An LLC does not necessarily need to make any income to be considered an LLC. LLC disadvantages include complexity of taxes and paperwork. However, the liability protection and tax flexibility often benefit small businesses. 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.
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, simplified structure allows smoothly distributing assets and settling obligations.
The IRS treats one-member LLCs as sole proprietorships for tax purposes. 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.
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.
The IRS will only allow you to claim losses on your business for three out of five tax years.