Dual Corporation Strategies
State Tax Savings and Asset Protection
If you do business in a high business tax state, you have
probably looked with envy at the low tax rates in Nevada.
There are legal methods that you can leverage a Nevada corporation
that does business with your "home state" corporation.
For example, let's say you are a building contractor in
California. You have set up a California corporation several
years ago, and pay state income tax on the profits of that
business. Your next step will be to set up a Nevada
corporation. The Nevada corporation will do business with
the California corporation. The two businesses will have the
same total income for U.S. tax purposes, so there will be no
impact on U.S. income taxes. In fact, depending on how it is
set up, you may need to consolidate the two corporations for your
Federal income taxes.
The Nevada corporation will make loans to the the California
corporation for its business needs. The loans will have a
market interest rate and require regular payments. For the
loans, the California corporation (and you) will provide UCC-1's
on your business and personal assets. This provides the
Nevada corporation the security it needs for the loans
(collateral)-- just like a normal bank loan. A great benefit
to this strategy is asset protection in the case of a lawsuit.
Since the Nevada corporation has encumbered (liened) all of your
business and personal assets in California, you have become much
less attractive for a potential lawsuit.
You should contact a number of business lenders for the
appropriate interest rate on this type of loan. The survey
that you take should be documented and be based on the current
business credit condition of your California corporation.
Any interest paid by the California corporation will become a
deduction in California and income in Nevada. Again, it is
critical that the loan be documented, have payments, and have a
market interest rate.
The benefits of this strategy are a great deal of asset
protection for your home state corporation, and potential tax
savings depending on where you do business. Any of the
incorporation provider links on this page in the green box can
provide you with full detail and personal consulting on this #1
Nevada incorporation strategy.
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