Should You Form a Limited Liability Company?
Limited Liability Companies (LLC) combine components of a partnership and a corporation. An advantage of an LLC is that it legally separates the business from the owners. Thus, personal assets cannot be used to collect business debts. For tax purposes, owners have the option to be treated as a sole proprietor (LLCs with one owner), partnership (LLCs with two or more owners), or a corporation.
The advantages of an LLC over a corporation are that it costs less, requires less paperwork and does not mandate holding annual meetings and written minutes to protect the owner’s personal assets from lawsuits. Unfortunately, numerous licensed professions in California cannot form an LLC. This includes doctors, attorneys, psychologists, dentists, veterinarians and many other professionals. If you have questions whether your business qualifies, or options if it does not, contact us.
Cost of LLCs
The fee for forming an LLC is $70 plus an initial $20 for filing a Statement of Information due within 90 days of formation. LLCs in California are also subject to a business licensing fee that usually ranges between $50 and $100. In addition, there is an $800 annual fee, which, for the initial year, is due within 3.5 months after the formation date and then each subsequent year by April 15th. Every other year you will also need to file a new Statement of Information and pay $20.
If you form your LLC during the latter part of the year, you will have to pay the state the $800 fee and then again by the following April 15. Therefore, we recommend forming your LLC now rather than at the end of the year. Also, when the annual income exceeds $250,000, the LLC will be subject to an additional fee.
If you have questions concerning whether to form an LLC, would like assistance to ensure you file correctly, or wish to form a corporation, contact us.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.scvprotaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.
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