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Do-It-Yourself-Guide to Setting up an Idaho 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 inform 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 www.LLCsExplained.com
This document describes how you can, on your own and without the help of an accountant or attorney, set up an Idaho limited liability company. Specifically, the document provides step-by-step instructions for completing several legal and tax documents related to forming an Idaho state 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 term about the legal and tax benefits of an Idaho state limited liability company so you can understand better whether an LLC is appropriate in your situation.
The Twin Benefits of the Idaho Limited Liability Company
Limited liability companies deliver two huge benefits to Idaho 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
Copyright © 2007, 2008 by www.LLCsExplained.com
You may be able to buy an hour or two of time from a good local attorney and get all your LLC. drops a hammer on the customer’s head? The LLC may offer you some protection in this case. however. for example. You want that sort of business liability protection. 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 business owners or investors could lose not only their investment in the business or real estate property but many other assets. you typically can’t really lose everything. you end up in dispute with a customer. However. the investment.1 In other words. Perhaps they say your firm breached a contract to repair the customer’s roof in a specific fashion. For example.everything they own. a certain amount of equity in a home. unfortunately. In other words. a C corporation. You may not get as much legal liability protection from an LLC as you want or hope. the customer will almost certainly only be able to look to the LLC for payment of any damages. get an attorney involved in your business or investment planning. that’s good. retirement savings may be protected.com . or an S corporation. or even an S corporation (if the LLC meets the S corporation eligibility requirements). assuming the customer prevails in some legal action. your LLC probably won’t protect you from that sort of tort liability.LLCsExplained. if you personally happen to drop a hammer onto the customer’s head during the roofing project. or the owners. If you’re extremely concerned about the asset protection features of setting up and operating an LLC. one of your employees or subcontractors. A limited liability company that is owned by two or more persons can be a partnership. And this consultation doesn’t need to be particularly expensive. But you may still be personally responsible. Say. Obviously. A limited liability company can be almost whatever tax entity it wants to be for income tax purposes. that you’re a roofing contractor operating as an LLC and that. A limited liability company that is owned by one person can be a sole proprietorship. 2008 by www. and even many personal belongings. Benefit Two: Enormous Tax Flexibility… A second benefit of LLCs relates to the income taxes a business pays or that investors pay. 1 A tangential side note: Even in the worst case scenario. which unfortunately makes things even murkier. The customer might reasonably argue that you should have done a better job managing the employee or subcontractor. In this case. And here’s another example. for example. 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. An attorney knowledgeable in Idaho state LLC and business law can help you increase the liability protection that you gain from using an LLC for your business or investing. Copyright © 2007. Let me issue a caveat here. State and federal laws often protect individuals from the claims of creditors. What happens if someone working for you.and liability-related questions answers. a C corporation.
accounting and insurance costs. 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. 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. 2008 by www. sole proprietors can employ minor children and not pay federal payroll taxes on the children’s wages. while the bank account for a sole proprietorship or informal partnership may be free if 2 Sole proprietors can rather easily take advantage of several unique tax planning opportunities. a very small business with a single member (LLC owners are called “members”). often lets businesses provide rich tax-free fringe benefits to employees including shareholder-employees. It’s common that the right taxation choice for a new LLC can save the owner or owners of a small business $10. 3 A “C corporation” is a corporation that’s taxed under Subchapter C of the Internal Revenue Code.LLCsExplained. The Drawbacks of the Idaho Limited Liability Company When you consider the two big benefits of an Idaho state limited liability company— limited business liability but with less red tape and tremendous tax flexibility—you have almost the perfect business entity choice. (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. So an obvious question is “Why wouldn’t everyone become an LLC or limited liability company?” Perhaps predictably.SCorporationsExplained. A C corporation. The most noteworthy feature of Subchapter C is that the corporation pays a corporate income tax on the business profits. And an S corporation often lets a business dramatically reduce the self-employment. For example. for example. social security and Medicare taxes paid on the owner’s profits. You will pay a filing fee of roughly $100. An “S corporation” is a corporation that’s taxed under Subchapter S of the Internal Revenue Code. An LLC may also increase your banking.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.2 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. refer to the www. the business profit is allocated to the shareholders and they pay the income tax on their proportional shares of the business profit. Copyright © 2007. there are some costs and headaches associated with operating as an LLC. For example.000 annually.For example.com web site. for example. might decide to be treated as a sole proprietorship for federal income tax purposes. 4 For more information on how S corporations save their shareholder employees payroll taxes. The most noteworthy feature of Subchapter S is that the corporation doesn’t pay any corporate income tax on the business profits—rather.000 to $20.com .
