For some reason, I have always been confused about instructions for llc setup. In my mind, an LLC is a business entity separate from the person (you) who owns it. In reality, LLCs are simply small business corporations that can be incorporated in almost any state. Unlike corporations, though, an LLC has no centralized public document - instead, all of the LLC's documents are stored in individual filing cabinets at the offices of the attorneys general of the states where the LLC is registered.

 

As you probably already know, there are two basic types of businesses: C corporations and S corporations. A C corporation is a separate legal entity from its owner. The company may create some kind of a subsidiary in the US or in a foreign country, but its primary place of business is actually on American soil. Because of this, when it comes time to file its annual federal tax return, it must report its business assets and its personal assets in the same way that it reports its federal income. A C corporation must choose one kind of entity to file its financial statements - either its own personal assets or its business assets.

 

An LLC does not have to report its annual report to the federal tax authorities in the same way as a C corporation. One reason for this is that most state taxation for LLCs is actually a local taxation issue. The state that issued the LLC's license may not charge the business owners who register their LLC a corporate tax rate, which is what they'd be required to pay if they had filed a sole proprietorship or corporation. Another reason why an LLC might not be taxed like corporations is that most LLCs are actually composed of just one person - usually, a woman or a man. This person does not, therefore, owe taxes on his or her personal assets, unless those assets are legally classified as personal property. Then, only the person's wife or husband can be taxed for those personal assets, and only then.

How To Start An LLC - FAQs About Forming A LLC

 

Many people ask how to start an llc. One answer to that question is to register a business name with the secretary of state in their jurisdiction. Then, when a new LLC is formed in that same state, it may have to pay the appropriate corporate tax immediately. Some states allow new LLCs to be treated as S corporations, for tax purposes. Others allow S corporations to be self-deterred by rolling the LLC into a large corporation and then paying the appropriate taxes. Still others permit new LLCs to be treated as partnerships for tax reporting purposes.

 

The other option available to business owners who want to establish an LLC is to choose whether to register the business as a corporation in its home state, or to treat it as a partnership. In order to have its IRS tax status changed to a corporation, an LLC would have to file a form called Articles of Organization with the secretary of state of its domicile. The Articles of Organization must be signed by the members of the LLC. An LLC in its home state does not have to file an Articles of Organization, if it is organized under the laws of its home state. On the other hand, an LLC filing Articles of Organization must file the appropriate tax forms with the secretary of state of its domicile. Business owners need to understand that they must file their state tax returns with the IRS, not the state they are domiciled in.

 

LLCs are subject to state and local taxes. All of the state taxes, plus all applicable fees, are reported on the owner's annual report. Some states require that an LLC file an annual report even if it is exempt from state taxes. If an LLC does not file an annual report, it will be taxed as an unincorporated business entity, rather than a corporation. The annual report will list all of the LLC's income and expenses, including those incurred for its own operating expenses, its capital assets, and its liabilities.

 

As an LLC, it is not required to provide personal income tax deductions. A C corporation may be required to itemize deductions each year. In contrast, an LLC receives a standard deduction for its personal income taxes and nothing more. This double taxation can cause many entrepreneurs and small business owners to delay making large purchases or invest in certain lines of work. Because an LLC has no corporate veil, it is much harder to determine its actual financial health, especially in the case of an audit by a government agency.

 

The paperwork required to incorporate an LLC is significantly less than the paperwork required for most other types of corporations. In many cases, business owners simply file their federal and state taxes and pay the applicable fees. Those interested in learning more about how to start an LLC should consider speaking with a qualified lawyer. He or she can assist them in preparing the necessary paperwork and can help them learn more about the ins and outs of LLCs and related issues.

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