What’s Really Right on Your LLC?

Not only will your LLC ownership percentages be listed here, but this document also details how the business will close (also called dissolving). This is an essential element when opening bank accounts, as many banks require this evidence of dissolution as part of their application process.

Your LLC needs to provide its name, address, and purpose on its application for registration. Most filers select “Any Lawful Activity as its Purpose.”

Taxes

An LLC owner may be held accountable for various taxes, such as federal, state, and local income, sales, payroll, and payroll taxes. These expenses can add up quickly, so it’s essential that when setting up an LLC, you factor these tax obligations into your decision-making. By developing an appropriate tax strategy, you could save money while meeting all relevant legal regulations.

Most LLCs are taxed as pass-through entities, like sole proprietorships or partnerships. This means profits from the business are passed directly to its owners, who must report and pay personal income tax on these earnings. Any losses suffered by an LLC can often be deducted against other income on individual tax returns with certain restrictions and allowances in place.

An alternative tax strategy for LLCs is filing their taxes as C corporations, which requires filing an annual corporate return and paying corporate income taxes on net profit. This option may be appealing for businesses expecting rapid expansion or large capital expenditures, though there may be risks associated with this strategy as the IRS actively searches for any signs of abuse and may impose restrictions based on this assessment.

For those looking to control their LLC taxes, one way is to reinvest profits back into the business over time and retain them within. This will reduce self-employment taxes, which account for 15.3% of net profit – these contributions support social security and Medicare contributions made on behalf of self-employed workers who wouldn’t otherwise have access to these contributions. However, this strategy might result in reduced cash flow and slower growth – however, it might still be appropriate for some entrepreneurs.

Licenses

If your LLC engages in certain types of business activities, a license may be required by the state, county, town, city, or borough in which it operates, as well as by federal authorities. Professionals engaging in activities involving animals, animal byproducts, or plants may need an FDA permit. Before beginning business operations, you must verify all requirements, as failing to obtain the necessary licenses could result in fines or even dissolution of your LLC. Your LLC will also require an Employer Identification Number, or EIN for short. This allows it to open bank accounts and conduct other necessary business transactions – please refer to our article on EINs for more information.

Insurance

Business insurance may not be legally mandated, but LLCs and LLCs need to safeguard themselves against mishaps and liability claims. General liability coverage protects customers or visitors to your company from damages sustained from mishaps; workers’ compensation pays for injuries to employees; professional liability (errors & omissions coverage) covers damages due to negligence. Shop around before making a decision! Get several quotes.