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Do-It-Yourself-Guide to Setting up a Virginia Limited Liability Company
By Stephen L. Nelson, CPA, MBA (finance), MS (taxation)
The Do-It-Yourself Guide to LLC Formation was written to share basic information about formation of limited liability companies. The paper is not intended to replace the services of a competent legal, tax or business advisor. If legal or other expert assistance is required, the services of a professional should be sought. Furthermore, while the publisher has made every effort to offer the most current, correct and clearly expressed information possible, inadvertent errors can occur and the rules and regulations governing limited liability companies, accounting standards, and tax laws often change. Further, the application and impact of rules and laws can vary widely from case to case based upon the unique facts involved. Be careful! CIRCULAR 230 NOTICE: Under recently issued IRS regulations, we must information you that any U.S. tax advice contained in the body of this white paper was not intended or written to be used, and cannot be used, by the reader for the purpose of avoiding penalties that may be imposed under federal tax law. By regulations, a taxpayer cannot rely on professional advice to avoid federal tax penalties unless that advice is reflected in a comprehensive tax opinion that conforms to strict requirements.
Copyright © 2007, 2008 by Forming an LLC: LLC Formations Explained Web Site
This document describes how you can, on your own and without the help of an accountant or attorney, set up a Virginia limited liability company. Specifically, the document provides step-by-step instructions for completing several legal and tax documents related to forming a Virginia LLC, including the LLC articles of organization, the IRS EIN application, and the C corporation election and S corporation election paperwork which some LLCs will want to file with tax authorities. Before that discussion, however, I want to talk briefly and in general terms about the legal and tax benefits of a Virginia limited liability company so you can understand better whether an LLC is appropriate in your situation.
The Twin Benefits of the Virginia Limited Liability Company
Limited liability companies deliver two huge benefits to Virginia business owners and investors. One benefit is a legal benefit and the other is a tax benefit.
Benefit One: Limited Liability…
The big legal benefit is that limited liability companies provide all the same liability protection as a corporation—but with much less red tape. A regular corporation, for example, requires regular stockholders meetings, a board of directors, regular board meetings, and of course records of all these activities and bodies. But a limited liability company doesn’t. This legal liability protection provided by an LLC can be extremely valuable. One local attorney I often collaborate with, for example, tells his clients that an LLC protects businesses and real estate investors from the worst case scenario—which in his mind is a “slip and fall” accident on the business’s or investor’s property. With an LLC as the property owner, so says my attorney friend, the “worst case scenario” is liquidation of the LLC. That liquidation means the people who own the LLC wind up with nothing— which isn’t good. But all the owners lose is what they’ve invested in the LLC. In comparison, without an LLC, the business owner’s or real estate investor’s “worst case scenario” if there’s a “slip and fall” accident is that the owner or investor can lose almost everything they own.1 In other words, the business owners or investors could lose not only their investment in the business or real estate property but many other assets.
A tangential side note: Even in the worst case scenario, you typically can’t really lose everything. State and federal laws often protect individuals from the claims of creditors. For example, retirement savings may be protected, a certain amount of equity in a home, and even many personal belongings.
Copyright © 2007, 2008 by Forming an LLC: LLC Formations Explained Web Site
which unfortunately makes things even murkier. might decide to be treated as a sole proprietorship for federal income tax purposes. or an S corporation. for example. However. one of your employees or subcontractors. a C corporation. a very small business with a single member (LLC owners are called “members”). For example. 2008 by Forming an LLC: LLC Formations Explained Web Site . This second benefit of the limited liability company means that an LLC can choose to be taxed in whatever way is most favorable to the business.and liability-related questions answers. You want that sort of business liability protection. In this case. In other words. This decision to be treated as sole proprietorship would keep the business’s accounting very simple—and it would also mean that unique tax planning opportunities available to sole proprietorships can be used. And this consultation doesn’t need to be particularly expensive. drops a hammer on the customer’s head? The LLC may offer you some protection in this case. if you personally happen to drop a hammer onto the customer’s head during the roofing project. You may be able to buy an hour or two of time from a good local attorney and get all your LLC. You may not get as much legal liability protection from an LLC as you want or hope. Obviously. or the owners. But you may still be personally responsible. the customer can probably look not only to your LLC for payment of damages related to the dropped hammer but also to you personally. The customer might reasonably argue that you should have done a better job managing the employee or subcontractor. sole proprietors can employ minor children and not pay federal payroll taxes on the children’s 2 Copyright © 2007. Perhaps they say your firm breached a contract to repair the customer’s roof in a specific fashion. A limited liability company that is owned by one person can be a sole proprietorship. the customer will almost certainly only be able to look to the LLC for payment of any damages. And here’s another example. get an attorney involved in your business or investment planning.2 Sole proprietors can rather easily take advantage of several unique tax planning opportunities. unfortunately. Say. A limited liability company that is owned by two or more persons can be a partnership. For example. a C corporation. for example. or even an S corporation (if the LLC meets the S corporation eligibility requirements). you end up in dispute with a customer. assuming the customer prevails in some legal action. Benefit Two: Enormous Tax Flexibility… A second benefit of LLCs relates to the income taxes a business pays or that investors pay. What happens if someone working for you. your LLC probably won’t protect you from that sort of tort liability. however. A limited liability company can be almost whatever tax entity it wants to be for income tax purposes. If you’re extremely concerned about the asset protection features of setting up and operating an LLC.Let me issue a caveat here. that you’re a roofing contractor operating as an LLC and that. the investment. that’s good. An attorney knowledgeable in Virginia state LLC and business law can help you increase the liability protection that you gain from using an LLC for your business or investing.
