Taxation and Financial Aspects
LLC disadvantages include complexity of taxes and paperwork. For taxation, LLCs can elect C corporation status to receive refunds if quarterly estimated payments exceed the tax liability. As for S corporations, they file a Form 1120S but don’t pay any corporate taxes on the income.
If your net business income was zero or less, you may not need to pay taxes. However, the IRS may still require a tax return file.
The IRS only allows you to claim losses on your business for three out of five tax years. States charge an initial formation fee for an LLC, which is a mandatory cost.
Operations and Maintenance
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 and permits
To start making money with an LLC:
- Define business goals and target market
- Formally register your LLC
- Arrange financing and accounting
- Market services and products
- Provide consistent quality and value
When winding down an LLC, the simplified structure allows for smoothly distributing assets and settling obligations.
The IRS treats one-member LLCs as sole proprietorships for tax purposes, with the LLC itself not paying taxes and not having 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.
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.