Your company's second year costs more than its first

Company formation is sold the way printers are sold. The headline number is the cheap part, and the business model lives in the consumables.

This is not a scandal — it is just how the pricing is arranged. But it means the number a founder budgets against is almost always the wrong one. Year one is a discounted bundle. Year two is the real price of the thing, and it arrives with items that were never quoted because they are not services anybody sells you: a state franchise tax, a federal information return, and eventually an identification number that quietly expires.

Here is what a US LLC actually costs to keep alive over five years, itemised.

What year two is made of

Five recurring items, only one of which is usually included in a formation package.

• Registered agent. Mandatory in every state. Roughly $50–150 a year. Almost always free for year one in a formation bundle, which is exactly why year two surprises people.
• State annual report or franchise tax. Owed for existing, not for earning. Ranges from nothing to hundreds depending on the state.
• The federal information return. A foreign-owned single-member LLC must file Form 5472 with a pro forma Form 1120 annually. Preparation runs a few hundred dollars; not filing runs $25,000.
• Bookkeeping. Optional in the sense that a smoke alarm is optional. Somewhere between doing it yourself and $150 a month.
• A US business address or mail handling, if the registered agent's address is not one you can actually use for banking and correspondence. $10–40 a month.

The four states, compared honestly

These are the four that founders actually choose between. The spread in annual cost is larger than the spread in formation cost, which is the opposite of how they are usually compared.

Two entries deserve comment.

Florida's $400. It is not a percentage, it is not prorated, and it is described as non-waivable. Miss 1 May and the bill roughly quadruples. Continue to miss it and the state can administratively dissolve the company later in the year. For an entity whose entire annual cost was going to be $138.75, this is the single sharpest cliff in the table.

New Mexico's zero. Genuinely zero — there is no annual report for an LLC. If pure minimum upkeep is the goal, this is the cheapest credible option in the country. What you give up is Wyoming's depth of precedent and the fact that counterparties recognise a Wyoming or Delaware entity without thinking about it.

Five years, all in

A realistic total for a solo non-resident founder running a services business: registered agent, state fees, the federal information return prepared by someone competent, and light bookkeeping.

The pattern that matters is not the total. It is the shape: year two is roughly double year one, in every column. A founder who budgeted from the formation quote has under-provisioned by about half from the moment the first anniversary lands.

One cost that just disappeared

If you are reading formation guides written before this summer, most of them will tell you a US LLC must file a beneficial ownership information report with FinCEN under the Corporate Transparency Act. That was true, then contested, then narrowed, and is now finished.

An interim final rule in March 2025 redefined "reporting company" to cover only entities formed under foreign law that have registered to do business in a US state or tribal jurisdiction — removing US-formed companies and US persons from the regime. A final rule issued on 11 August 2026, effective 14 August 2026, made that permanent.

The practical takeaway is narrower than it looks: one line item is gone, and any guide still listing a BOI filing fee for a Wyoming LLC is out of date. It is a useful test to run on whatever else that guide told you.

The costs that only appear if you grow

None of the above is triggered by revenue. These are.

• Foreign qualification. Doing business in a state other than the one you formed in generally requires registering there — a second filing fee, a second registered agent and a second annual report, permanently.
• Sales tax registration. Economic nexus is triggered by sales volume or transaction counts into a state, not by having an office there. Each registration brings its own periodic returns.
• A US personal return. If you develop effectively connected income, Form 1040-NR joins the list — and that is the point at which the ITIN stops being optional.
• Payroll. A single US employee or US-based contractor treated as an employee brings federal and state registrations and quarterly filings.

Each of these roughly doubles the annual compliance bill on its own. They are worth knowing about in advance not because they are avoidable, but because the decision that triggers them — hiring one person in one state — rarely looks like a compliance decision at the time.

Dormancy is not free

The most expensive version of all of this is the entity you stopped using and did not close.

A dormant LLC still owes its registered agent, still owes its state annual report or franchise tax, and — this is the one that hurts — still owes the annual Form 5472 with pro forma Form 1120, with the same $25,000 penalty for not filing. Zero revenue is not an exemption. The obligation attaches to the entity existing, not to it trading.

If you are not using the company, dissolve it properly. Letting a state administratively dissolve it leaves the federal filing obligation and any state tax liability exactly where they were.

A clean dissolution means final filings, settling outstanding state amounts, closing bank accounts and formally notifying the state — and it costs a few hundred dollars once, against an open-ended annual liability that accrues quietly for years.

What to do with this

1. 1Budget from year two, not year one. Take the formation quote, ignore it, and plan against the recurring column.
2. 2Diarise every date the moment the entity exists — the state due date, 15 April for the federal information return, and the registered agent renewal.
3. 3Check the state before optimising the fee. The gap between New Mexico's $0 and Delaware's $300 is $1,200 over five years. That is real, and it is also smaller than one avoidable Florida late penalty and one missed 5472.
4. 4Re-read anything that still lists a BOI filing. It dates the source, and tells you how much else to check.
5. 5Close what you are not using. Dormant is the most expensive state an entity can be in, because it is the one nobody is watching.

The strategic point underneath the arithmetic: the cheapest state is rarely the decision that matters. Over five years the entire spread between the best and worst state here is around $1,200, while a single missed federal information return is $25,000. Optimise for the deadline you will actually meet, not the fee you will save.