To do this. the bank account for a limited liability company probably won’t be free. Check if the LLC name you want is available. it’s worthwhile to note that an LLC may involve several hundred or even a few thousand dollars of startup expense. Here’s what you do: 1. On the other hand.you keep a large-enough balance. an LLC is uneconomical for very small businesses.com . In my opinion. an LLC probably needs to file its own tax return if the LLC operates as a partnership. Finally. 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. I can’t give you a one-size-fits-all answer. You may buy the services of accountants and attorneys. a C corporation or an S corporation.org/public/sos/corp/search. Your first step in setting up an LLC is to check if the name you want to use is even available.LLCsExplained. In these cases. $20. 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. The bank may charge $10. 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. For example. business cards. While a sole proprietorship or informal real estate partnership may be able to keep its bookkeeping and income tax return preparation very simple. I will share these thoughts. 2008 by 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. 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. And this LLC tax return may cost anywhere from a few hundred dollars to a few thousand dollars annually. even more each month. however. Forming the Idaho State Limited Liability Company The actual steps you take to form an Idaho state limited liability company are almost comically simple. you may spend money on publications like this. you can use the Idaho Secretary of State’s business entity search form at: http://www. You will need to print new letterhead. You’ll need to carefully consider the benefits and costs as they add up in your specific situation.html?SearchFormstep=crit Copyright © 2007.accessidaho.
Download the Articles of Organization Limited-Liability Company form from the Idaho Secretary of State’s web site.state.pdf The online form looks the same as the paper form. for this form is as shown below. by the way.LLCsExplained. however.” The name must include one of the phrases or acronyms. http://www. Identify the name you want to use for your new LLC.” “LLC..id. “Name of LimitedLiability Company. 3.L.us/corp/acro4/cert_org_llc_fillable.us/corp/FORMS/name_reservation. Simply fill out and submit the form found at the URL listed below: http://www.C.C.pdf 2.id.” or “L. You must complete and submit the LLC form in duplicate.By entering the name you want to use in the search form. Enter your business or investment name onto the line labeled. 2008 by www.” For example. For a fee of $20 you can reserve a name. 4.L. “Limited Liability Company.idsos. you’ll be able to see if there’s another business already using the name that you want.” “Limited Liability Co. or web page address. which is also available at the Secretary of State’s web site at: http://www. After you download and print the LLC application form.idsos. and then print this form.state.us/corp/FORMS/cert_org_llc. You can’t use a name.state.idsos.id. all of the following names should be acceptable: Acme Explosives Limited Liability Company Acme Explosives Limited Liability Co. Idaho state wants to know the name and contact information for a real person within the state of Idaho whom can act as the contact person should the state have questions or Copyright © 2007. and then print and mail it to the Secretary of State. Identify the Registered Agent.pdf Note: You can also work with an online version of this form (see Figure 1). that’s the same or deceptively similar to another existing LLC’s name.com . Acme Explosives LLC Acme Explosives L. you can enter your information electronically onto the online form. The URL. you’re ready to fill the form out.
