Business Entity to hold your real estate… Why Nevada? Why Not Nevada?

As a REI, you probably have a lot of expenses.  If you are like me, it’s be a shame to pay those costs with hard earned after-tax dollars from your day job.  So a lot of people set up business entities to take advantage of tax deductions.  They are not hard to do and the savings will easily more than pay for the initial upfront costs.

Gas costs from driving to potential investments, repairs costs of existing properties, and even that camera you bought to snap pictures of potential investment properties can all be tax deductible if you have a business to pass through those expenses to your personal tax.

Even thought I do not have a property yet, I decided this was going to be the first thing to do because I can then pay all expenses associated with my investments from the business.  I went through the two books I have “Inc Yourself” by Judith McQuown

Inc. Yourself: How to Profit by Setting up Your Own Corporation (Inc. Yourself: How to Profit by Setting Up Your Own Corporation (Paperback))

and “Own Your Own Corporation” by Garrett Sutton  Own Your Own Corporation : Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad’s Advisors (Paperback))

and realized that incorporating in Nevada isn’t the one stop solution that it’s hyped up to be.

First of all, if you have a Nevada Corporation and you want to do business in California, you still need to qualify your Nevada corporation with the Secretary of State in California (there is a minimum tax of 800 in California).  Just because you have a Nevada corporation, it doesn’t mean you don’t pay state taxes !!

The whole hoax about incorporating in Nevada is that there is no state tax, but unless you do business in Nevada, you have to pay tax in the state in which you conduct your business.  However, there are strategies to set up two corporations, one in your home state and another in Nevada where your Home State corporation outsource work to your Nevada corporation.  In that case, you incur costs on your Home State corp and get income in your Nevada Corp. 

I started looking into this because I wanted to set up a business entity, but so far, I still have more questions than answers.  Nevada isn’t the answer yet…  more due diligence needed !!