The most noteworthy feature of Subchapter C is that the corporation pays a corporate income tax on the business profits. So an obvious question is “Why wouldn’t everyone become an LLC or limited liability company?” Perhaps predictably.4 Note: While a limited liability company is not difficult to set up by yourself—you can have the paperwork done less than a quarter hour from now—you should be aware that paying a few hundred dollars to an accountant to pick the right taxation for your new LLC might be the best investment you ever make. often lets businesses provide rich tax-free fringe benefits to employees including shareholder-employees. an LLC probably needs to wages. While a sole proprietorship or informal real estate partnership may be able to keep its bookkeeping and income tax return preparation very simple.000 annually. refer to the www. A C corporation.SCorporationsExplained. (The children may also be able to avoid income tax on their wages!) Sole proprietors may be able to easily claim the home office deduction.com web site. even more each month. And an S corporation often lets a business dramatically reduce the self-employment. Copyright © 2007. for example.A larger business might decide to operate as a C corporation or as an S corporation3 in order to take advantage of some of the unique tax planning advantages of these entity choices. 2008 by Forming an LLC: LLC Formations Explained Web Site . the business profit is allocated to the shareholders and they pay the income tax on their proportional shares of the business profit. accounting and insurance costs. $20. For example. It’s common that the right taxation choice for a new LLC can save the owner or owners of a small business $10. An LLC may also increase your banking. 4 For more information on how S corporations save their shareholder employees payroll taxes.000 to $20. 3 A “C corporation” is a corporation that’s taxed under Subchapter C of the Internal Revenue Code. One cost is the filing fee. The bank may charge $10. there are some costs and headaches associated with operating as an LLC. Sole proprietors can also cover their family’s medical expenses through what’s known as a Section 105(b) medical reimbursement arrangement if they employ their spouse and provide health coverage to the spouse-employee and the spouse-employee’s family. which is current $100. the bank account for a limited liability company probably won’t be free. while the bank account for a sole proprietorship or informal partnership may be free if you keep a large-enough balance. The Drawbacks of the Virginia Limited Liability Company When you consider the two big benefits of a Virginia limited liability company—limited business liability but with less red tape and tremendous tax flexibility—you have almost the perfect business entity choice. social security and Medicare taxes paid on the owner’s profits. The most noteworthy feature of Subchapter S is that the corporation doesn’t pay any corporate income tax on the business profits—rather. An “S corporation” is a corporation that’s taxed under Subchapter S of the Internal Revenue Code.
In these cases. Check if the LLC name you want is available. Here’s what you do: 1. To do this. Copyright © 2007. I will share these thoughts. For example. you can use the Virginia County Clerk’s search form at: http://www. any business that’s producing profits that equal or exceed what the owner would earn if he or she worked as an employee for someone else probably should operate as an LLC. You can’t use a name. you’ll be able to see if there’s another business already using the name that you want. an LLC is uneconomical for very small businesses. I can’t give you a one-size-fits-all answer. So where does all this leave you? How should you balance the big benefits of forming an LLC with all the costs and drawbacks? Unfortunately.gov/division/clk/diracc. Finally. In my opinion. that’s the same or deceptively similar to another existing LLC’s name. You will need to print new letterhead. it’s worthwhile to note that an LLC may involve several hundred or even a few thousand dollars of startup expense. 2008 by Forming an LLC: LLC Formations Explained Web Site . by the way. the part-time business that generates a few thousand dollars of profit probably is not big enough or risky enough to shoulder the hundreds of dollars of cost (or more?) incurred in setting up and operating an LLC. you may spend money on publications like this. Forming the Virginia Limited Liability Company The actual steps you take to form a Virginia limited liability company are almost comically simple. business cards. the LLC economically reduces business risk and as an added bonus often saves the owners thousands of dollars a year in income or payroll taxes.htm By selecting option 10 (Name Search on All Business Entities) and entering the name you want to use in the search form. however. On the other hand. And this LLC tax return may cost anywhere from a few hundred dollars to a few thousand dollars annually.file its own tax return if the LLC operates as a partnership. a C corporation or an S corporation. You may buy the services of accountants and attorneys. Your first step in setting up an LLC is to check if the name you want to use is even available. You’ll need to carefully consider the benefits and costs as they add up in your specific situation.virginia.scc. and envelopes (if you use these) that use the new LLC’s name in order to show the world that you’re now operating as a limited liability company. For example.
mark Copyright © 2007.C. veterinarian. land surveyor. surgeon. attorney at law. 2008 by Forming an LLC: LLC Formations Explained Web Site . architect.gov/publicforms/322/llc1011. 3. you’re ready to fill the form out. insurance consultant.pdf If you are a professional who wishes to create an LLC you must file for a Professional Limited Liability Company (PLLC.” To indicate how your LLC will be managed.” The name must include the words “limited company. all of the following names should be acceptable: Acme Explosives Limited Liability Company Acme Explosives Limited Company Acme Explosives LLC Acme Explosives L. certified landscape architect. Identify the Registered Agent.” “L. http://www.” For example. or web page address. After you download and print the LLC application form.virginia. certified interior designers.” or the abbreviation “LC. dentist.C.L. “Name of Limited-Liability Company. The Articles of Organization for a Domestic Professional Limited Liability Company is located at: http://www.scc. engineers. for this form (see Figure 1) is as shown below.virginia. enter your name on the line labeled “Name of the Limited Liability Company’s Initial Registered Agent.” or L.scc.” “LLC.2. 4. optometrist. public accountant. You can pay someone else to be this registered agent. audiologist.L.C.” “limited liability company.gov/publicforms/345/llc1103. Download the Articles of Organization of a Domestic LimitedLiability Company form from the Office of the Clerk of the Virginia State Corporation Commission’s web site. but it’s really easiest and cheapest to just be your own registered agent. Virginia state wants to know the name and contact information for a real person within the state of Virginia whom can act as the contact person should the state have questions or concerns about an LLC’s operation. physical therapy assistant. The URL. Identify the name you want to use for your new LLC. speech pathologist.) A PLLC is required if you are any of the following: pharmacist.pdf With the exception of one additional step (listed below under Step 4). and then print this form. Enter your business or investment name into top box labeled.. or clinical nurse specialist. Accordingly. certified public account. these forms are identical. physical therapist.
