How Do I Create an LLC?

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Starting an LLC

To start an LLC, you need to choose a name, select a registered agent, file articles of organization, obtain licenses and permits, and create an operating agreement. An LLC provides liability protection and flexible management.

Steps to Establish an LLC

Steps to create an LLC include:

  1. Choose a business name
  2. Select a registered agent
  3. File formation documents
  4. Create an operating agreement
  5. Get EIN
  6. Set up licenses and permits

When starting an LLC, you should:

  1. Define business goals and target market
  2. Formally register your LLC
  3. Arrange financing
  4. Market services and products
  5. Provide quality and value

The IRS treats one-member LLCs as sole proprietorships. This means the LLC itself does not pay taxes. As the sole owner, you must report all profits or losses on Schedule C.

States charge an initial formation fee for an LLC. The cost is usually between $50 and $150.

You can change the LLC’s name by amending documents and notifying authorities.

An operating agreement outlines the LLC’s rules. This helps resolve disputes. Having an attorney create one for multiple owners is advisable.

LLC Disadvantages

What are 3 disadvantages of an LLC?

  • 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.
  • What is the downside 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. LLCs set up as S corporations file a Form 1120S but don’t pay any corporate taxes on the income.

Tax Considerations for LLCs

The IRS treats one-member LLCs as sole proprietorships for tax purposes.

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 audit. The IRS will only allow you to claim losses on your business for three out of five tax years.

Side Hustle and LLC

Should I start an LLC for my side hustle?

LLCs aren’t required to have income or post profits. LLCs can choose how they want to be taxed. Taxes can be lower because of this. There is also a management structure you can choose. Credibility is gained by a formal business. You get liability protection with an LLC. Being an LLC can boost your confidence when doing business.

The cost to file an LLC is low, with fees ranging from $40 to $500. Operating fees, a registered agent, and a physical address can add costs, but these are tax write-offs.

An LLC protects your assets if sued. An Operating Agreement outlines the LLC’s rules, which can help resolve issues. With an LLC for your side gig, you gain credibility and are taken more seriously, with benefits such as flexibility and potentially lower taxes. Starting an LLC is an affordable option to protect your side hustle legally.

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