Where to Form an S-Corporation:
Home State vs Delaware, Nevada, Wyoming

Bottom line up front
For a small service business that primarily operates in one “home” state, forming the S corporation in a different state rarely reduces total tax or compliance burdens. You will generally need to register and pay in both the formation state and the home state where you actually do business, and your federal S‑corporation pass‑through tax result is the same regardless of state of formation (see the IRS overview of S corporations and filing guidance) IRS S Corporations; 2024 Instructions for Form 1120‑S.

Federal tax perspective (applies in any state)

• S status is a federal (and often state) tax election. Eligibility and election rules don’t vary by formation state. An eligible domestic corporation elects S status on Form 2553; once accepted, the entity files Form 1120‑S and passes items to shareholders. Certain built‑in gains and passive income can be taxed at the entity level, but ordinary income/loss generally flows through to the shareholder for state and federal taxes (see IRS overview, Form 2553 instructions, and Form 1120‑S instructions) IRS S Corporations; Instructions for Form 2553; 2024 Instructions for Form 1120‑S.

• Core federal S‑corp rules include: allowable shareholders, one class of stock, domestic corporation, and ≤100 shareholders; plus election/consent procedures and termination/relief rules. These do not change with the state of incorporation (see Form 2553 and its instructions) Form 2553; Instructions for Form 2553.

Practical state‑level considerations (if you incorporate outside the home state)

• You will still need to register in your home state as a “foreign” corporation if you’re doing business there (paying that state’s registration, annual report, and agent fees). For example, Wyoming requires a foreign entity to obtain a certificate of authority and maintain a registered agent to lawfully do business in Wyoming (other states impose similar “foreign qualification” rules) Wyoming Foreign LLC Certificate of Authority Instructions (PDF).

• You often pay fees/taxes in both states: formation‑state ongoing fees (e.g., franchise tax or annual report/license fee) and home‑state annual fees and income/franchise tax based on where business is actually conducted (see the state pages below) Delaware Franchise Taxes; Nevada State Business License FAQ; Wyoming Business FAQs.

• You’ll still file federal S‑corp returns the same way; the state of formation does not change federal filing or flow‑through treatment (see IRS overview and 1120‑S instructions) IRS S Corporations; 2024 Instructions for Form 1120‑S.

Delaware (a common “alternative” formation state)

• Franchise tax applies to domestic Delaware corporations even during periods of inactivity; non‑stock corporations pay a minimum annual tax. Delaware domestic corporations must file an annual franchise tax report and pay franchise tax (minimums and calculation methods vary). Foreign corporations doing business in Delaware file an annual report but do not pay Delaware franchise tax; however, if your entity is domestic in Delaware, you’re subject to its franchise tax regime regardless of where you do business Delaware Franchise Taxes.

• Corporate income tax filing: If your S‑corp actually does business in Delaware, a Delaware corporate return may be required (Delaware generally recognizes the federal S election and taxes shareholders on pass‑through income). Corporations not conducting business in Delaware need not file Delaware corporate income tax, but a domestic Delaware corporation still owes franchise tax and annual report obligations Filing Corporate Income Tax (Delaware).

• Delaware’s corporate income tax apportionment has shifted to single‑sales factor, but this is relevant mainly for multistate activity and does not eliminate home‑state tax on income sourced to your home state (see Delaware corporate tax pages) Businesses — Delaware Division of Revenue.

Pros (Delaware):

• Well‑defined franchise tax and filing regime, with widely recognized corporate law framework Delaware Franchise Taxes.

• Broad recognition of the federal S election (shareholders report pass‑through income; Delaware generally does not impose corporate income tax on S‑corps’ pass‑through income) Filing Corporate Income Tax (Delaware).

Cons (Delaware):

• Franchise tax applies to domestic DE corporations even if you operate elsewhere; you’ll still register and pay annual fees/taxes in your home state if you do business there Delaware Franchise Taxes; Filing Corporate Income Tax (Delaware).

Nevada

• Business license requirement: Nevada requires entities to maintain a State Business License and pay an annual renewal fee—$500 for corporations and $200 for other entity types—regardless of whether other Nevada taxes apply. This is due with the annual list filing Nevada State Business License FAQ.

• Nevada Commerce Tax applies only if Nevada gross revenue exceeds $4,000,000 per year; below that threshold, you typically have no Commerce Tax filing requirement. However, the business license requirement is separate and still applies Nevada Commerce Tax FAQs; NRS Chapter 76 (Business Licenses).