the appropriate checkbox in box labeled “The Registered Agent is:” You must then indicate if the registering agent is an individual or a company. Note for Profession LLC filers: If you are filing out the form for the professional domestic limited liability company. This address must be located within VA. Give the address of the LLC’s principal office In the next line indicate the office where the principal officers are located. completed Virginia state LLC application. Copyright © 2007. It is not required that this address be within the state of Virginia. A Post Office Box is only acceptable if there is not street address associated with the registered office’s location. provide the address of the LLC’s registered office and indicate the county. 6. 2008 by Forming an LLC: LLC Formations Explained Web Site . you will have an extra step before this. Give the address of the LLC’s registered office In the next line. This is the office where a full and current list of all members is located at all times. Fairfax County. 7. You will be asked to list your professional services. 5. A Post Office Box is only acceptable if there is no street address associated with the location. for example. Accept appointment of Resident Agent Sign and date the form to accept the appointment as resident agent for the limited-liability company listed. Figure 1 (on the next page) shows an example.
2008 by Forming an LLC: LLC Formations Explained Web Site . Copyright © 2007.Figure 1: An example of the online application to form a Virginia state LLC.
pdf Writing and Activating the LLC Operating Agreement You need an operating agreement for your LLC (regardless of how the LLC gets treated for income tax purposes) to govern how the LLC members interact with the LLC and with each other. many cities also have business permit and license requirements. Mail in the LLC application After you complete the application to form a limited liability company.O. Note that you do not file the operating agreement with the state or any agencies.virginia. In addition. 2008 by Forming an LLC: LLC Formations Explained Web Site .state. Additionally. Virginia 23218-1197 Processing lead times vary. If you’ve set up an LLC for a business. More information about starting and licensing a new business is available at the Virginia State Department of Business Assistance web site using the URL shown below: http://www. it takes several weeks to get your LLC certificate back from the Clerk of the State Corporation Commission’s office. mail the completed form and a check for $100 to: Clerk of the State Corporation Commission P. you’ll want to identify and then acquire the necessary permits and licenses.va.tax.8.shtml You can get local city business license information by calling city government offices in the town in which you plan to operate your business. all companies must be registered with the Department of Taxation and many companies and professionals need to obtain a business license for businesses that operate in the state. you must register your company with the Department of Taxation. Copyright © 2007.dba. You simply keep it for your records. The form can be found at: http://www.gov/web_pdfs/busforms/r1. but in general. Box 1197 Richmond. Licensing a Business in Virginia As you probably know if you’ve worked or run a business in Virginia.us/starting_business.
2008 by Forming an LLC: LLC Formations Explained Web Site . An EIN. a member or past member of several state bars (California.nelson@stephenlnelson. For a single member LLC operating agreement. Texas. the members add their names. or EIN. intimately familiar with your business or investment. The simple approach probably also reduces the legal liability protection you get from the LLC.) and a graduate of Stanford Law School and Stanford Business School. Basically. For a multiple member LLC operating agreement. sometimes also known as a Federal Tax Identification Number. the single member signs the last page of the operating agreement and then a copy of the articles of organization or articles of formation filed (this is the form you've already filled out and filed with the secretary of state) would be attached to the operating agreement as Exhibit A. you would have a local attorney. I'll arrange for someone to email you the operating agreement documents. if at some point in the future you want to improve your liability protection. for your new limited liability company. you fill in the blanks with the LLC name. the formation state and the list of members and member contributions. You and your attorney would then customize the document so it works for your specific situation. If you didn't get a copy of the operating agreement at the time you downloaded this document and you've recently purchased the document. email me with your purchase information at steve.com. signatures and contributions to the operating agreement as Exhibit A and then a copy of the articles of organization or articles of formation filed with the secretary of state should be attached to the operating agreement as Exhibit B. You also make any changes to the language you required.This do-it-yourself kit includes sample single-member and sample multiple-member limited liability company operating agreements written by attorney Carl Baranowski. Note: The LLC operating agreements were available as word processing files from the same page you downloaded this document from. identifies your business entity and often allows you to do things like open a Copyright © 2007. Getting an EIN for Your New Limited Liability Company You may need to get an Employer Identification Number. start with boilerplate operating agreement language (like that provided in the sample). Practically speaking. Florida. A final comment: Occasionally people write me and ask how one might complete the sample operating agreement. Ideally. Accordingly. The simple approach ends up saving you money. you should consult with a local attorney. etc. many small business owners and investors end up instead using simple sample operating agreements as their "real" operating agreements.
however. merely because: • • • you change the name of your business or you change your location and/or add other locations or you operate multiple businesses. the husband and wife may treat the multiple member limited liability company as a single member limited liability company--in which case the single member limited liability company rules (discussed next) apply. apply for business licenses. or pass an IRS Taxpayer Identification Number matching program. Single member limited liability companies treated as sole proprietorships If you have set up a single member limited liability company and you're planning to have the LLC treated as a sole proprietorship for income tax purposes. 2008 by Forming an LLC: LLC Formations Explained Web Site . and file any tax returns such as corporation tax returns. apply as soon as possible! Unfortunately.bank account. make an electronic payment. Caution: The IRS takes up to two weeks to make your new EIN part of its permanent records. Until your EIN gets added to the permanent records. You will not be required to obtain a new EIN for a single member limited liability company treated as sole proprietorship. If the husband and wife reside in a community property state. such an LLC is a partnership. partnership tax returns. and payroll tax returns. Why? You will need the EIN to file the partnership tax return. Technically. you need an EIN only if you are: • • • subject to a bankruptcy proceeding or hiring employees or purchasing or inheriting an existing business. Copyright © 2007. if you do need an EIN. Multiple member limited liability companies treated as partnerships If you have set up a new multiple member limited liability company and will have the LLC treated as a partnership. the process for determining if your LLC needs an EIN is little complicated. Accordingly. you need an EIN to identify the partnership. however. The one exception to the preceding rule concerns a multiple member limited liability company which has a husband and wife as its only two members. you can't file an electronic return.
