sure it’s good for the long run.
By looking at all these things freelancer has to make a smart choice that is beneficial for him and his business.
I hope the information was useful and interesting. Please, share it and join us on Arfi Ideas for the latest updates.
FAQs On Best States for Freelancers to Register Their Business
1. What makes Texas’s economy particularly attractive for freelancers?
The economy in Texas is quite the perfect reason for freelancers because there is no personal income tax charged; thus, you are going to keep most of what you earn.
Plus, the state has a robust and diversified economy that creates opportunities for freelancers across all sectors. Not to mention, its low cost of doing business makes it one of the cheapest places to grow a freelance career.
2. How much can a freelancer make without paying taxes?
It makes you eligible to generate up to $400 in any year without being taxed to pay self-employment taxes. If more than that amount, you should be reporting that amount to the IRS, and you will be taxed on that income. Maintain records of your income and your expenses for proper reporting.
3. Can I work as a freelancer in the USA without a work permit?
No, as a freelancer one can not work there without a valid work visa. He needs proper authorization, which may be in the form of a work visa, such as H-1B or O-1 visas, or he needs to be a permanent resident. If a foreigner works illegally, then he risks the possibility of legal proceedings.
4. Do freelancers have to register as a business?
You don’t necessarily need to get registered as a business, but that would depend on your situation. In most instances, a sole proprietor can do business as himself registered by actual name.
Meanwhile, LLC or other business types will afford legal protections, though a significant tax benefit, especially if you ever intend to expand your work.
