Whether you’re hoping to relocate to someplace with warmer weather or a better tax climate, it’s usually not as simple as packing up your stuff and hitting the road. Self-employed business owners have more considerations to make, including how a change in address will affect their income.
Here are six questions sole proprietors and LLC owners should ask before moving to a new state.
What licenses and permits do I need?
If you already have a successful business in your home state, it’s easy to assume the same rules apply in your new state. Unfortunately, there are no consistent licensing or business application requirements for all 50 states, even for those that require additional federal permitting.
Visit the business licensing authority in your new state for information on what’s required before you move. You can also see our handy guide to licensure here. It may take time to get the OK to set up shop in your new location, so start this process as soon as you learn of a potential new move.
How will I move my LLC to the new state?
LLCs are formed at the state level and when you move, your LLC doesn’t immediately transfer to a new state and you can’t just start doing business. This means that you need to decide how you’ll register your LLC in your new state.
When it comes to moving your LLC to a new state you have a few options:
Register your LLC as a foreign LLC
When you register your LLC as a foreign LLC in your new state, your old state remains your LLC’s home state. This means that your LLC is registered in two states. As a foreign LLC, you don’t need to get a new EIN number, open a new bank account or go through the hassle of dissolving and reforming your LLC.
But, you’ll also need to maintain a registered agent in each state, follow both state’s LLC reporting requirements, and pay both state’s LLC fees. That’s double the paperwork and money.
Registering as a foreign LLC is best for those who are making a temporary move or anticipate moving states again in the near future. You’ll still be able to conduct business legally in your new state, but you’ll maintain your LLC in your old state.
To register your LLC as a foreign LLC, you’ll file a form with your new state and pay a filing fee. The type of form you’ll file and the fee varies by state.
Transfer your LLC to your new state
Transferring your LLC to a new state is called domestication. When you domesticate your LLC you get to keep your EIN number, bank account and LLC’s credit history. But, unlike registering your state as a foreign LLC, your LLC will only be registered in one state. This means less paperwork and fewer fees to worry about.
There’s one very important thing to know about transferring an LLC: Not all states support domestication. So, before you go all-in with domestication, check that your new state supports it.
States that support LLC domestication:
Transferring your LLC to a new state is best for those who are making a permanent move and don’t want the hassle of maintaining an LLC in two states.
To create a domesticated LLC, you’ll first obtain a certificate of good standing with your old state. Then, you’ll file this certificate along with articles of domestication and pay a fee to your new state. The last step is to dissolve your LLC in your old state.
Form a new LLC and dissolve the old one
If your new state doesn’t support domestication, or you simply want a fresh start, then your last option is to form a new LLC in your new state and dissolve the old one.
The drawback is that when you form a new LLC, you’ll also need to obtain a new EIN number, open a new bank account, and you’ll lose your LLCs credit history. If your LLC has multiple members, you’ll likely need professional support to ensure that the process of dissolution, and formation, are done correctly.
How will the move impact my taxes?
While moving from one state to another won’t impact your federal taxes, it will impact your state taxes and how you file your taxes.
Income tax rules and rates vary by state and some states, like Texas, don’t have income tax at all. Before you move, familiarize yourself with your new state’s income tax rules and assess how these rules will affect your overall tax situation.
Also, check your new state’s residency requirements. If you’ve relocated temporarily, the residency requirements will help you understand at what point you have a tax obligation to the state.
If you’re required to file a state tax return, then you’ll need to keep track of your self-employment earnings in your new state and your old state. When you file your taxes, you’ll likely file returns with both states and pay prorated income tax. Some states have an income tax reciprocity agreement, which can further complicate your state tax filing process.
The complexity of your state taxes will depend on your business, move, and the states involved.
Are there state laws that will impact my business?
Some states have recently taken a harder approach toward employee classification, and this should be carefully considered before making any move. California’s AB5, for example, may be just the beginning of new regulations that will impact how sole proprietors find work in certain industries.
As more states move toward the untangling of tricky legal definitions, forming an LLC may help you present your business as a solid and independent enterprise free from some employee/employer oversight. If you do need to form an LLC to conform with your new state’s laws, then you’ll want to plan for this before you move.
Will my business be relevant?
Maybe you’ve seen amazing successes in your current business. How will a move affect that? At first glance, it may not seem like anything will change, especially if you’re moving to a community similar to the one you left behind.
The culture of different states can be quite the contrast, however, with the populations set on doing their own thing, buying the products they are most familiar with, and only investing in services that support their existing lifestyles.
If you’re moving from a state with a very different way of life, will your business be as relevant? This isn’t as much of a consideration for online companies who serve the entire country (or globe), but prepare yourself if you want to thrive in a local, customer-facing enterprise.
Will I have support?
It’s not enough to have customers. You also want to have like-minded business owners who get your struggles and can come alongside and offer resources, advice, and networking opportunities.
Each state has a very different scene for business owners, from their chambers of commerce to local industry conferences. If you can, research what’s out there before you move and start connecting on LinkedIn. Sign up for industry email newsletters. Check out some virtual events. See what state-based education programs, grants, and growth accelerators exist.
While moving to someplace better is admirable, communities, industries, and laws change. Continue to do your research, stay on top of changing business conditions, and look for future opportunities to grow and serve those around you. Your next move may be easier if you go in knowing the level of groundwork required.
Andi Smiles, small business financial consultant and coach, teaches rad business owners to take control of their finances so they can step into their personal power.
She’s helped hundreds of self-employed folx organize and understand their business finances, while also uncovering their emotional relationship with money. Andi’s core belief is that when business owners are engaged with their finances, their personal awareness around money deepens, creating more sustainable and authentic businesses. She loves helping business owners connect with and feel good about their finances- no matter how many dollars are in their bank account.