LLCs that become inactive or have no income may still file taxes. Filing depends on how the LLC is taxed – as a corporation, partnership, or disregarded entity.
Maintaining an LLC Without Income
Can I keep my LLC if I don’t make money? The LLC must file a tax return unless it had no income or expenses during the year.
An LLC does not necessarily need to make any income to be considered an LLC. In fact, any small business can structure themselves as an LLC so long as they follow the state’s rules for forming one.
Advantages and Disadvantages of LLCs
What is the disadvantage of an LLC? LLC disadvantages include complexity of taxes and paperwork. However, the liability protection and tax flexibility often benefit small businesses.
Do LLCs get tax refunds? LLCs can elect C corporation status to receive refunds if quarterly estimated payments exceed the tax liability.
Steps to register an LLC include:
- Choose a business name
- Select registered agent
- File formation documents
- Create operating agreement
- Get EIN
- Set up business license & permits
To start making money with an LLC:
- Define business goals and target market
- Formally register your LLC
- Arrange financing & accounting
- Market services & products
- Provide consistent quality & value
When winding down an LLC, simplified structure allows smoothly distributing assets and settling obligations.
The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner of your LLC, you must report all profits or losses of the LLC on Schedule C and submit it with your 1040 tax return.
Miscellaneous Information
What if I don’t make money with my LLC? If your net business income was zero or less, you may not need to pay taxes. The IRS may still require you to file a return, however.
States charge an initial formation fee for an LLC.
LLCs aren’t required to have income or post profits, but if a business owner is claiming tax deductions through an LLC without reporting income, the IRS is likely to conduct an audit to determine if the LLC is an actual for-profit business.
The IRS will only allow you to claim losses on your business for three out of five tax years.