The online EIN application is not available 24 hours a day. 2. Fortunately. as well as tax reporting requirements. Go to the IRS website Go to the IRS online EIN application web page to begin the EIN online application: https://sa2.www4. to 12:00 a.m. Here are the precise steps for completing the online EIN application: 1. treated as either a regular "C" corporation or an "S" corporation--you will need to get an EIN in almost all cases. you can click on it to get a Copyright © 2007. Eastern time Saturday 6:00 a.m.jsp Scroll to the bottom of the page and click on the “Begin Application” button. At the time I'm writing this (spring of 2008). you do not need special software to complete the online EIN application. to 9:00 p. If a word or phrase appears blue and underlined. Applying for a New EIN using the Online EIN Application The easiest way to get an EIN number is through the interview-style. Identify the legal and tax structure of your business entity.Limited liability companies treated as C or S corporations If you choose to have your single member or multiple member limited liability company treated as a corporation--in other words. this step is easy: Simply click the “Limited Liability Company (LLC)" button. thankfully.m.irs.gov/modiein/individual/index. you also do not need special computer skills to complete the online EIN application. to 12:30 a.m. 2008 by Forming an LLC: LLC Formations Explained Web Site . Note: The IRS web site supplies definitions for most of the terms used in the online EIN application. The online EIN application asks questions and you simply provide the answers by filling in the blanks and checking boxes and buttons. online EIN application.Friday 6:00 a. Eastern time Sunday 7:00 p. Eastern time Fortunately. the IRS makes its online EIN application available according to this schedule: Monday . All you need to have is Internet access and a current Internet browser What's more. This step is very important because each type of legal and tax structure has differing rules and regulations.m.m.
In other words. If you have more than one member in your LLC. for consistency purposes. However. Clicking on these definitions will not halt the progress of your application. Go to the bottom of this page and click on the “Continue” button. Click on the “Continue” button. Note: Different states and even different LLC operating agreements may vary in the names they use to describe LLC owners. You will be taken to another page that explains what a partnership is and that asks you to confirm your selection. Click on the “Continue” button. the online EIN application refers to LLC owners as "members. As such. you will be brought to a page that says you need to confirm your selection. Click the "Partnership" button. if you set up an LLC to operate an active trade or business. the online EIN application takes you to a page that explains your choice. 2008 by Forming an LLC: LLC Formations Explained Web Site ." Type the number of members into the field provided. Then use the drop-down box to select the appropriate state. If you set up an LLC to hold investment real estate. After you indicate what type of legal and tax structure you've chosen for the new entity.definition in a new window. For example. you report your LLC's income and deductions on the 1040 Schedule E form. you will report your LLC's income and deductions on the 1040 Schedule C form. Go to the bottom of this page and click the “Continue” button. Copyright © 2007. This page will explain that you will be considered a Single-Member LLC. If you will only have one member in your LLC. 3. you will report your LLC income and deductions using your 1040 tax return. you will be taken to a page that says your LLC will be considered a Multi-Member LLC and will be classified initially as a partnership for IRS tax purposes. Provide information about the members of the LLC You'll need to specify the number of members in your LLC as well as the state where the business is physically located. you will be classified initially as a disregarded entity for federal tax return purposes.
Don't use any punctuation other than a hyphen (-) and ampersand (&) in the name. including name and Social Security or Individual Tax Identification Number. click on “Individual” button. To designate an individual member. you should identify a corporation officer as the contact person. The IRS considers the contact person to be the individual or business responsible for tax matters. Your choices are: § § § § § Started a new business Hired Employees Banking Purposes Changed Type of Organization Purchased Active Business In general. do not place a period after that initial. owner or general partner. If the IRS sends a letter to the LLC. you will click the “Started a New Business” button. State why you are requesting an EIN When prompted by the online EIN application. if you use a middle initial. for example. they send the letter to the LLC in care of the person. For instance. the person may be able to first obtain an Individual Tax Identification Number by completing a Form W-7. explain why you are requesting an EIN. Click “Continue” after you identify the type of primary member or principal officer. Click on the “Continue” button. Note: If the contact person is an nonresident alien and therefore doesn't have a Social Security Number. or principal officer. In the case of LLC’s taxed as sole proprietorships or partnerships.4. Application for IRS Individual Taxpayer Identification Number form. the IRS should contact when it has questions. 2008 by Forming an LLC: LLC Formations Explained Web Site . Copyright © 2007. an individual typically acts as the contact. In an LLC taxed as a corporation. 5. Identify and describe a contact person of the LLC. You need to designate a contact person--or what the online EIN application calls a principal officer. Note that you can designate any member (owner) as the primary member. The IRS also wants information about the primary member or principal officer.
