Where Shall I Establish My LLC/LLP?

I am an engineer that will soon be having a sole client, an Austin, TX based company. I will be providing my services while working from my home office (in NY state); occassionally (say, once in a month or so) I will be flying down to Austin for a couple of days at a time, working out of their office.

For the purpose of getting paid, I'd like to establish an LLC / LLP; My objectives are as follows:

(1) The business entity should pay zero corporate taxes; All taxes etc should be passsed through to me (i.e, as an individual, I will pay taxes only when the LLC pays me a salary)

(2) The business will have as little paperwork to do / keep up (if possible, as little annual report / annual return forms as possible; The scale of the business will be small, so hopefully I should have no costs of lawyers / accountants etc)

(3) Most cost effective -- the costs of opening the LLC/LLP, and any annual reports / recurring fees should be as low as possible

Just to make things clear, I plan to be a one-man shop, doing all of my work remotely, using my laptop (no inventory, office, employees, sales staff etc).

P.S. Will I need to register as a 'foreign LLC' in New York State, where I live? note that I will have no contracts / business engagements there -- I will just be working on my laptop.

Based on your comment, that won't work. An LLC is a "Pass-through" entity, in that money the LLC makes shows up on your tax return, even if it stays in the LLC's bank account. In fact, if you're the only member of the LLC, the IRS will disregard it entirely, and act like the money it got went straight to you.

Now, you can tell the IRS "Please treat this LLC as a corporation," in which case money the company makes wouldn't be taxed to you until it's distributed to you. But, then the LLC has to pay its own taxes. That's likely not what you want either. Worse, since you're providing engineering services, the company would be treated as a "Personal Service Corporation," which means that every dollar is taxed at 35%. (Non-PSCs have graduated rates -- the first $50K is only taxed at 15%, for example.)

The general rule is that if somebody makes profits in a tax year, they have to pay taxes on it in that year. Having an LLC, corporation, trust or what not only changes the identity of the person paying those taxes.

I concur with Chris regarding all the tax issues. To answer the question about foreign registering in NY, the answer is here: http://www.dos.ny.gov/cnsl/do_bus.html

Statute offers little guidance on the nature of the business required for qualification. For example, Business Corporation Law § 103(b) provides, "This chapter applies to commerce with foreign nations and among the several states, and to corporations formed by or under any act of congress, only to the extent permitted under the constitution and laws of the United States." However, as the preceding discussion shows, that is a truism. Beyond that, Business Corporation Law § 1301(b) and its analogs offer only nonexclusive lists of activities that do not constitute doing business. As a class these are activities that have to do with maintaining the organization's status as an entity. Examples include holding meetings of owners or managers, maintaining bank accounts, and defending actions and proceedings.