Most business owners pick a state to form their LLC based on a blog post they read years ago. That post probably said Delaware. It was probably wrong for their situation.
The Fee Trap Most LLCs Fall Into
Filing fees are a one-time cost. Annual maintenance fees are forever. That distinction matters more than almost anything else when choosing a state.
California charges an $800 annual minimum franchise tax on every LLC, regardless of whether the business earns a dollar. New Jersey charges $75 annually, plus a $125 registered agent fee if you use one. These recurring costs compound fast over a decade of operation.
New Mexico charges $50 to file and $0 annually. Wyoming charges $100 to file and a $60 minimum annual report fee. Those two states consistently rank as the cheapest LLC states in the country, and the math is straightforward: a California LLC costs at least $8,000 more over ten years than a New Mexico LLC, before you factor in any state income tax.
Which States Actually Win on Taxes
Filing fees are minor compared to what state income tax does to your bottom line over time.
Texas has no state income tax and no state-level LLC income tax. The franchise tax applies only to businesses with revenue above $2.47 million (as of late 2025, with no adjustment announced for 2026 at time of publication). For most small LLCs, that threshold means a $0 Texas franchise tax bill. The $138.75 annual report fee is the main recurring cost.
Wyoming has no state income tax and no corporate income tax. It also has strong charging order protections, meaning creditors cannot easily seize your LLC membership interest to satisfy a personal judgment against you. That legal layer matters for anyone with personal liability exposure.
Florida has no state income tax and charges $138.75 annually for LLC reports. It combines low ongoing costs with a functioning business ecosystem, which matters if you plan to hire employees or open physical locations. Our breakdown of the true cost of living in high-tax states covers how state tax structures compound over time, and the same logic applies to business formation.
New Mexico wins on fees but not necessarily on taxes. It does have a state income tax of up to 5.9%, which applies to pass-through LLC income. If your LLC earns significant revenue and you live in New Mexico, that rate matters.
Non-Residents: The Foreign Registration Problem
Forming an LLC in Wyoming when you live in Ohio does not let you escape Ohio taxes. This is the most common misunderstanding in LLC formation advice.
If you operate your business in your home state, that state can require you to register as a foreign LLC and pay its taxes and fees. You end up paying in two states. For most small business owners who operate locally, the best state to form an LLC is usually their home state.
The Wyoming and Delaware advantage is real, but it applies cleanly in specific situations: online businesses with no physical nexus in a high-tax state, holding companies, and businesses with multi-state operations where formation state choice genuinely shifts tax exposure.
Delaware remains popular for venture-backed startups because investors and lawyers know its case law, not because it is cheap. Delaware charges $300 annually in franchise tax at minimum, and its income tax rate is 6.6%.
Legal Protections Are Not Equal
Wyoming and New Mexico both offer single-member LLC charging order protection, which shields your membership interest from personal creditors. Many states do not extend that protection to single-member LLCs.
Nevada markets itself heavily on privacy and asset protection. Its filing fee is $425 initially and $350 annually, which undercuts the value for businesses watching costs. The privacy benefit is real but overstated. Most states now allow registered agents to serve as the public-facing address, reducing exposure regardless of where you form.
Texas scores well here too. Its homestead exemption and strong personal asset protections pair with reasonable LLC protections to make it a genuinely business-friendly state. If you are already thinking about where to live for tax purposes, our capital gains tax breakdown by state shows how personal tax exposure intersects with business income decisions.
Use our state tax calculator to model what your specific revenue level costs in each state before committing.
Key Takeaways
- New Mexico ($50 to file, $0 annually) and Wyoming ($100 to file, $60 annually) are the cheapest states to form and maintain an LLC in 2026.
- Texas eliminates state income tax and franchise tax for LLCs under $2.47 million in revenue, making it the strongest low-cost option for growing businesses.
- Non-residents who form LLCs in low-tax states but operate in high-tax states typically owe fees and taxes in both states, eliminating most of the benefit.
Sources
- Live or Die Here state tax calculator
- Live or Die Here, New Mexico: taxes, laws and costs
- Live or Die Here, Wyoming: taxes, laws and costs
- Live or Die Here, Delaware: taxes, laws and costs
- Live or Die Here, Texas: taxes, laws and costs
Where to confirm these figures
These are the official and primary publishers for the topics in this guide. Check a figure against them before you act on it; laws and rates change, and their current page wins over ours.