as appropriate. Copyright © 2007. If you do. Click the “Continue” button. etc). please make sure you provide the most essential address information (i. or managing member of the LLC. Provide the LLC's business location.6. Again. 7. This address must be a U. the trade name (if any). 8. If your address does not fit in 35 characters. suite numbers. click on the circle next to “Yes” when asked if the primary member is the owner. Click on the “Continue” button. Answer this question by clicking. if necessary.S. the online EIN application asks if you expect to have employees that will receive W-2 forms in the next 12 months. Provide legal and trade name information about your LLC When prompted by the online EIN application. (For LLCs treated as sole proprietorships) Describe your employment plans If you're getting an EIN for a single member LLC that will be treated as a sole proprietorship.. Do not use any punctuation except for a hyphen and a back slash. apartment numbers. You will also be required to provide a phone number. member. The final question on this page is whether you have an address different from the physical location where you wish to have your mail sent.e. the state where the articles of organization or formation are filed. Note: IRS systems only allow 35 characters on the street address line. you need to provide the name of the LLC. the county and state where the LLC is located. The IRS will then validate the address you’ve provided with the United States Postal Service’s database and offer you an opportunity to make any changes to the address. the "Yes" or "No" button. the online EIN application allows only two special punctuation characters: hyphen (-) and ampersand (&). No matter how your LLC is treated for tax purposes--sole proprietorship. Finally. 2008 by Forming an LLC: LLC Formations Explained Web Site . partnership or corporation--you need to provide a physical address of your LLC. address and may not be a PO box. you will be taken to a page to provide that address. and the LLC start date.
and alcohol. 9. Click on the “Continue” button. Corp. PLLC. again when prompted. and so forth. Finally. such as Corp. the name may not contain an ending such as LLC. you will need to provide the LLC start date. tobacco and firearms. Use the pulldown menu to select a month and year. however. quarterly federal excise tax returns. if any. 10. If none of these options fit. Optionally. you can provide a trade name. identify the state where the articles of organization or articles of formation were filed. This is typically the same state as LLC's physical address. or Inc. the online EIN application asks a series of questions about vehicles. Inc. If you choose “Other” you will be taken to a second page of options. When prompted. State what your LLC does When prompted. address and start date information. LC. The LLC's legal name should not contain any of the corporation name endings. A trade name or “doing business as” name is another name under which the business or individual operates. Indicate whether the LLC is subject to special federal excise taxes. type in what your LLC will do and then click the “Continue” button.The name you provide as the legal name of your LLC should match the articles of organization or articles of formation. If none of the categories fit. choose a category that best describes your business. click on the “Other” button on this page. After you provide the LLC's name. For most people. However. gambling. Copyright © 2007. click on other and then click the “Continue” button. the answer will be “no” to all four questions. you can click on that category for a further explanation. If you aren’t sure what a category includes. This is the date on which the entity began doing business or will begin doing business. Click the “Continue” button. you should verify that both of these bits of information are correct. 2008 by Forming an LLC: LLC Formations Explained Web Site . If you use a trade name. Read the questions and answer them. The county and state will automatically be filled in by the computer based on the physical address previously entered.
irs.pdf The web address for the SS-4 form instructions is: Copyright © 2007. that you will need to have the Adobe Reader program installed on your computer. If you forget your EIN number. However. If any of the information is incorrect. start a new application. Note.irs. For example. If you choose to receive it online. click the “Submit” button to receive your EIN. Note: The unique prefixes 20 and 26 identify the EIN as a number issued via the Internet. the IRS will send it to the mailing address you provided. Applying for a New EIN using the Paper SS-4 Form As mentioned. "Application for an Employer Identification Number. the easiest way to get an EIN number is through the interview-style.adobe. the web address for the SS-4 form is: http://www. This may take up to four weeks. after you determine the information is correct. online EIN application described in the preceding paragraphs. 12. At the time I'm writing this document. 2008 by Forming an LLC: LLC Formations Explained Web Site . Verify Your Information The last page of the online EIN application summarizes your information. Print the summary page and check the information for errors." from the www. This process can take up to two minutes. and then mail or fax the completed SS-4 to the appropriate address or fax number. though. Tell the assistor you received an EIN from the Internet but can't remember it and they will assist you.html. But this program can be downloaded for free from: http://www. the IRS also provides other procedures for obtaining an EIN. call (800) 829-4933 and select EIN from the list of options in order to speak with an IRS employee. Click on the “Continue” button. State How You Would Like to Receive Your EIN Confirmation Letter You can receive your EIN confirmation letter online or by mail. you can download a paper copy of the Form SS-4. If you choose to receive the letter by mail.11. you will be able to view the letter immediately and it will not be mailed to you. Then.com/products/acrobat/readstep2.gov. complete it.gov/pub/irs-pdf/fss4.
the LLC becomes. 5 6 You can download both the 8832 Form and the 8832 form instructions from the www.m.irs.gov/pub/irs-pdf/iss4. .m. local time. however. While the 8832 Form is very simple.10:00 p. you file an 8832 Form5 with the Internal Revenue Service. I want to issue this caution to you: Make sure you understand how C corporation taxation differs from sole proprietorship or partnership taxation before you elect to have your LLC taxed as a corporation. C corporations offer their owners and shareholder-employees some wonderful tax planning opportunities (such as tax-free fringe benefits for all employees including shareholder-employees). follow these steps: 1. Electing C Corporation Treatment for a Limited Liability Company Both single-member and multiple member limited liability companies can elect to be treated as regular corporations.gov web site and fill out the form as best you can before calling the number just given.http://www. To make the election to be treated as a C corporation. also known as C corporations. The www. 2008 by Forming an LLC: LLC Formations Explained Web Site . At the very top of the Form (see Figure 2). Provide the LLC’s name.irs.6 To complete the 8832 Form. in the block labeled “Type Or Print. the street address. and EIN information. a corporation.pdf Applying for a New EIN by Telephone You can also obtain an EIN immediately by calling (800) 829-4933. This simple form (refer to Figures 2 and 3 to see a completed version of the form) identifies the LLC making the election and then provides buttons you mark to indicate the desired tax treatment. The hours of operation are 7:00 a. By making an election to be treated as a C corporation.com web site provides general information about taxation of corporations. and the EIN you will have already been assigned by completing and submitting the SS-4.irs.FastEasyIncorporationKits. city and state. However.gov web site. Monday through Friday. at least in the eyes of the Internal Revenue Service.” you enter the name of the LLC. Copyright © 2007. Before calling for an EIN. address. Electing to be treated as a C corporation will of course mean that your LLC is now subject to corporate income taxes. many tax traps exist for the unwary and the careless. you really should retrieve a copy of the SS-4 form and form instructions from the www.
