Doing Business in Different States

Andi Stamper

January 16, 2023

1099 Business

With the current market, traveling to different states for work or an assignment is a common practice. One thing often overlooked by independent contractors is registering their business with the secretary of state office of the new state, or foreign qualification.

When Foreign Qualification is Required

States generally require foreign qualification when an out-of-state entity conducts business in their jurisdiction. The state where you form your business will consider your business to be domestic, while every other state will view your business as foreign. Foreign qualification notifies the state that a foreign business is active there.

The legal definition of conducting business varies by state and often covers a broad spectrum of activities. Common reasons why businesses foreign qualify include:

Hiring an employee who is a resident of a state other than the state of incorporation.
Purchasing property or a building.
Opening a new office or other facility.
Offering services, selling products, or bidding for a contract.
Applying for a professional license, as licensing agencies generally require foreign qualification.

Foreign-qualified businesses typically need to pay taxes and annual report fees in both their state of formation and states where they’re foreign qualified.

From the state’s point of view, foreign qualifying ensures that the public has access to basic information about a business entity it may be dealing with, such as its legal name, business address, and name and address of its registered agent for service of process. Foreign qualification is also required so that foreign entities do not get an unfair advantage over the state’s domestic entities, which are subject to tax and reporting requirements. By requiring qualification, the states can also impose these requirements on foreign entities.

Examples of Foreign Qualifications

Here are two examples of common situations when you need to obtain foreign qualification and when you don’t:

1) You incorporated your business in Nevada, but you are physically located in California and do work in California. You need to foreign qualify in California.

2) You are a freelancer who formed an LLC for your business in Florida. You perform the majority of your work in Virginia. You need to foreign qualify in Virginia.

If you have any questions about whether or not your business needs to foreign qualify, you should check with your attorney or accountant.

How to Foreign Qualify

If you have determined that you need to register your business in another state, you will need to submit an application with that state’s Secretary of State office. In some states, this is called a Certificate of Authority, in others it’s the Statement & Designation by a Foreign Corporation.

You can contact the Secretary of State’s office yourself or have the service that incorporated your company handle the filing for you.

The paperwork itself is relatively straightforward, but keep in mind that some states will require you to have a certificate of good standing from the state where your LLC/corporation is registered. That means you will need to be up to date on your state taxes and filings.

Get a registered agent

You–or any other individual person– can only act as the registered agent for your business in the state where you live. If you foreign qualify your company to another state, you’ll need a registered agent that lives in that state or is authorized to do business there. A registered agent service can be a good solution. A registered agent receives official papers and legal documents on behalf of your company.

There are consequences for not having a registered agent: You won’t receive important government and tax documentation and could risk missing important notices about any lawsuits against your company. Not having a registered agent could result in the state suspending your company’s right to conduct business.

What are the consequences of not foreign qualifying?

Financial risk: A costly consequence to failing to qualify if your business entity meets the state’s registration criteria is that states will assess fines, penalties and back taxes for the time the company was transacting business without obtaining a certificate of authority to do so. In some states, individual officers or agents may be fined as well.

Legal Risk: States deny non-compliant companies the right to bring or maintain a lawsuit or other legal proceeding in their court system. This means that a company wouldn’t be able to sue to recover damages or to enforce a contract. (Although it will be able to defend itself.)

The bottom line:If you are legally required to foreign qualify and you don’t, It could end up costing you much more in the long run. Check with your legal and tax experts to discuss the topic further.

STEPS TO FOLLOW TO BUILD A 1099 BUSINESS:

Protect yourself and your assets by performing your contract work under the umbrella of a business entity. Think about what you’d like your proposed business to be named!
- Visit your Secretary of State website to see if your chosen name is available
- Check with your state’s Board of Nursing for state specific requirements
File applicable business set-up paperwork

The S-Corp Edge: How you structure your 1099 CRNA business will have far-reaching consequences, whether it is a sole proprietorship, a limited liability corporation (LLC), or an S corporation (S-corp).
An S-corp may offer several advantages over other business structures when it comes to taxation. In this structure, a business owner is called a shareholder, and the business owner is recognized by the IRS as an employee of the business. What this means is that the business owner must pay themselves a salary through the corporation. The S-corp pays their payroll taxes, which can in turn be deducted as a business expense. Income tax is paid through its owners’ tax returns based on their percentage of ownership. Moreover, any remaining profits have a lower tax rate than regular income. An S-corp may also allow 1099 CRNAs to avoid a higher tax level that other self-employed contractors pay for Medicare and Social Security.
A CRNA may structure their company as an S-corp serving as the sole owner, with their business income, tax deductions, and losses passing through to the owner, as opposed to being taxed at a corporate level – a potentially smart move for maximizing financial security in the future.

- Register for an EIN
Open a business checking account and credit card
Keep track of all your business expenses as these could save you money come tax time!
- Have an envelope for receipts or a folder on your computer where you scan these into
Be sure not to co-mingle your business and personal finances!
Remember, as a freelance CRNA, if you don’t work, you don’t get paid!
- Do you have at least six months savings should your contract abruptly stop?
Think about replacing your current benefits
- Health Insurance
- Health Savings Account/Dependent Savings Account
- Retirement Savings Account
- Life Insurance
- Disability Insurance
Procure malpractice insurance
Look for jobs!
Apply for state licenses where you want to work
- Each state needs a different CRNA license (and RN if they are not a compact state). Keep this in mind as some BONs can take 3-6 months to license a provider.
Have an employment attorney review your contract
Have your contract written to your business and deposit all earnings into your business checking
Keep A Schedule

As a W-2 employee, your taxable income and amounts taken out for taxes appeared on your W-2 form at the end of every year, without you having to calculate them. But when a firm pays more than $600 for services from an independent contractor, that income must be reported to the IRS.
What many 1099 CRNAs don’t realize is that they must pay taxes on their income as they earn it. Paying your quarterly estimated income taxes will be a new part of running your business successfully.
It doesn’t sound so difficult—keeping track of paying estimated income tax only happens four times a year. But the reality is a late payment can result in penalties and fines from the IRS. Keeping a schedule to help you stay on top of your quarterly estimated tax payments, and paying adequately to avoid underpayment, is imperative in avoiding penalties in the future. Not to mention providing peace of mind!

Make sure you have a trusted team of accounting and/or financial professionals who have experience with freelance CRNAs to guide you through this process!

CPAs
Financial Planners
Bookkeepers

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Have Any Questions?

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