but it’s really easiest and cheapest to just be your own registered agent. enter your name and address information on the lines labeled “Street Address of Registered Office. Figure 1 shows an example. The example shows you the online form that was typed online and printed. Give the correspondence address In the next line. Accordingly. Identify the people forming the LLC Idaho state also wants to know the names and contact information for the person or people organizing the LLC.” 8. To indicate how your LLC will be managed. You can find simple free operating agreements on the web by googling. completed Idaho state LLC application. Normally this is the address of the LLC.concerns about an LLC’s operation. enter the names and addresses of the organizer or organizers on the lines labeled. There is an additional fee of $20 for submitting a handwritten application. who are in this case called managers or managermembers. Accept appointment of Resident Agent Sign and date the form to accept the appointment as resident agent for the limited-liability company listed. 2008 by www. or they can be managed by only one or some of their members. you’ll absolutely want to have an attorney draft an operating agreement. mark the appropriate checkbox: “Management: Manager(s) or Members. This operating agreement should describe who the manager is or who the managers are if you’re setting up a manager-managed LLC. or owners.com . so I encourage you to use the online form. Copyright © 2007. Indicate how your LLC will be managed. “Names Addresses. To provide this information. list the address you would like correspondence and annual report forms sent to. 7. you should probably also have an operating agreement because having an operating agreement and honoring its terms improves your liability protection.” and “Name of Registered Agent. of Manager(s) or Members. 6.LLCsExplained. You can pay someone else to be this registered agent.” Note: If you have multiple members or managers. If you’re a single member LLC. LLCs can be managed either by all of their members.” 5.
Copyright © 2007.Figure 1: An example of the online application to form an Idaho state LLC.LLCsExplained. 2008 by www.com .
2008 by www. Fees also vary. many cities also have business permit and license requirements.com . Box 83720 Boise. The web site can be found at the URL listed below: http://www. Licensing a Business in Idaho As you probably know if you’ve worked or run a business in Idaho.9. Copyright © 2007.html While the above web site will help you register with the Idaho Tax Commission and Department of Labor. If you’ve set up an LLC for a business.org/bizwiz. you’ll want to identify and then acquire the necessary permits and licenses. In addition. If you require expedited service add an additional $20 to your application fee. the state requires a business license for businesses that operate in the state. mail the completed form and a check to: Office of the Secretary of State 700 West Jefferson P. registration or permit required at the state or local level. but in general. If your application is typed with no attachments the fee is $100. Mail in the LLC application After you complete the application to form a limited liability company. the Idaho Business Wizard will help you identify and obtain any license.gov/business/licensing. You simply keep it for your records.O. Note that you do not file the operating agreement with the state or any agencies.htm 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. ID 83720-0080 Processing lead times vary.LLCsExplained.idahobizhelp. More information about the business license is available at the Idaho Business Registration System web site using the URL shown below: http://idaho. it takes several weeks to get your LLC certificate back from the Secretary of State’s office. If the application is not typed and/or has attachments the fee is $120.
Texas. Note: The LLC operating agreements were available as word processing files from the same page you downloaded this document from. Accordingly. You and your attorney would then customize the document so it works for your specific situation. sometimes also known as a Federal Tax Identification Number. if at some point in the future you want to improve your liability protection. 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.This do-it-yourself kit includes sample single-member and sample multiple-member limited liability company operating agreements written by attorney Carl Baranowski. etc. I'll arrange for someone to email you the operating agreement documents. A final comment: Occasionally people write me and ask how one might complete the sample operating agreement. 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. the formation state and the list of members and member contributions. a member or past member of several state bars (California. For a single member LLC operating agreement. You also make any changes to the language you required.LLCsExplained. 2008 by www. you would have a local attorney. The simple approach probably also reduces the legal liability protection you get from the LLC. Ideally. for your new limited liability company. Practically speaking.) and a graduate of Stanford Law School and Stanford Business School. The simple approach ends up saving you money. the members add their names. you should consult with a local attorney.nelson@stephenlnelson. identifies your business entity and often allows you to do things like open a Copyright © 2007.com. you fill in the blanks with the LLC name. intimately familiar with your business or investment. or EIN. 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. many small business owners and investors end up instead using simple sample operating agreements as their "real" operating agreements. Getting an EIN for Your New Limited Liability Company You may need to get an Employer Identification Number. Florida. Basically.com . email me with your purchase information at steve. For a multiple member LLC operating agreement. start with boilerplate operating agreement language (like that provided in the sample). 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. apply as soon as possible! Unfortunately. however. Limited liability companies treated as C or S corporations Copyright © 2007. or pass an IRS Taxpayer Identification Number matching program. if you do need an EIN. You will not be required to obtain a new EIN for a single member limited liability company treated as sole proprietorship. you need an EIN only if you are: • • • subject to a bankruptcy proceeding or hiring employees or purchasing or inheriting an existing business. you need an EIN to identify the partnership. Accordingly. 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. merely because: • • • you change the name of your business or you change your location and/or add other locations or you operate multiple businesses. 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. make an electronic payment. and payroll tax returns. If the husband and wife reside in a community property state. Why? You will need the EIN to file the partnership tax return.bank account. Caution: The IRS takes up to two weeks to make your new EIN part of its permanent records. and file any tax returns such as corporation tax returns. you can't file an electronic return. the process for determining if your LLC needs an EIN is little complicated. however. such an LLC is a partnership. 2008 by www. partnership tax returns. Technically. apply for business licenses. Until your EIN gets added to the permanent records.LLCsExplained. 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.com .