if you're reading these instructions. Note: You should be able to ignore the checkbox questions asked by boxes 5a and 5b. You’ve just set up a new LLC. So what you want to do is indicate that you’re specifying the initial classification for this newly-formed entity. You would not be using a "do-it-yourself" approach in that setting… Copyright © 2007. enter the owner’s name and taxpayer identification number into boxes 4a and 4b. Presumably. Specify the type of election. Note: You should be able to ignore the checkbox questions asked by boxes 2a. Identify the owner of a single-member limited liability company.2. These boxes ask about limited liability companies owned by corporations that file consolidated tax returns. 3. Use the Type of Election checkboxes to indicate whether you’re specifying how a newlyformed entity should be classified or how you want an existing entity’s current classification changed. obviously. that should mean you've just setup the LLC and have not previously made an entity classification election. 2b and 3 on the 8832 form. If your LLC has a single owner. These boxes ask about previous entity classification election you've made using the 8832 form. 2008 by Forming an LLC: LLC Formations Explained Web Site .
2008 by Forming an LLC: LLC Formations Explained Web Site . Copyright © 2007.Figure 2: Page 1 of an example completed 8832 Form.
2009. if you wanted to elect to have your LLC treated as a corporation for income tax purposes starting January 1. treated as an unincorporated branch of the corporation. 2010. that you can make an election effective as of some date other than the start of the year as long as you’re within the “Not more than 12 months early and not more than 75 days late” window. each member who owned an interest in the LLC for the affected year should add their signature and name to the Consent Statement And Signature(s) area. Use the Type Of Entity checkboxes (6a. treated as a sole proprietorship. In other words. A multiple member LLC is treated as a partnership by default. Provide a contact name and telephone number. 7. Note. 6e and 6f) to select how you want the new LLC classified (see Figure 3). you enter 1/1/2009 into box 8. or single-member. 2008 by Forming an LLC: LLC Formations Explained Web Site . by default. For example. 2009. Specify the effective date for the election. This means that a single-member LLC owned by an individual and operating an active trade or business is. Note that while it is technically possible to make the election by having 7 A one owner. Use box 8 to specify when the election is to be effective. I have never experienced the IRS actually calling the person identified on line 9 even though I help clients make numerous entity classification elections every year. 8 You can make entity classification elections as early as twelve months before the effective date. Copyright © 2007. LLC is disregarded as an entity separate and apart from its owner. to have your new LLC treated as a corporation for income tax purposes in 2009. Note that you must make an entity classification election by March 15 of the year for which you want the election effective. Select the entity classification you want to use. 6b. For what it’s worth.8 6. you could also make the election sometime in 2009. the default classification rules mean that if you want a multiple member LLC to be treated as a partnership. Prove that the LLC members have authorized the election. And single-member LLC owned by a corporation is. you need to make the election by March 15. A mid-year election means that the LLC is a corporation for only part of the year. you don’t have to make an entity classification election—the LLC is automatically treated as a partnership. too. 6d.4. These default classification rules mean that if you want a single-member LLC owned by an individual to be treated as a sole proprietorship. Use line 9 to specify the person and telephone number that the IRS should call if they need more information. by default. As a practical matter. 6c. you don’t have to make an entity classification election— the LLC is automatically treated as a sole proprietorship. if you want the election effective as of January 1. If you’re electing to have your new LLC treated as a corporation—which is the only election here that makes sense—you check the first box labeled “A Domestic Eligible Entity Electing To Be Classified As An Association Taxable As A Corporation. Similarly. For example. Use the Consent Statement And Signature(s) area to formally request the entity classification.”7 5.
2008 by Forming an LLC: LLC Formations Explained Web Site . that member should be authorized by either local law or the organizational documents to make the election. Copyright © 2007. Figure 3: Page 2 of an example completed 8832 Form.only one member sign and date the 8832 Form.
North Carolina. Minnesota. Illinois. you can often use a copy of the 8832 Form and your certified mail delivery receipt to prove a timely election—even if the March 15th deadline is long past. South Carolina. Arizona. Mississippi. Ohio. OH 45999 Department of Treasury Internal Revenue Service Center Ogden. Texas. Oklahoma. A couple of other notes: First. By making an election to be treated as an S corporation. Oregon. Idaho. Georgia. also known as S corporations. North Dakota. Colorado. District of Columbia. New Hampshire. UT 84201 It’s essential that you mail the 8832 Form using certified mail with a delivery receipt. New Jersey. New Mexico. Utah. Maryland. Missouri. Maine. Michigan. In my experience. Delaware. Hawaii. Florida. Montana. Indiana. Mail the 8832 Form. And. Tennessee. Arkansas. California. West Virginia. The Form should go to the follow address: If your principal business. the LLC becomes an S corporation in the eyes of the Internal Revenue Service. Electing S Corporation Treatment for a Limited Liability Company Both single-member and multiple member limited liability companies can also elect to be treated as Subchapter S corporations. the IRS service center regularly loses the 8832 Form. office or agency address is located in state of: Connecticut. an LLC must meet the same eligibility requirements as a regular S corporation. If the 8832 Form isn’t processed or acknowledged by the IRS.8. Pennsylvania. Alaska. 2008 by Forming an LLC: LLC Formations Explained Web Site . Nebraska. South Dakota. Wisconsin Alabama. Vermont. (1) all shareholders (and shareholder spouses in Copyright © 2007. Kansas. Kentucky. Virginia. New York. Nevada. you will also need to attach a copy of the 8832 Form to your first corporate tax return. second. Wyoming Then use the following mailing address to submit 8832 Department of Treasury Internal Revenue Service Center Cincinnati. Washington. Massachusetts. Louisiana. In a nutshell. In order to become an S corporation. Rhode Island. be aware that corporate tax returns are due on March 15th and not April 15th. Iowa.
