Setting up an LLC in Wyoming will not shield your from tax issues in your home state (California or otherwise).

Those LLCs are such a headhache from a tax point of view, plus they depend so much on state and federal regulations. Good luck doing business internationally as well.

Why do you think we invented the 100% virtual company (http://fairsoftware.net)?

Granted, the liability part is not as strong as a clean LLC, but you are shielded from your customers, and you can work with pretty much anyone worldwide without having to worry about any paperwork at all.

In general you're likely to have to file taxes/annual reports in the state you live/work in, as well as the state the business is incorporated in.

Incorporation in Delaware or another random state is a needless hassle and expense for small businesses. Incorporate in your home state. When you get big enough that you have several accountants and lawyers employed by your company, they can tell you the benefits of shifting the incorporation to another state. Until then... it's a waste. Premature optimization, as they say.

I have to disagree, from experience. CD Baby was a Nevada corporation, though I was set up in New York when I started and Oregon when I left. I never had to file anything in Nevada, and there were no "needless" hassles or expenses.

Someone has to be the "resident agent" for the corporation. It's no harder to incorporate in Wyoming or Delaware than it is in Ohio or Arizona. The expense really is only $100-$300 a year to have a resident agent, and I've found it very worth it.

I'd rather have the LLC/corporation domiciled in a state like Wyoming, Delaware, or Nevada so that I'm free to be location-agnostic with where I choose to live or work. If you incorporate in California or New York you're going to really regret it when you move to Texas or London in a couple years.

Not all LLC's are created equal. If you're going to incorporate in your home state, make sure your state has a "strong" LLC.