The online EIN application asks questions and you simply provide the answers by filling in the blanks and checking boxes and buttons. to 12:00 a.jsp Scroll to the bottom of the page and click on the “Begin Application” button. Copyright © 2007. 2008 by www.irs. you can click on it to get a definition in a new window.com . Eastern time Fortunately. 2. At the time I'm writing this (spring of 2008). Identify the legal and tax structure of your business entity. Clicking on these definitions will not halt the progress of your application. This step is very important because each type of legal and tax structure has differing rules and regulations.m. Eastern time Saturday 6:00 a. to 12:30 a.gov/modiein/individual/index. as well as tax reporting requirements. If a word or phrase appears blue and underlined. online EIN application. this step is easy: Simply click the “Limited Liability Company (LLC)" button. to 9:00 p.m. the IRS makes its online EIN application available according to this schedule: Monday .If you choose to have your single member or multiple member limited liability company treated as a corporation--in other words. The online EIN application is not available 24 hours a day.m. you also do not need special computer skills to complete the online EIN application.Friday 6:00 a. All you need to have is Internet access and a current Internet browser What's more. Here are the precise steps for completing the online EIN application: 1. Note: The IRS web site supplies definitions for most of the terms used in the online EIN application. Applying for a New EIN using the Online EIN Application The easiest way to get an EIN number is through the interview-style. Fortunately.LLCsExplained. treated as either a regular "C" corporation or an "S" corporation--you will need to get an EIN in almost all cases.m. thankfully.m. Go to the IRS website Go to the IRS online EIN application web page to begin the EIN online application: https://sa2. you do not need special software to complete the online EIN application.m.www4. Eastern time Sunday 7:00 p.
However. This page will explain that you will be considered a Single-Member LLC. Click on the “Continue” button. In other words. the online EIN application refers to LLC owners as "members. For example. Go to the bottom of this page and click the “Continue” button. Your choices are: § Started a new business Copyright © 2007. you will report your LLC income and deductions using your 1040 tax return." Type the number of members into the field provided. you report your LLC's income and deductions on the 1040 Schedule E form. 2008 by www. Note: Different states and even different LLC operating agreements may vary in the names they use to describe LLC owners. Click on the “Continue” button. you will be classified initially as a disregarded entity for federal tax return purposes. If you will only have one member in your LLC. If you set up an LLC to hold investment real estate.LLCsExplained.After you indicate what type of legal and tax structure you've chosen for the new entity. explain why you are requesting an EIN. 3. the online EIN application takes you to a page that explains your choice. If you have more than one member in your LLC. you will be brought to a page that says you need to confirm your selection. State why you are requesting an EIN When prompted by the online EIN application. Click the "Partnership" button.com . 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. As such. if you set up an LLC to operate an active trade or business. You will be taken to another page that explains what a partnership is and that asks you to confirm your selection. you will report your LLC's income and deductions on the 1040 Schedule C form. Go to the bottom of this page and click on the “Continue” button. for consistency purposes. Then use the drop-down box to select the appropriate state. 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. 4.
