What You Need to Know About Starting an LLC?

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How Do LLC Owners Make Money?

  • An LLC protects owners from personal liability for company debts. LLCs don’t pay taxes directly; profits/losses are reported on owners’ tax returns. LLCs must file tax returns unless no income/expenses.

Advantages and Disadvantages of LLCs

  • LLC advantages: liability protection, tax flexibility.
  • Disadvantages: complex taxes, paperwork.

Steps to Make Money with an LLC

  1. Define business goals and target market
  2. Formally register the LLC
  3. Arrange financing and accounting
  4. Market services and products
  5. Provide quality and value

Steps to Register an LLC

  1. Choose a business name
  2. Select registered agent
  3. File formation documents
  4. Create operating agreement
  5. Get EIN
  6. Set up licenses and permits

  • The IRS treats single-member LLCs as sole proprietorships for taxes.

  • States charge LLC formation fees. LLCs aren’t required to post profits. IRS may audit if claiming deductions without income. IRS only allows 3 years of losses out of 5.

LLC Disadvantages

  • LLC disadvantages include complexity of taxes and paperwork. However, the liability protection and tax flexibility 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 don’t pay corporate taxes on the income.

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