The 4 Best States for Starting a Small Business

If you’ve contemplated starting a small business, then you’re already aware of the million and one considerations on your mind.

Everything from what a successful business model might look like, to how many employees you might need to hire will provide you with a decision-making opportunity that can determine the fate of your business venture.

One less-than-obvious element to profitability is the amount of money you’ll be forced to spend paying for government taxes, licenses, legal fees, and so forth. To that end, individual states are better suited for small business success than others. Here’s our list of four top places you might want to consider relocating to if you’re considering starting your own company.

California

Most people might automatically assume that California’s highly-regulated, highly-taxed economy would not be conducive to a thriving business environment. But if you take a look at Silicon Valley and the vast number of startups that are launched every day, you’d see why some would disagree.

California gets away with its business climate because it has such strong industries. If you’re interested in starting a company within the technology, entertainment, or agricultural industries, then this could be the state for you. Although the market is competitive, you’ll find plenty of access to capital and will have little trouble acquiring the funding you’ll need to get business up and running.

The true challenge with starting a business in this state is whether or not you’ll be able to earn enough business revenue to offset the steep price of property and income taxes. However, California is very green and offers its businesses (and its citizens) a number of eco-friendly tax credits that help cut costs.

Hawaii

This one might come as another surprise for ranking high on our list of the best states to start a business—why would you want to get involved in a super small market, separated from the mainland U.S.A. by a massive body of water? Well, there are a few reasons.

Hawaii’s economy is expected to continue its positive growth with its top industries being tourism, agriculture, and manufacturing. But it’s also a great location for entrepreneurs like yourself because small businesses are a critical piece to the state’s economy, making up over 96% of businesses.

Many stated income loans in Hawaii have favorable terms for self-employed borrowers. Plus, can you imagine the feeling of laying back beneath the shade of a palm tree, firing up your laptop to get some business work done, at your beach-front “office”? A day on the job suddenly sounds much, much more appealing.

Nevada

If you can take the heat, this desert state in one of the best places to open up shop. Commercial real estate in Nevada is pretty cheap, plus they have no corporate income tax nor individual income tax—meaning you can save thousands of dollars otherwise paid to Uncle Sam. You’ll still be subject to the federal tax code, but the savings offered by untaxed dollars is definitely noteworthy.

A state-level sales tax rate of 6.85% is pretty standard, but much cheaper than other states such as New York that may impose ~10% sales tax depending on the city—or over 18% extra tax for garaging services in Manhattan!

Another perk about starting a company in Nevada is the impressive number of available employees. When it comes time to growing your business and hiring team members, you’ll have plenty of talent to choose from.

Alaska

At the polar end of temperature extremes is Alaska, a U.S. state known for its blustery winters, uncharted forests, and colorful wildlife. It also has a reputation for being a great place to start a business due to the fact that the state does not impose an income tax.

(Note: Most business structures are “pass-through” entities in which profits are passed onto the business owner, where it is then reported on an individual income tax return, unless structured as a corporation).

Corporations are taxed at a 4% rate, but the average local sales tax is very low at 1.76%. Alaska has a high per capita domestic product (GDP) and, similar to Nevada, offers a vast pool of candidates for hire when you decide it’s time to grow your business.

There you have it: the cold, the hot, the tropical, and the coastal states best for business. Choose what speaks to you and start searching around!

About the Author

Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.

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