do not place a period after that initial. You need to designate a contact person--or what the online EIN application calls a principal officer. (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. 5. In an LLC taxed as a corporation. the online EIN application asks if you expect to have employees that will receive W-2 forms in the next 12 months. To designate an individual member. Note that you can designate any member (owner) as the primary member. Click “Continue” after you identify the type of primary member or principal officer. the IRS should contact when it has questions. an individual typically acts as the contact. Application for IRS Individual Taxpayer Identification Number form. for example.LLCsExplained. as appropriate.com . or principal officer. Note: If the contact person is an nonresident alien and therefore doesn't have a Social Security Number. if you use a middle initial.§ § § § Hired Employees Banking Purposes Changed Type of Organization Purchased Active Business In general. the person may be able to first obtain an Individual Tax Identification Number by completing a Form W-7. The IRS considers the contact person to be the individual or business responsible for tax matters. If the IRS sends a letter to the LLC. Answer this question by clicking. they send the letter to the LLC in care of the person. Click on the “Continue” button. Don't use any punctuation other than a hyphen (-) and ampersand (&) in the name. Copyright © 2007. The IRS also wants information about the primary member or principal officer. the "Yes" or "No" button. 6. click on “Individual” button. you should identify a corporation officer as the contact person. For instance. 2008 by www. In the case of LLC’s taxed as sole proprietorships or partnerships. you will click the “Started a New Business” button. including name and Social Security or Individual Tax Identification Number. owner or general partner. Identify and describe a contact person of the LLC.
you can provide a trade name.LLCsExplained. PLLC. 8. No matter how your LLC is treated for tax purposes--sole proprietorship. 7. and so forth. Note: IRS systems only allow 35 characters on the street address line. you will be taken to a page to provide that address. if any. the name may not contain an ending such as LLC. Copyright © 2007. Inc. if necessary. Provide the LLC's business location. Optionally.e. Click the “Continue” button. apartment numbers. click on the circle next to “Yes” when asked if the primary member is the owner. the state where the articles of organization or formation are filed. LC. Provide legal and trade name information about your LLC When prompted by the online EIN application. You will also be required to provide a phone number. the online EIN application allows only two special punctuation characters: hyphen (-) and ampersand (&). partnership or corporation--you need to provide a physical address of your LLC. Corp. etc). The name you provide as the legal name of your LLC should match the articles of organization or articles of formation. 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. such as Corp. If you use a trade name. 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. suite numbers. If you do. This address must be a U. or Inc. 2008 by www. or managing member of the LLC. address and may not be a PO box.S. member. and the LLC start date. Do not use any punctuation except for a hyphen and a back slash. please make sure you provide the most essential address information (i. you need to provide the name of the LLC. 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.. the trade name (if any). the county and state where the LLC is located.com .Finally. Click on the “Continue” button. Again. If your address does not fit in 35 characters. however.
However. When prompted.com/products/acrobat/readstep2. This is the date on which the entity began doing business or will begin doing business. Copyright © 2007.html. you can click on that category for a further explanation. Use the pulldown menu to select a month and year. though. Read the questions and answer them. the online EIN application asks a series of questions about vehicles.LLCsExplained. If you choose to receive it online. For most people. Note. again when prompted. you will be able to view the letter immediately and it will not be mailed to you. identify the state where the articles of organization or articles of formation were filed. If none of the categories fit.The county and state will automatically be filled in by the computer based on the physical address previously entered. But this program can be downloaded for free from: http://www. Finally.adobe. and alcohol. address and start date information. State How You Would Like to Receive Your EIN Confirmation Letter You can receive your EIN confirmation letter online or by mail. 11. click on the “Other” button on this page. If none of these options fit. type in what your LLC will do and then click the “Continue” button. gambling. 2008 by www. After you provide the LLC's name. State what your LLC does When prompted. that you will need to have the Adobe Reader program installed on your computer. Indicate whether the LLC is subject to special federal excise taxes. Click the “Continue” button. the answer will be “no” to all four questions. If you choose “Other” you will be taken to a second page of options. quarterly federal excise tax returns. click on other and then click the “Continue” button. you should verify that both of these bits of information are correct. 10. choose a category that best describes your business. If you aren’t sure what a category includes.com . you will need to provide the LLC start date. This is typically the same state as LLC's physical address. tobacco and firearms. Click on the “Continue” button. 9.