no corporate income tax. the LLC is considered either a 9 You can get basic tax information on S corporations by visiting www.gov/pub/irs-pdf/f2553. estates of U.pdf It's also not a bad idea.irs.” you enter the name of the LLC.pdf 2. and (4) shareholders must generally be either U. At the very top of the Form (see Figure 4). the precise web address for the 2553 form is: http://www. city and state. you file Form 2553 with the Internal Revenue Service by March 15th of the year for which the S election is to take effect. make sure you understand how S corporation taxation differs from sole proprietorship or partnership taxation.com. if you're going to grab an up-to-date copy of the form.irs. citizens or permanent residents. Provide the LLC’s name. California. Washington and Wisconsin) must consent to the S election. Before I provide the step-by-step instructions for completing and submitting the election forms.9 However. Nevada.irs. and the employer identification number. citizens or permanent residents.S. and EIN information. as with C corporations. offer their owners and shareholderemployees some wonderful tax planning opportunities.FastEasyIncorporationKits.com and about corporations in general by visiting the http://www.gov/pub/irs-pdf/i2553. To complete and file the IRS Form 2553.gov web site. (2) the “LLC-electing-S-Status” must have only one “class” of stock ownership treating all members the same way.SCorporationsExplained. follow these steps: 1. The 2553 election date is the “incorporation date” because prior to the S Election. At the time I'm writing this. New Mexico. and certain trusts and charities. Texas. the street address. The precise web address for the 2553 instructions at the time I'm writing this is: http://www. like C corporations. Copyright © 2007. I want to caution you about making the S election: Before you elect. in the block labeled “Type Or Print.S. and (sometimes) substantial payroll tax savings. many tax traps exist for the unwary and the careless. (3) the LLC generally can’t have more than 100 shareholders (except that families of shareholders count as one shareholder for purposes of this test). address. Get the IRS 2553 form from the www. Download the election forms.community property states like Arizona. Idaho. 2008 by Forming an LLC: LLC Formations Explained Web Site . Louisiana. Enough said. to also grab an up-to-date copy of the form instructions. You also need to enter the date of incorporation (which should be the election date) and the state in which the LLC was formed. S corporations. To make the election to be treated as an S corporation. including pass-through of net operating losses.
you would probably want to make the S election effective as of January 1 of the current year. you probably should not make this election using the “do-it-yourself” approach. that for single-member LLCs. For example. Copyright © 2007. the LLC would be treated as a sole proprietorship for the first five months of the year (January through May) and then as an S corporation for the last seven months of the year (June through December). Usually. 2008 by Forming an LLC: LLC Formations Explained Web Site . however. Note. 10 It is possible to have an LLC that’s previously elected to be treated as a C corporation elect to be treated as an “S” corporation. Note: You want to mark one of the applicable checkboxes in Box D if after receiving its EIN the LLC changed either its name or address. you can choose to specify some other effective date as long as the effective date is not more than 75 days before the date on which you’re making the election. for a single-member LLC. April 23 of the current year. In this case. And if you've just created a new LLC as of. Indicate the effective date of the election. However. Consult a tax attorney or tax CPA if you want to convert a C corporation to an S corporation. say. There are special taxes that former C corporations can pay when they become S corporations. you would probably want to make the S election effective as of that April 23 date. Use Box E to indicate when you want the S election to become effective. you could decide on August 1 to make an S election effective as of June 1. 3. For example.sole proprietorship 10 (if it has one individual member) or a partnership (if it has multiple members). you want to make the S election effective as of the start of the calendar year (if the entity has been in existence in previous years) or at the start of the entity's existence (if the entity has just been created in the current year). if you're turning an LLC that has existed for many years into an S corporation.
2008 by Forming an LLC: LLC Formations Explained Web Site . Copyright © 2007.Figure 4: Page 1 of an example completed 2553 Form.
My suggestion. you’re an LLC. This tells the IRS who to call if they have questions about the S election.4. or on the last day of September. Specify that the S corporation’s tax year will end on December 31. Note: If you think you want a non-calendar fiscal year end. M.) 6. you probably. If you've already goofed up the S election deadline. Having a non-calendar fiscal year—an accounting year that ends in September. Note: In the area beneath box H. Copyright © 2007. and N to name each shareholder in the new S corporation. October or November—only complicates your tax accounting and produces no real benefit for you. You’ll also need to sign and date the S election 2553 Form at the bottom of page 1 where the form asks for the signature and title of an officer. want to mark the Calendar Year option in box F. or November. you’re not a corporation legally. you probably want to pay a lawyer. You need to provide each shareholder (or member) name and address in column J. is that you not try to file a late election yourself. almost certainly. K. Name and get signatures from each shareholder and. by the way. You should confer with a knowledgeable tax practitioner. 5. the IRS provides space for you to explain why you're filing a late 2553 election. October.” 7. People use this space when they miss the deadline and then need to file the 2553 form late with the actual S corporation return. You shouldn't need to use this space if you're filing the election on time. you shouldn’t make the S election yourself. You may not have a “real” president or chief executive officer—after all. however. However. You need to have each shareholder sign and date the S election in column K. 2008 by Forming an LLC: LLC Formations Explained Web Site . Sign the S election Form. S corporation fiscal years can end on December 31. On page 2 of the 2553 form (see Figure 5). Accordingly. and you want to have someone who understands the most current special procedures do the election. You must use column L to identify the number of shares that each shareholder (or member) holds. use columns J.” “vice president. (The IRS typically has special procedures for making these late elections. certified public accountant or enrolled agent who specializes in S corporations to fix your election. L. you might as well identify yourself as the LLC “president. shareholder spouse. if needed. Enter your name and telephone information into Box H.” or “treasurer.
