- What Do You Need To File Llc Taxes
- Should You Form An Llc In Delaware? How To Decide Where To Register An Llc
- Llc Taxation For Non Us Residents In 2023: The Ultimate Guide
What Do You Need To File Llc Taxes – Congratulations! You’ve filed your articles of organization, appointed a registered agent, paid the required fees, and you’re the proud owner of your very own limited liability company!
You’ve probably chosen an LLC business structure for its tax and liability benefits, but your LLC can’t help you if it’s weak enough to stand up to scrutiny. In this article, we’ll go over some ways to make sure your LLC remains strong enough to provide protection.
What Do You Need To File Llc Taxes
As a business structure, LLCs are especially appealing to small companies because they offer the legal protections of a corporation along with the tax advantages of a sole proprietorship or partnership.
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If you are a sole proprietor or partnership, there is no legal separation between your business and your personal assets. This means that if you are sued by a customer or unable to pay debts, your personal assets – your savings, your retirement accounts, even your home – could potentially be seized to pay the debt. An LLC protects your personal assets by limiting business-related liabilities to your business assets only – hence the term “limited liability.”
On the other hand, if your company is a corporation, both your business and the money you pay yourself are taxed—essentially, your profits are taxed twice. Unlike corporations, however, LLCs are not taxed. Instead, the money is included in the owners’ personal tax returns (called “pass-through taxation”), and the owners pay personal income tax on any profits.
The nuances of tax and liability vary, so it’s worth consulting with a tax advisor and/or attorney about your particular situation. The important thing to understand, though, is that an LLC is a separate legal entity from its owners. Having an LLC is a good start, but maintaining it is just as important. For example, in the event of a bankruptcy, tax audit, or lawsuit, you need to be able to prove to a court or the IRS that you treat your company as a formal business, not a personal slush fund.
If you can’t show proof that your LLC is a real business, you could miss out on many of the benefits it should provide. You’ll also lose those benefits if your LLC is dissolved, which can happen if you fail to file your annual reports and pay related fees.
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Fortunately, maintaining an LLC is not difficult. Following are some quick tips to ensure your LLC stays in good standing.
Registering your business as an LLC is an important first step in establishing your business—but it’s not the only one. The following steps are not always legally required so they are sometimes overlooked. However, they are necessary to keep your LLC in good standing.
Even if your LLC is already formed, do these things as soon as possible before you start working with a client or clients. Each of them contributes to the strength of your LLC and helps it face any challenges. Bonus: They’re all good business practices that you should be doing anyway.
Especially if you’re a one-man show (aka, single-member LLC) with a simple business model, such as freelancing or consulting, it can be tempting to keep using your personal bank account for company purposes.
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But while it’s not technically illegal to mix your personal finances with your LLC, it’s not a good idea.
The whole point of an LLC, after all, is to separate your personal assets from your business. If you co-mingle your personal and business funds, the court may decide that your LLC is not a separate legal entity. This puts you at risk of losing the liability protection that an LLC provides — and by extension, puts your personal assets at risk.
Separate bank accounts also simplify record keeping and tax compliance. If you’re ever audited, a separate and well-maintained business account will save you a lot of time and aggravation in your dealings with the IRS.
Fortunately, opening a business account is easy. Most banks and credit unions will let you open one as soon as you have a business name and EIN (you can get an EIN right away by filing one online with the IRS). Once it’s set up, treat your business bank account like your job depends on it — because it kind of does.
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Some, but not all, states require LLCs to have an operating agreement, but whether it’s required or not, it’s a smart move, especially if you go into business with one or more people.
An operating agreement lays out the responsibilities of each member, the assets each person contributes to the business, how ownership is structured, how money is raised and distributed, what your process is for adding and removing members, and under what circumstances and how your company will do so. Dissolve.
Your operating agreement is a legally binding document, so getting the help of a lawyer to draft it is a good investment.
The exact requirements for licenses and permits that you need for your business will depend on your region and your industry, but it is your responsibility to know which ones you need, make sure you have them, and keep them up to date.
Should You Form An Llc In Delaware? How To Decide Where To Register An Llc
You risk losing your LLC status if you don’t have the correct and valid licenses or permits, and you could find yourself paying fines or even legal fees — so don’t start work until you have everything you need!
If you’ve formed your LLC but want to conduct business under another name, you’ll need to file a “doing business” (DBA), sometimes called a “fictitious name.”
For example, the owner of Agnes Johnson Media LLC prefers to do business as “Blissful Wedding Photography.” If she operates her business under that name without registering for a DBA, however, she risks invalidating her LLC.
Fortunately, the process of registering a DBA is usually simple and inexpensive. The exact requirements vary, but in most cases, you can find out what steps you need to take from the state agency where you registered your LLC. Don’t forget that you have to renew your DBAs regularly (usually annually).
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A DBA allows you to run more than one business without filing for a whole new LLC. For example, assuming she has the right licenses and permits, Agnes Johnson can create the companies “Happy Wedding Cakes” and “Happy Flower Arrangements” by registering an additional DBA.
Going forward, you’ll need to perform some regular maintenance to keep your LLC in good standing. These are ongoing actions that help keep your LLC in good standing and that it is neither dissolved through negligence nor weakened to the point that it is worthless.
If you’ve just created your LLC, you haven’t been required to file an annual report for at least a year — but now is the time to make sure it’s on the calendar.
Many states require LLCs to file an annual report, sometimes referred to as a statement of information (SOI). A handful of states only require your SOI every two years, and if you’re registered in Pennsylvania, you’ll only need to file once every 10 years.
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Whether annual or not, your report is filed with your Secretary of State. This can usually be done online, but the cost and exact requirements for filing vary from state to state. Some states send reminders before your report is due, but ultimately, it’s your responsibility to make sure it’s filed. If you miss the deadline, you may have to pay a late fee.
If you hire a company to form your LLC, verify if they will file your report for you (and ask how much they will charge) or if you need to do it yourself. Either way, right now, while you’re thinking about it, find out when your next report is due and put the date on your calendar to make sure it gets filed on time.
It sounds very formal and intimidating, but your annual report isn’t like a letter to shareholders detailing everything your business has done in the past year. This is indeed an opportunity to confirm or update the following:
Once again, keeping minutes and other company records is not a legal requirement, but it is a good way to protect yourself.
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Remember that in the event of a lawsuit, bankruptcy, or any other situation that could put your company’s assets at risk, it’s important to be able to prove that your LLC is a separate entity from you personally—that is, that it’s a real business. Not just tax breaks. Regular record keeping strengthens your personal liability protection in the event of a lawsuit by showing that you treat your company like a business.
Detailed, detailed financial records also make dealing with taxes easier and will be essential if you need a loan for your business.
You should keep copies of the following at your place of business, as well as back them up in the cloud so you can get your hands on them quickly and easily:
As mentioned above, in the case of many limited liability companies, it is the owners, not the company itself, who pay the tax.
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That said, there are many variables, whether you’re a single or multi-member LLC, how your operating agreement is set up, whether you’re responsible for payroll taxes, if you sell taxable goods and services, and where you’re located. .
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