Pros (Nevada):

• No broad corporate income tax; Commerce Tax applies only on Nevada gross revenue exceeding $4,000,000 Nevada Commerce Tax FAQs.

Cons (Nevada):

• Mandatory State Business License fee annually ($500 for corporations), plus foreign qualification back in your home state if you do business there Nevada State Business License FAQ.

Wyoming

• Low annual report license tax/fees: Wyoming assesses an annual report license tax of $60 or $0.0002 per dollar of assets located/employed in Wyoming (whichever is greater), plus standard filing fees (see Wyoming SOS resources) Wyoming Business FAQs.

• If you form in Wyoming but do not physically operate there, you still have Wyoming annual report obligations as a domestic entity, and you will still need foreign qualification in your home state if you’re doing business there Wyoming Business FAQs; Wyoming Foreign LLC Certificate of Authority Instructions (PDF).

Pros (Wyoming):

• Low annual report license taxes and filing fees compared to many states Wyoming Business FAQs.

Cons (Wyoming):

• You’ll still register and pay in your home state if you do business there; you may end up managing two sets of annual filings and fees Wyoming Foreign LLC Certificate of Authority Instructions (PDF).

Pros of forming in your home state

• Simplicity: One set of annual filings, fees, and registered agent obligations where your service business actually operates (see your state’s business filing portal; examples provided above) Delaware Business Tax Forms; Nevada Secretary of State Businesses; Wyoming Secretary of State Forms & Publications.

• No “double‑filing” costs: Avoid paying formation‑state franchise fees (e.g., Delaware) or business license fees (e.g., Nevada) on top of your home state fees if your actual business activity is not in the formation state Delaware Franchise Taxes; Nevada State Business License FAQ; Wyoming Business FAQs.

• Tax sourcing: Your S‑corporation income will generally be taxed by your home state based on where services are performed/benefit received, regardless of where you formed. State of formation usually does not change home‑state income tax on pass‑through income to the owner (see IRS S corp overview) IRS S Corporations.

Cons (and when an out‑of‑state formation makes sense)

• Potential advantages of alternative states (e.g., certain fee structures or administrative conveniences) can matter if you truly operate in multiple states or intend to grow operations in the formation state. For example, Nevada’s lack of a general corporate income tax and Wyoming’s low annual report fees appeal to multistate operators—but you’ll still face the home state’s taxes and foreign qualification if most activity is in the home state Nevada Commerce Tax FAQs; Wyoming Business FAQs; Wyoming Foreign LLC Certificate of Authority Instructions (PDF).

• Delaware corporate franchise tax can be favorable or predictable for some capital structures, but as a domestic corporation you owe franchise tax even if you don’t do business there, and you still register/pay in your home state for actual operations Delaware Franchise Taxes; Filing Corporate Income Tax (Delaware).

Recommendation framework

• If you primarily deliver services in your home state, forming the S corporation in your home state is usually the most cost‑effective and simplest approach (see IRS S corp overview for federal rules that apply regardless of state) IRS S Corporations.

• Consider an alternative state only if:

  • You genuinely conduct substantial business in that state (so you aren’t paying annual fees just for a paper domicile).

  • Its fee/tax structure materially benefits your real operations (e.g., Nevada Commerce Tax does not apply unless Nevada gross revenue exceeds $4,000,000, but its business license fee still does) Nevada Commerce Tax FAQs; Nevada State Business License FAQ.

  • You’re prepared to manage foreign qualification and annual filings in every state where you have nexus (registration, agent, reports, and taxes) Wyoming Foreign LLC Certificate of Authority Instructions (PDF).

• No matter where you form, ensure you meet federal S‑corp eligibility, file Form 2553 timely, and keep up with Form 1120‑S and shareholder reporting. The formation state does not alter federal S‑corp rules or filings Form 2553; Instructions for Form 2553; 2024 Instructions for Form 1120‑S.

In short
A small service business owner typically avoids duplicative fees and filings by forming in the home state where business is actually conducted. Forming in Delaware, Nevada, or Wyoming can be appropriate in specific circumstances, but you should weigh those states’ ongoing franchise/license costs against having to register and pay in your home state anyway if that’s where you work and earn income Delaware Franchise Taxes; Nevada State Business License FAQ; Wyoming Business FAQs; Filing Corporate Income Tax (Delaware).

This essay is not tax advice. Always consult a qualified tax professional for your specific situation.