well it also depends on what your state defines as doing business. If you are trading your own account you are not conducting any commerce in your state really by most definitions(i.e. not selling a product or service to citizens of the state or holding yourself out as a business within the state). It depends...
Consider that perhaps you might not be availing yourself to all the income tax benefits available to you: No office in the home deduction. No realtime quotes/charts being ported into your location in the non-Delaware state. No fixed asset deductions: furniture, computer, motor vehicle. Perhaps even no meals and entertainment in the non-Delaware state. Then consider what benefit is there in using DE rather than your own true residence state? Unless it is CA or a high tax state that charges extra for the entity, generally most traders have no reason to use a DE or NV entity. -- And I am not suggesting that CA, MA or other high tax states should form entities in DE or NV. Generally IMO it is not a good idea to form an entity elsewhere than where the owner resides. Of course people who make money selling NV entities will have a whole shopping list of purported good reasons why you should... And # one on that list which they never mention is "so I make my commission level this week" The general requirement for having nexus: a consummated business transaction in the state (even via telephone or internet) OR work performed / worker present in the state OR fixed assets held in the state (including rented space/office location). For most traders is is unlikely that not one of these three tests would be met.
In regards to my Medical Staffing business, I work from home and place physicians in all 50 states and everything is done over the phone and email. Am I supposed to register in every state since I do business in every state? I also have independent contractors that work from home in various different states recruiting physicians for hospitals and practices. Is each independent contractor supposed to register in every state as well? My accountant said to just pay each worker their gross fee (about $12k per placement) without taking out any taxes and then they pay their own taxes once each year. Is this correct? Also, am I responsible to match the social security taxes that each one of them pays each year? I'm hoping not.
Just to be clear I was not recommending DE for the single trader just answering the question. the reason my companies are in DE is that they conduct business in other states and I want the cheaper costs and better corporate judiciary DE provides God forbid I ever get sued. It is just an administrative filing so it is not really a big deal to have the entity in DE even if you live and work in another state and/or conduct business in several states. I do tell people that if they know for a fact they are going to be 100% within a state for all purposes, then simply form the entity in their own state. If you are going to be doing business in various states, pick a tax/liability friendly state such as DE Moreover, if you have a DE corp and work in NY for example, you still get all the tax deductions and thigns you outlined.
If I am trading under my Delaware LLC (pass-thro), I am still taxed in my home state via income tax. There is no tax avoidance and how would I pay penalty? I live in MA that is not very friendly to LLC.
Well that's a specific question best addressed with your own tax advisor... but generally it is where the sale is consummated i.e. where the salesman is constructively while the sale is made. That would probably be in the office where the telephone and the email/computer are located. Where the customer is located when contacted by telephone, mail, email, and so on generally has no bearing on it. But if you sent your physician from your state into another state, or if your physician/employee was working in another state then that would be something to look at to see is nexus was created. Each truly independent contractor probably has his own issues of nexus to contend with. Very similar to the staffing agency. Your accountant has all the facts in your situation. If they are truly independent and you treat them as truly independent, merely paying their invoices when rendered to you, I see nothing out of the ordinary here that says you received anyhing but good advice. You are correct to seek the advice of your own accountant! Truly independent contractors are responsible for their own self-employment (social security) taxes.
IMO the tax avoidance when it comes to the State location of an LLC is not IRS income tax avoidance. It is State taxes and fees that are the issue. If an entity has nexus it has two obligations: #1 is to file income tax returns as appropriate for the entity and #2 is to register with the Secretary of the State eight as a foreign or local(domestic) entity. But if this is a pass-thru entity and you are paying all INCOME taxes anyway, then it is more of a formality... and maybe a few hundred $$$ for various State fees that are being avoided.
To add another final point, I have been commenting on more legal issues. Some of the questions here are pure tax and it never hurts to ask a tax professional before setting up an entity.
Let me rephrase the question. If I earn, for example, $100,000 per year, my accountant says I have to pay 15.3% ($15,300) of that in social security taxes, which is double to what employed people on a salary or wage from a company pay, which is 7.65%. I pay double since I am the employer. I assume this is correct? My other question is say I have 1 independent contractor that works for me that earns 50,000 for the year. I assume he pays 7.65% in social security taxes on the 50k, which amounts to $3,825? Am I responsible, being the employer, to also pay $3,825 in additional social security taxes matching what he is paying in addition to the $15,300 I'm already paying?