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.
Downside of an LLC
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.
Tax Refunds for LLCs
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.
Steps to Register an LLC
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
Making Money With an LLC
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. 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.
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.
Main Disadvantages
What are 5 disadvantages of LLC?
- Complexity of taxes and required paperwork
- LLCs can be expensive to form and maintain
- Potential for disputes between members
- Taxation complexity including the possibility of double taxation
- Members owe self-employment taxes
Pros and Cons
What are the pros and cons of forming an LLC?
Pros:
- Limits personal liability for business debts
- Prevents double taxation of profits
- Protects personal assets
Cons:
- May not offer full liability protection
- Can cause disputes between members
- Complex taxation with potential for double taxation
- Owners owe self-employment taxes