LLC Overview
An LLC provides legal and financial protection to owners. LLCs legitimize a business, making it viable for investors and business loans. However, LLCs can be limited for acquisitions and mergers. LLCs tend to suit early stage businesses. Registration is fast and simple without an attorney. The filing fee is around $100 in some states.
Should a startup be an LLC or corporation? Corporations better attract investors. LLCs are simpler to set up and maintain with fewer formalities. LLCs protect personal assets from lawsuits. Ownership spreads across members in an LLC.
Starting an LLC
Steps to Start an LLC
- Choose a business name
- Select registered agent
- File formation documents
- Create operating agreement
- Get EIN
- Set up licenses and permits
Earning Money with an LLC
- Define business goals and target market
- Formally register the LLC
- Arrange financing and accounting
- Market services and products
- Provide consistent quality and value
The IRS treats single-member LLCs as sole proprietorships. Profits and losses report on personal returns.
LLCs can operate without income. But the IRS may audit if claiming deductions without income. The IRS allows loss claims for only 3 of 5 years.
States charge LLC formation fees.
LLC Advantages and Disadvantages
What are 3 disadvantages of an LLC?
LLCs have complexity of taxes and paperwork, and tech startups may struggle with attracting investors due to tax implications.
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.
Do LLCs get tax refunds?
LLCs can elect C corporation status to receive refunds if quarterly estimated payments exceed the tax liability.
Why investors don’t like LLCs?
Corporations attract more investors than LLCs.
Winding Down an LLC
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. 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 on Schedule C and submit it with your 1040 tax return.
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, but the IRS may still require you to file a return.