How to start an LLC is a question that many would-be entrepreneurs ask. Creating an LLC can be daunting for some, especially those who lack information on how to do so. Starting an LLC is not as difficult as it may seem. There are several procedures on how to start an LLC that apply to most states.
How To Start An LLC - File Your Income Tax Return for an LLC
An LLC is treated just like a sole proprietorship in most countries. Therefore, one needs to file his income tax return and pay corporate taxes to the IRS using the proper forms. In most cases, an LLC is treated as a pass-through entity and therefore its share of tax liabilities to the IRS will be eliminated. One important key takeaway on how to start an LLC is that although an LLC is not considered a principal corporation by the IRS, it still needs to register and pay taxes accordingly.
How To Start An LLC - What is pass-through?
A pass-through entity is one in which a person's personal assets are transferred to the company holding the contract and not through a personal transfer. These include stocks, bonds, mutual funds, property, partnerships, rental homes, and real estate properties. There are advantages and disadvantages to each. Here are some key takeaway points on
How To Start An LLC - Why should you consider an LLC?
Pass-through entities are more cost-effective than individual self-Directorships, as they are not taxed like they are in the case of C corporations and pass-through businesses are not required to file federal income taxes. As more business owners choose to form Limited Liability Corporations (LLCs), many states are recognizing the benefits of this business structure. An LLC business structure can lead to substantial tax savings for small business owners.
Why should I choose a limited liability entity (LLC)?
An LLC is often chosen for reasons other than avoiding personal taxes or paying payroll taxes. An LLC business structure is beneficial in that there are no joint and several liabilities with other parties. It also provides business owners with the ability to shield their personal assets from the liabilities of the business. An LLC can also be advantageous for the owners who may need to limit personal liability for the debts of the LLC.
What are some Pros and Cons of a limited liability corporation (LLC)?
An LLC is an excellent choice for many different reasons.
Pros of LLC
The most important pro is the fact that an LLC is not required to file any federal or state taxes. A key takeaway from this fact is that the owner of an LLC will not be required to pay income tax on his or her personal assets. This provides the small business owner with additional savings and can lead to significant cost reductions over the long term. Because there is no need to file state tax returns, there is also no need to understand and meet the complex legal requirements that are required for incorporating a business in most states.
Cons of LLC
One con to an LLC is that most states do not allow an LLC to be domiciled. domicile refers to the physical location of the business and is required in order to receive corporate privileges in many states. Other states have variations of the so-called "passing off" of the LLC status when an individual transfers property to it. For this reason, an LLC might not be ideal for certain types of sales and service businesses such as auto body shops, tax preparation services, warehouses, or computer service companies because they are generally required to pay state taxes based on their gross sales.
If you need further information on how to start an LLC, be sure to contact a qualified business attorney who can give you sound advice regarding your specific circumstances. For example, if you have recently been laid off from your job, you may be able to continue selling your physical product through an LLC, but you will likely have to file an annual report with the unemployment insurance office as a seller of your own personal products.
If you have filed a claim and are still holding your job, your unemployment insurance company may not allow you to sell your personal product through an LLC, unless it is held at the office. There are other gray areas in which an LLC might be helpful, however. Understanding how to start an LLC is only the first step in successfully incorporating a limited liability company.