Establishing an LLC is generally a critical step for every entrepreneur as it allows business owners to limit personal liability as well as enjoy some tax benefits. But it doesn’t mean that the journey is over once the forms have been filed. An internal relationship needs to be established, which is neither too complex nor too simple – from tax compliance to defining the business scope and obtaining the necessary licenses and permits.
Post-LLC formation constitutes the most daunting phase and Mighty News has come in to help you keep the legal and financial management of the business in a rather more bearable way.
Understanding Your LLC Tax Obligations
One of the most common concerns of newly formed LLC owners is, “What does this mean for how my business taxes will be?” Taxation of LLC is a very interesting concept, but its regret somewhat falls short of providing a consistently simple answer.
• Default Treatment: Pass-Through Taxation: In the absence of any election, the IRS will regard a single-member LLC as a sole proprietorship and a multi-member LLC as a partnership. This means that the distributed profits and losses are taxed at individual tax levels and not at the company level through reports in personal income tax returns. You will avert being taxed at both the corporate level and the personal level (which is double taxation), however, you will have self-employment taxes on the entire business profit.
• Electing Corporate Taxation (C Corp or S Corp): You may also elect for your LLC to be treated as either a C or S Corporation by submitting Form 8832 to the IRS. This may benefit certain types of businesses, like those wanting to keep profits inside or provide employee stock options. Nevertheless, it is always a good idea to seek the advice of a tax expert to see if such an election is compatible with your aspirations in the long term.
Managing Business Licenses and Permits
Establishing an LLC often involves getting a number of licenses and permits at the federal, state and local levels. The requirements, in general, go from business to business based on the nature of the industry and the area where the company is situated.
• Federal Licenses and Permits: Particular businesses like agricultural, firearms, and alcohol companies are required to have federal licenses to operate legally. There’s also a small business administration site that tells you whether you need federal licensing for your business or not.
• Regulatory coverage of different jurisdictions: The majority of the states are, thereby, the state licensing boards or agencies that regulate a specific profession as well as the industry. Moreover, you will probably have to acquire a general business license from your city or county. Consult with the local chamber of commerce or relevant government bodies to determine the licenses and permits necessary for your LLC.
The Significance of an EIN
A business entity’s Employer Identification Number is an IRS-issued unique nine-digit number for a business or organization. While often associated with hiring employees, an EIN serves several essential purposes for LLCs, even solo ventures.
• Opening a Business Bank Account: When opening a business account at a bank, whether it is a single member LLC or not, it will be a requirement that you provide EIN.
• Building Business Credit: It is important to note that business owners can accumulate business debts without compromising their credit because a business credit is established for the said company. In order to obtain your EIN, you will have to register your business with the IRS so that your credit history can start building.
• Tax and Compliance: In case you choose to be taxed as a corporation or partnership, then be ready because, as part of the requirements of tax filings, you will have to secure an EIN.
Staying Compliant: Ongoing Requirements for Your LLC
Having handled the initial setup, what is often overlooked are the continuing compliance obligations on your part for the welfare of the LLC.
• Annual Reports: An annual report is often necessary in most states with local LLCs that highlight the business’ key constituents and place of business, a registered agent, and other members constituting the LLC.
• Franchise Tax Filings: Franchise taxes are also some potentially Additional sales tax revenues that might be earned on LLCs that other states impose fees runtime.
• Registered Agent Maintenance: An LLC has to have a registered agent as a natural person or a company with the power to accept any legal and official delivery on behalf of your company. Always check if your registered agent information is up to date and complies with the laws of your state.
Mighty News: Your Partner in LLC Success
Undeniably, one of the most overwhelming processes in running an LLC is understanding all legal and financial responsibilities and this is paramount in safeguarding one’s business in the long term. We assure you that Mighty News will help you access the tools, understand the information, and make appropriate investments to excel in entrepreneurship.
