Disadvantages of LLC
LLCs can be expensive to form and maintain. They may not offer the liability protection of a corporation. Taxation complexity is another downside as profits can be taxed at corporate and personal levels. Members also owe self-employment tax.
Steps to Register an LLC
- Choose a business name
- Select registered agent
- File formation documents
- Create operating agreement
- Get EIN
- Set up business license and permits
Starting a Successful LLC
- Define business goals and target market
- Formally register your LLC
- Arrange financing and accounting
- Market services and products
- Provide consistent quality and value
Taxation of One-Member LLCs
The IRS treats one-member LLCs as sole proprietorships for tax purposes. The LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner, you must report all profits or losses on Schedule C and submit it with your 1040 tax return.
Filing Taxes for an LLC
If your net business income was zero or less, you may not need to pay taxes. However, the IRS may still require you to file a return.
Charging Fees for LLC Formation
States charge an initial formation fee for an LLC. It typically ranges from $40 to $500.
Audit Risk for LLCs Without Income
LLCs aren’t required to have income or post profits, but claiming tax deductions without reporting income may lead to an IRS audit to determine the legitimacy of the business.
Limitations on Loss Claims
The IRS allows claiming losses on your business for three out of five tax years.