LLC

An LLC is formed by filing articles of organization with the State of your choice. If you're going to have an actual business in the State, it will be simplest to form the LLC in your home State where you are a resident of. If you're using the Limited Liability Company as a holding company and you live in a State with high annual fees and registration fees, having us form the LLC in a tax friendly State like Wyoming, Nevada, Delaware, South Dakota, Montana, or Idaho may be advantageous to you. Please keep in mind that at the end of the day, unless you elect to have the LLC be taxed with the IRS as a corporation, the profits of the LLC will still come down to you personally and you'll be paying personal income tax at the normal rate of your home State that you have a drivers license or have residency in.

The beauty of the LLC is the lack of annual meetings that corporations are usually required to have. Granted, no one really is out there checking if a private corporation is holding annual meetings, but there are not annual meeting requirements with an LLC. A multi member LLC may choose to hold annual meetings to go over the specifics of the LLC, but it is not required. You can call a meeting at any time with the other members. If you're a single member LLC, it's basically you just documenting changes if you need to. It's really not as complicated as it may sound. The big reason why single owners choose an LLC is there isn't really voting requirements for decisions, and there aren't officer roles that you would have to fill on paper with a corporation.

Typically, you would start a bank account with the LLC Articles of Organization, a Limited Liability Company operating agreement, and a Tax ID number from the IRS. The ownership of an LLC is given with a certificate. This "Certificate" does not actually have to be printed out, or physical of any sorts. It can be simply jotted down on paper or in a single members head. Let's say the business needs $10,000 to start. The member would put $10,000 of his or her personal money into the new business checking account and for that money consideration they would have a percent of the membership interest. If it's only one person it would be 100%. If there are multiple people, everyone would have a membership interest according to the amount of money they initially fund the company with. You can change the percentages at any time if people want to contribute more. You can physically print out a membership certificate and document this with our LLC membership certificates.

The owners of the LLC are the members. Usually single member LLC's would be member managed, but on the public documents in almost every State you have to list the members or managers. So you might want to list just the manager, even if you're a single member LLC so that on the public records, it's not technically giving away who owns the LLC. We like to make all LLC's manager managed just for this reason. On the back end, the members control the managers, so if you're the same person it doesn't really mean anything to you.

Managers for a multi member LLC can be an important distinction. Let's say 10 different families invest $100.000 each in a ski in ski out vacation rental property. Each family would be the members, but none of them live at the ski resort, so they might hire a property manager to rent it out when they aren't using it, and maintain it. It would be smart to designate one or two of the members and the property manager as the managers of the LLC for day to day operations of your vacation rental.

Members can always vote out the manager(s) of the LLC.

If you're doing business in your home State, the best place to start an LLC will always be where you live. If you're doing things on the internet or using the company as a holding company for assets, forming an LLC in a tax friendly State like South Dakota, Wyoming, Nevada, Montana, or Delaware are nice options. You don't even have to get a Tax ID number, and can just report the income if any on your personal 1040 tax return.

Forming a company in a tax free State like Wyoming usually won't be of benefit to you if you live in a normal taxing State like New Mexico or anywhere with a normal tax burden. Living in a place like California, New York, New Jersey, or any State with high fees and high taxes, can present some nice options of forming an LLC out of State and trying to run some of the income through it that way. Electing the LLC as a C corporation keeps the money from getting down onto you personally where you might need to pay a high personal income tax rate in a high taxed State. At the end of the day, it's always simplest and sometimes in the long run, cheaper to incorporate or form an LLC in your home State rather than playing the tax hide and seek game. We'll be glad to help you no matter what you decide.

The IRS charges a percentage of your NET taxable income after you take your deductions off the money you made for the year. The Internal Revenue Service charges the percentages on a sliding scale, meaning you pay the percentage for each bracket. So if you made $20,000 net taxable income for the year, the first $8,350.00 would be taxed at the lowest bracket of 10% and the next $10,000 would be taxed at the 15% bracket, and up and up and up with more money.

IRS individual tax rates:

As you can see, the middle class is who pays most of the taxes in America. The single person making a good wage over $34,000 a year gets stuck with a huge 25% tax and the married couple making over $68,000 a year also gets a big 25% tax. If the government really wants to limit the burden on the middle class they should drop both brackets down to 15%.

Corporate income tax rate:

If you don't elect anything with an LLC, you'll automatically be taxes as a sole proprietor, disregarded entity if you're a single member, and as a partnership if there are multiple members. This is generally speaking the easiest option for new businesses just starting out. Once you start having net taxable income around 30-40,000 a year, it would be cheaper for you to elect the S corporation status with the IRS, and take some of that net taxable income as a dividend to avoid the Medicare and social security tax, otherwise known as self employment tax.

With this option, you're just going to be filing an additional schedule for the income on your 1040 return and paying the State personal income tax at the rate and bracket you're in. To see the personal income tax rates and brackets for your State, please see the links at the bottom of this page for your State.

If you elect to have the LLC be treated as a C corporation. You'll be paying the States' corporate income tax. You can keep some of the money in the company that way and not be stuck paying personal income tax, but once you pull the money out of the C corporation election, you'll be paying tax again on the personal level. Electing C corporation status is a great option for holding companies that just want to accrue wealth in their LLC holding company.

I would suggest looking at our annual report page. A lot of States have different annual fees for LLC's and Corporations. That is just the first step though. The annual reports are with the Secretary of State or corporation commission of your State. The department of revenue is also a consideration. Some States charge higher fees for an LLC, but you avoid the corporation or franchise tax. Usually an LLC is cheaper to maintain in State fees and taxes because in my humble opinion… They haven't been around long enough for legislators to figure out to tax them the same as corporations. For instance a lot of States might have a minimum fee to file a zero return for a corporation of $20.00 to $50.00, or some States are super expensive like Connecticut, California, or Massachusetts, but the LLC might not have a minimum zero return fee. The growing trend is to make these minimum fees the same and eventually they probably will be the same as most new businesses are forming LLCs instead of corporations.