Overview of LLC
A limited liability company (LLC) protects personal assets if the company has debts. LLCs combine legal and financial protections of corporations with tax benefits of sole proprietorships.
Advantages and Disadvantages of LLC
- Owners have limited liability for debts.
- Profits/losses pass through to owners’ tax returns.
- Less paperwork than corporations.
- Flexible management and ownership.
- Complex taxes.
- Increased paperwork versus sole proprietorships.
LLC Formation Steps
- Choose a business name
- Select a registered agent
- File formation documents
- Create operating agreement
- Obtain EIN
- Set up licenses and permits
Taxation and Operations of LLC
The IRS doesn’t tax an LLC directly. Instead, profits/losses pass through to owners’ tax returns.
LLCs can elect C corporation status to receive refunds if estimated payments exceed liability. LLCs set up as S corporations don’t pay corporate taxes on income.
The IRS will only allow claiming losses for three out of five years.
When winding down an LLC, structure allows smoothly distributing assets and settling obligations.
The IRS treats one-member LLCs as sole proprietorships for tax purposes. Profits or losses must be reported on the owner’s personal tax return.
If net income is zero or less, an LLC may not need to pay taxes, but the IRS may still require a return.
States charge a formation fee for an LLC.
Why Use an LLC?
Why would someone use an LLC?