If you're thinking about registering your business in another state for a more growth-friendly environment, the state of Florida has likely made your shortlist.
With a booming and diverse economy, a large skilled workforce, and business-friendly tax regulations, it's easy to see why the Sunshine State is a top choice for entrepreneurs.
But are Florida's tax benefits really worth registering your business in the state?
Here, we look at the advantages and downsides of registering your limited liability company (LLC) in Florida.
A key benefit of getting a Florida business address for your LLC is that your business will be treated as a pass-through entity for tax purposes.
A pass-through entity is a business that passes its profits and losses to shareholders' personal tax returns. Essentially, the LLC itself isn't subject to taxation on its income. Instead, all taxes due are paid at the individual level.
One of the main benefits of pass-through taxation is that you avoid double taxation, which can be a huge cost saver for small businesses and startups.
It's worth noting that many other states, including California and Massachusetts, also treat LLCs as pass-through entities. However, they impose large annual state fees ($800 and $500) and have some of the highest tax rates in the country, minimizing the impact of the pass-through tax advantage.
So, if you're looking for an all-around tax-friendly state, Florida is one of your best options.
Deductions are expenses you can subtract from your taxable income to reduce your tax obligation. They are vital for LLCs as they can place you in a lower tax bracket, opening your business up to significant tax savings. The more you save, the more funds you can re-invest in your business to support growth.
Florida has numerous tax deduction opportunities that help create a business-friendly environment. LLCs can deduct the following expenses from their income:
Further, under the 2018 Tax Cuts and Jobs Act, LLC owners can claim a 20% deduction on pass-through income from their businesses.
It's worth noting that Florida's deductions aren't limited to the expenses mentioned above. But you’ll need to consult a tax professional to fully understand the tax benefits Florida LLCs and their owners receive.
Since Florida doesn't levy a state income tax, LLCs and sole proprietorships do not pay self-employment taxes to the state. Your Florida LLC’s only obligations are the self-employment tax to the Internal Revenue Service (IRS) and the Sunshine State's 6% sales tax.
The current federal self-employment tax rate is 15.3% of your net earnings — a 12.4% Social Security tax and a 2.9% Medicare tax. While establishing your LLC in Florida doesn't exempt you from this tax (since it's imposed at the federal level), registering your business in the state can lower your overall LLC tax obligation.
Other states that don't impose income taxes include Nevada, Tennessee, Texas, and Wyoming. Remember, they don't impact your commitment to the IRS — they make it easier for you to meet it by reducing the cost of doing business.
While Florida is undoubtedly one of the best options for entrepreneurs looking for tax-friendly environments, it may not be ideal for everyone. Here’s why.
One of the main benefits of an LLC business structure is that it inherently provides a high degree of personal liability protection. Business assets are considered separate from personal assets, meaning that you can't personally be held liable for business risks, and creditors can't go after your business to resolve your personal debts.
That said, some states offer remedies for creditors to help minimize their liability. In Florida, as in many states, creditors can get a charging order — a lien authorized by a court that allows them to seek distributions that an LLC would otherwise issue to the debtor.
However, this order doesn't give creditors the right to participate in decision-making or any other LLC activity. As such, if the LLC decides not to issue distributions to a creditor, there's nothing they can do (at least in states like Nevada).
In Florida, the charging order is considered the only remedy available to a judgment creditor in the case of multi-member LLCs. But there's less protection for single-member LLCs. A creditor can seek a charging order as a first step and foreclose on your membership interest if you refuse or are unable to make distributions.
A foreclosure means that you'll have to sell your LLC interest. When you do, the purchaser (who is often the creditor) becomes a member of your LLC and can run "your" business however they see fit.
As the new sole owner, they may dissolve the LLC and sell its assets to satisfy your debt. This makes the single-member LLC business structure unfavorable in Florida.
So, if you're set on forming an LLC in the state, you may want to increase the number of members to ensure asset protection. To form a multi-member LLC, you can partner with another entrepreneur and share ownership interest — this means you'll share the rights to distributions, as well as profits and losses.
If you don't want to dilute your ownership, you can always add another member without sharing interest. Instead of an economic interest, the other member has basic rights, such as the right to audit LLC records and participate in non-essential decision-making.
This option is protected in Florida law through the Florida Revised Limited Liability Company Act section 605.0401(4).
Florida is among the best states for small business owners looking for tax advantages. It treats LLCs as pass-through entities, doesn't impose state income taxes, and offers generous deductions, reducing overall tax expenses. The only downside is that it provides limited liability protection for single-member LLCs.
Stable can help you register your business entity in Florida or anywhere else you choose to establish your LLC.
Stable is one of the best virtual business address providers, offering not only professional and local business addresses but also registered agent services. This means we can act as your point of contact with the Florida Secretary of State and government agencies like the IRS.
Ready to establish your business in Florida (or another U.S. state)? Create a Stable address today!
