Hello,

This is my first post. I am starting an online business. It launches in 1 week. We are strictly online and I do not foresee it ever becoming a Brick and Mortar business or at least not a Brick and Mortar business in the state of Illinois.

I live in IL. My salary from teaching is less than $40K. I am spending my savings to buy stock, web designers, etc. for this company to launch.

From what I am reading on various websites, I am learning that I should incorporate. I have learned that for my situation an S Corp is the route I want to go. However, I have questions about taxes. If I register my company as a Nevada S Corp which is cheaper than registering it in IL, am I able to write off my expenses for my company when I file for state tax?

I understand the value of an accountant and will hire an accountant for my taxes in 2007. However, before I pay for incorporating I need to make sure that the money I make in IL from my job and the company I am starting will be recognized on my IL tax return even though it is a Nevada S Corp. (I will put the money back into the business...etc.) .

I hope this question is very clear.

I appreciate any explanation you can give. It is greatly appreciated as I am very green to taxes.

Dear Mullamama,

I am not sure you want to be a Foreign Illinios corporation! When you register as a corporation in State of Nevada, and you are conducting business in State of Illinios, then you have to obtain permission to do business in Illinois, furthermore, there is a annual filing fee payable to State of Illinois, and then you have to obtain a certificate in good standing from State of Nevada, which again will cost you more money and time.

At the end of the day, it probably makes more sense to incorporate in State of Illinois in my humble opinion.

As far as deductibility of expenses incurred in Illinois, you can do that regardless of where you incorporate.

I currently have a client based in NJ doing business in Illinios,and so I am talking from experience! The process is a little tedious and it does cost a little money excluding my fees!

So, in the end please seek professional advice prior to incorporating in Nevada, because at the end of the day, you still have to pay federal taxes on profits from Nevada and you will be subject to Illinois minimum S Corporation taxes and furthermore, you will have to deal with the hassle of a lot of additional paperwork, time and fees incurred for a foreign corporation.

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Thank you for answering my question.

I am looking at Nevada S Corporation because the owner information is held private. It is not public record. Corporations in Illinois, all info is public record.

I understand the term Foreign Corporation. However, if I am doing business only online, how would my business be a foreign corporation to IL? If my company would be a foreign corporation to IL then wouldn't my company be a foreign corporation to every state that it does business in except for the state of incorporation?

I though a foreign corporation would come into play only if I did something tangible in IL such as participated in a brick and mortar convention.

Would conduct business be defined as my physical address for my company being in IL and not NV?

The physical address is defined as the place "where business is conducted, records are maintained and management decisions takes place". Hence, it appears that Illinios would be your Business location.

Also the fact that you are Il resident having business in NV, means that this business would be reported on your federal tax return, and when you file the State return, there will be Fed to State differences and eventually IL state would know you are conducting business in another state. So, there may be notices from the IL State requesting explanation.

I still think you would be a Foreign corporation from Il point of view and would have to go through the paperwork to obtain permission to do business in Il. I would also consult with a Il CPA to confirm that as well. Good luck on your business.

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I looked into the information you gave me. You were right. It would have been a big headache. I started a S Corporation in my home state. Additionally, I signed up for The Tax Club where for a monetary amount I am supposed to get tax advice via email. I hope it works out. I was unable to find a CPA in my state through word of mouth.

*Removed the word "free" because I paid for their services.