Washington. you should include the blank third page in the envelope or in the fax you send the IRS simply to show them the page is blank. Louisiana. if any of your shareholders resides in a community property state (Arizona. Texas. California. (This should be December 31 in case of individuals. Idaho. You need to enter each shareholder’s social security number into column M. Note that in the case of non-shareholder spouse. no stock is owned so a “NA” for “not applicable” can go into the Number Of Shares column and you can just put something like “spouse” into the Date column. the spouse of a shareholder must also sign the S election even if the spouse doesn’t own shares or an interest in the S corporation. you can enter those percentages into column L. However. Copyright © 2007. enter the month and day that each shareholder’s tax year years.If members don’t hold shares but only percentage interests. New Mexico. Nevada. Note: You won't need to worry about the third page of the 2553 form (see Figure 6). Finally.) As mentioned earlier in this ebook. Wisconsin and sometimes Alaska and Puerto Rico). 2008 by Forming an LLC: LLC Formations Explained Web Site .
Figure 5: Page 2 of an example completed 2553 Form. Copyright © 2007. 2008 by Forming an LLC: LLC Formations Explained Web Site .
Copyright © 2007. 2008 by Forming an LLC: LLC Formations Explained Web Site .Figure 6: Page 3 of an example completed 2553 Form.
Indiana. Iowa. Michigan. Nebraska. you can see which mailing address or fax number you can use for your state using the table below. Vermont. the IRS is so forgiving about late S elections that it's probably just as easy to fax the completed 2553 form. attempt to immediately resolve any problems by telephoning the Secretary of State’s office or the local IRS office. Massachusetts. California. Maine. District of Columbia. Tennessee. Illinois. I used to suggest that people mail the 2553 form using certified mail with a delivery receipt. Rhode Island. North Carolina. Alaska. you can often still fix a problem before the election deadlines expire. Ohio. Especially with the IRS. Texas. Florida. Mississippi. Minnesota. UT 84201 Fax: (801)-620-7116 Some Closing Caveats and Comments Before I end this short booklet. Nevada. 8832 or 2553 Forms. Delaware. New Jersey. Washington. Kentucky. Fax or Mail the 2553 Form to make the federal S election. South Dakota. you can often use a copy of the 2553 Form and your certified mail delivery receipt to prove a timely election—even if the March 15th deadline has past. if you act immediately. If you have trouble getting the State of California to process your articles of organization or getting the Internal Revenue Service to process your SS-4. Arizona. I made this routine suggestion because if you mail the 2553 Form using certified mail with a delivery receipt and the IRS service center loses the 2553 Form. Wyoming Then use the following mailing address or fax number to submit 2553 Department of Treasury Internal Revenue Service Center Cincinnati. New Hampshire.8. cross your fingers. OH 45999 Fax: (859) 669-5748 Department of Treasury Internal Revenue Service Center Ogden. South Carolina. Maryland. Certified mail with a delivery receipt isn't a bad idea. If your principal business. Missouri. Virginia. office or agency address is located in state of: Connecticut. and then make a late election via mail if there's a deadline problem. Wisconsin Alabama. Montana. 2008 by Forming an LLC: LLC Formations Explained Web Site . Copyright © 2007. but nowadays. Kansas. West Virginia. Pennsylvania. Utah. Idaho. Georgia. In any case. Oklahoma. New York. Hawaii. Colorado. Louisiana. I want to share a handful of quick comments: 1. Arkansas. Oregon. North Dakota. New Mexico.
It is truly foolish to save yourself $500 of attorneys’ fees but end up paying an extra $7. Copyright © 2007. please be sure to include your telephone number and/or email address so we can contact you with any questions about your documents or comments. And sometimes readers of my books (like QuickBooks for Dummies readers) do become clients. Don’t put assets that may appreciate (such as real estate) into an LLC that is or will be treated as a C corporation or an S corporation without consulting a knowledgeable tax attorney or a CPA. Montana. To take advantage of this offer. Most of the time. a smart person who is careful can work through the paperwork themselves. say. CPA PLLC 8434 154th Ave. you’ll also need to register your California LLC with the Montana Secretary of State’s office and get the appropriate business licenses from Montana state. do not waste time trying to fix a problem you do not understand. But. LLC experts in my office will do that for a flat $300 fee. If you want someone to review the LLC formation documents. WA 98052 If you take advantage of this service. NE Redmond. but you also should not convert a C corporation to an S corporation without first consulting a tax practitioner because of some special tax considerations of going from C status to S status. if your LLC begins doing business in. Be aware that if your new LLC operates in states other than California. instead. In other words. But if you are having trouble.2. for example. can be several thousand dollars. the EIN application. but remember that the US Postal Service may take a few days to get your documents to us. our turnaround times for this service are a few days. please. 4. attach a $300 check. enlist the services of a local professional. 3. Nelson. our turnaround times tend to increase by a several days. just very honestly. county and city government agencies. Typically. I happily provide tax planning services to my clients. If you cannot resolve the problems yourself. package up the documents you want us to check. give up on the “do-it-yourself” approach and. Please understand that this booklet does not entitle a reader to free tax planning advice from the author. 5. The “cost” to fouling up an S election. what I have done in this book is provide a “lite” version of the planning conversation that usually takes a couple of hours and for which I charge $500. 2008 by Forming an LLC: LLC Formations Explained Web Site . However… 6.000 in payroll taxes. and mail the entire packet to: Stephen L. and the 8832 or 2553 election to check for errors. I mentioned this before. that you’ll probably have LLC registration and business licensing requirements to meet in those other states. Also note that during tax season.
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