Limited Liability Companies - Things To Watch Out For
The limited liability company, better known as the LLC, was first given life in the United States in Wyoming in the late 1970s. It took through the 1990s for other states to get on board with it, but they did. Now, the LLC is touted as the greatest thing since sliced pie when it comes to business entities. While it certainly has many positive aspects, there are a few things you need to watch out for.
It slices. It dices. It will do your laundry and mow the lawn! Yes, we've all seen and been humored by the infomercials that canvas television these days. I have to admit the ShamWow is a particular favorite. Regardless, the same kind of claims are often made about LLCs. You get all the liability protection of a corporation, but without any of the paperwork headaches! You can be taxed as a partnership and avoid double taxation! You can make millions...okay, now we are getting carried away. While many of the claims related to this business entity are true, there are some things to watch out for.
The first issue is taxes. If you are starting the business with other people, then an LLC can be a great vehicle because you will be taxed as a partnership. If you are going to be the only owner, you can run into some odd problems. The IRS doesn't allow you to file a partnership return for a single owner LLC. Instead, you either have to report the revenues as a sole proprietor or make a corporate tax election. Most pick an "S" corp designation, but it can cause confusion and is a bit of a headache to deal with.
The second big issue is the fee issue. States need money as you've probably noticed. Many of them have noticed how popular LLCs are with business. In response, they've added a host of fees to the LLC that you often don't discover until after the fact. They can be expensive and very annoying. California, for instance, charges an $800 fee for the privilege of doing business in California and a gross revenues tax. Yes, GROSS revenues. Many states take similar approaches of stacking fees and taxes on the entity, so you really need to know what you are getting into.
Is the limited liability company the best choice for your business? Maybe. Maybe not. Make sure you understand what is involved in your state and then make a choice that won't cost you a bundle down the road.
It slices. It dices. It will do your laundry and mow the lawn! Yes, we've all seen and been humored by the infomercials that canvas television these days. I have to admit the ShamWow is a particular favorite. Regardless, the same kind of claims are often made about LLCs. You get all the liability protection of a corporation, but without any of the paperwork headaches! You can be taxed as a partnership and avoid double taxation! You can make millions...okay, now we are getting carried away. While many of the claims related to this business entity are true, there are some things to watch out for.
The first issue is taxes. If you are starting the business with other people, then an LLC can be a great vehicle because you will be taxed as a partnership. If you are going to be the only owner, you can run into some odd problems. The IRS doesn't allow you to file a partnership return for a single owner LLC. Instead, you either have to report the revenues as a sole proprietor or make a corporate tax election. Most pick an "S" corp designation, but it can cause confusion and is a bit of a headache to deal with.
The second big issue is the fee issue. States need money as you've probably noticed. Many of them have noticed how popular LLCs are with business. In response, they've added a host of fees to the LLC that you often don't discover until after the fact. They can be expensive and very annoying. California, for instance, charges an $800 fee for the privilege of doing business in California and a gross revenues tax. Yes, GROSS revenues. Many states take similar approaches of stacking fees and taxes on the entity, so you really need to know what you are getting into.
Is the limited liability company the best choice for your business? Maybe. Maybe not. Make sure you understand what is involved in your state and then make a choice that won't cost you a bundle down the road.
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