You know that forming an LLC provides so many benefits to your company, from tax savings to personal asset protection. But maybe you’re still on the fence about taking that next step, because you’re unsure how forming an LLC will affect your business.
Creating an LLC Before You Start a Business
If you haven’t yet started your business and form an LLC before you launch, you’re setting yourself up for success. One benefit of creating your LLC structure before you open up shop is that you won’t have to transition from being a sole proprietorship to an LLC. You’ll simply operate as an LLC from day one, and take advantage of those pass through tax benefits from the start.
Now, in addition to getting approved to operate as an LLC, you will also need to take care of other initial business processes, such as applying for business licenses and permits, getting an EIN, and other things.
Creating an LLC if You Already Run a Business
There may be a slight transition if you move from being a sole proprietor to running an LLC while you’re operating your business. Many of our clients like to get their LLC paperwork completed at the end of a tax year to make for a clean break and a new business structure in the new year. But it doesn’t really matter when you form your LLC.
Taxwise, you’ll continue to claim your business’s profits and losses on your personal taxes (assuming you’ve been operating as a sole proprietor, this is what you’ve been doing). You may need to set up a new bank account, if you didn’t already have a separate one for your business. As an LLC (or a corporation), you’re required to have an account other than your personal account for business transactions.
Moving Forward With an LLC
Whether you’re starting your business from scratch or just changing your business structure to an LLC, you’ll have certain requirements over time that you need to handle to remain compliant as an LLC. Now, while it’s true that the LLC has less formal paperwork to deal with than the S corp, you will need to file your annual report each year.
Some states, like Michigan, North Carolina, Georgia, Florida, and Texas, have specific due dates for the annual report. Other states may just require you to file them by the anniversary of your LLC being approved. It’s important that you know when your deadline is, since missing it could cost you a penalty fee and make your LLC noncompliant with your state.
After that, you’re all set. Forming an LLC is a fantastic way to protect yourself and your business, without requiring so many hoops to jump through.