Tax Advantages of A Nevada Limited Corporation – Getting Away With Paying 15% Tax

September 27, 2004
By Richard Smith

Many of us with personal wealth or additional income streams have cause to consider incorporating offshore companies in order to limit our domestic taxation. However, what would you say if someone could offer you some of the benefits of an offshore corporation, whilst still maintaining the account within the boundaries of the United States? Utilizing the tax advantages of a Nevada limited corporation, you could get away with paying no more than 15% tax on your yearly earnings.

Essentially, most corporations that consider incorporating in the State of Nevada do so for one, or both, of two reasons: (a) there’s no imputed state income tax on corporate or personal earnings; and (b) Nevada has one of the strictest corporate privacy policies in mainland USA. As it happens, both of these policies can be utilized to ensure that you need not pay more than 15% taxation on your yearly income.

In part, the reason you are required to pay 15% taxation on your yearly income earnings is because this is the federal tax rate. However, as there are no state-imputed taxes in Nevada, this then becomes your top tax rate (i.e. 15+0 = 15). Notwithstanding this, a number of concerns that may arise elsewhere have less of an impact in Nevada due to the fact that Nevada does not share information with the IRS. For example, provided that you are able to maintain an “arm’s length” relationship with your Nevada state corporation, there should be no reason why the IRS may designate your earnings as:

• a personal holding company (which only applies to corporations that have 5 or fewer stockholders): where you would be subject to a surcharge IRS tax rate of 39.6% on your undistributed earnings from passive income;
• a personal service corporation: where you would be subject to a surcharge IRS tax rate of 35%; or
• a controlled group status: and thus subject to a progressive taxation rate, dependent upon earnings.

In short, unless one wishes to live extravagantly, provided you are able to maintain the distance of arm’s length, and event where you have control of the corporation in question in reality, due to Nevada’s very favorable taxation and privacy policies, there should be no reason why you cannot limit your income tax on earnings received to 15% per annum, without needing to go offshore and pay expensive overheads to limit tax. Moreover, staying within the confines of mainland USA, you also sleep better at night knowing you have tighter controls over your savings; thus giving you the best of all worlds!