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Taxation and Financial Implications
- 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.
- 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.
Business Operations and Legal Factors
- States charge an initial formation fee for an LLC.
- 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.
- The IRS will only allow you to claim losses on your business for three out of five tax years.
Starting, Maintaining, and Dissolving 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
- 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 smoothly distributing assets and settling obligations.
