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Even if your LLC is formed in Delaware, most states (including Michigan) will expect you to register as a foreign LLC and pay taxes if:
- You’re physically working from that state.
- You’re regularly meeting with clients in that state (even online).
- You’re earning income tied to services performed while present in the state.
In short, if you reside or work from Michigan, the state has the right to tax your LLC’s income, even if the entity is technically registered in Delaware.
How Would the IRS or State Know Where You're Operating From?
They don't always know automatically, but it can become obvious if:
- Your tax return shows a Michigan address.
- You use a Michigan bank account or pay for business expenses there.
- Your IP address or devices consistently show Michigan activity.
- Your business licenses, utilities, or rent are tied to Michigan.
- You apply for health insurance or register to vote there.
- You receive 1099s or client payments with Michigan as the service address.
If Michigan audits you, they’ll look at these indicators to decide if your LLC is “doing business” there. It’s not about where your LLC is registered — it’s about where the activity is taking place.
How to Minimize Tax and Legal Burdens While Remaining Compliant
Option 1: Keep a True Nomad Status (No Domicile State)
This is possible but difficult to pull off. You’d have to give up all ties to any one state (no residence, driver’s license, voter registration, etc.), use a mail forwarding service in a tax-free state (e.g., Florida, Texas, South Dakota), form your LLC in Delaware or another favorable state, and travel continuously or live abroad.
Option 2: Accept Residency but Use Smart Structuring
If you expect to live in a state like Michigan for part or most of the year, this route is more realistic:
- Form your LLC in Delaware and keep a Delaware registered agent and address.
- Register your Delaware LLC as a “foreign LLC” in Michigan if you reside or work there more than temporarily.
- Report LLC income on your Michigan state return, or whatever state you reside in.
- Avoid double taxation — Delaware doesn’t tax out-of-state LLC income, so you’d only pay the $300/year franchise tax there.
- Use a separate business mailing address, virtual mailbox, or co-working space if needed for privacy.
This structure gives you compliance, legitimacy, and mobility while still letting you live where you need to live without hiding from tax obligations.
What About Federal Taxes?
Regardless of state, the IRS will tax your LLC based on how it’s structured:
- Single-member LLC: Taxed as a sole proprietorship by default. Report income on Schedule C of your personal return.
- Multi-member LLC: Defaults to a partnership, or you can elect S-Corp/C-Corp status.
No matter what, the IRS expects accurate reporting of where you earned the income and how much. Residency affects your state return, not federal.
Realistic and Legal Tax-Saving Tips
- Limit your time in high-tax states to under 183 days/year if you’re traveling.
- Use a tax-friendly state (like Florida or Texas) as your “domicile” if you’re going nomad.
- Keep clear records of where you are when you’re working.
- Deduct travel, home office, and business expenses legally to reduce your federal tax burden.