irs. Before calling for an EIN. Note: The unique prefixes 20 and 26 identify the EIN as a number issued via the Internet.pdf The web address for the SS-4 form instructions is: http://www." from the www. the IRS will send it to the mailing address you provided. Tell the assistor you received an EIN from the Internet but can't remember it and they will assist you. This process can take up to two minutes. At the time I'm writing this document. Click on the “Continue” button. Copyright © 2007. Monday through Friday. Applying for a New EIN using the Paper SS-4 Form As mentioned.If you choose to receive the letter by mail. The hours of operation are 7:00 a. click the “Submit” button to receive your EIN.m.gov. However. "Application for an Employer Identification Number.pdf Applying for a New EIN by Telephone You can also obtain an EIN immediately by calling (800) 829-4933. the IRS also provides other procedures for obtaining an EIN. . and then mail or fax the completed SS-4 to the appropriate address or fax number. For example.m. the web address for the SS-4 form is: http://www.10:00 p. Then. the easiest way to get an EIN number is through the interview-style.gov web site and fill out the form as best you can before calling the number just given. however. after you determine the information is correct. If you forget your EIN number.com . Print the summary page and check the information for errors. online EIN application described in the preceding paragraphs. call (800) 829-4933 and select EIN from the list of options in order to speak with an IRS employee. you can download a paper copy of the Form SS-4. Verify Your Information The last page of the online EIN application summarizes your information.gov/pub/irs-pdf/fss4. complete it.irs.irs. start a new application.irs.LLCsExplained. 12. local time. you really should retrieve a copy of the SS-4 form and form instructions from the www. If any of the information is incorrect.gov/pub/irs-pdf/iss4. This may take up to four weeks. 2008 by www.
address.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. at least in the eyes of the Internal Revenue Service. the LLC becomes.irs. While the 8832 Form is very simple. a corporation. that should mean you've just setup the LLC and have not previously made an entity classification election. follow these steps: 1. To make the election to be treated as a C corporation. you file an 8832 Form5 with the Internal Revenue Service. 2b and 3 on the 8832 form. The www.6 To complete the 8832 Form. So what you want to do is indicate that you’re specifying the initial classification for this newly-formed entity. and the EIN you will have already been assigned by completing and submitting the SS-4. and EIN information. Electing to be treated as a C corporation will of course mean that your LLC is now subject to corporate income taxes. Presumably. 5 6 You can download both the 8832 Form and the 8832 form instructions from the www. These boxes ask about previous entity classification election you've made using the 8832 form. 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). obviously.LLCsExplained. the street address. Copyright © 2007. 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.” you enter the name of the LLC. Specify the type of election. city and state.gov web site. 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. At the very top of the Form (see Figure 2). Note: You should be able to ignore the checkbox questions asked by boxes 2a. You’ve just set up a new LLC.FastEasyIncorporationKits. 2008 by www. However. if you're reading these instructions. many tax traps exist for the unwary and the careless.com web site provides general information about taxation of corporations. also known as C corporations. By making an election to be treated as a C corporation. 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. 2. in the block labeled “Type Or Print.com . Provide the LLC’s name.
If your LLC has a single owner.com .3. enter the owner’s name and taxpayer identification number into boxes 4a and 4b. Identify the owner of a single-member limited liability company. You would not be using a "do-it-yourself" approach in that setting… Copyright © 2007. These boxes ask about limited liability companies owned by corporations that file consolidated tax returns. 2008 by www.LLCsExplained. Note: You should be able to ignore the checkbox questions asked by boxes 5a and 5b.
Figure 2: Page 1 of an example completed 8832 Form. Copyright © 2007.com .LLCsExplained. 2008 by www.
by default. if you wanted to elect to have your LLC treated as a corporation for income tax purposes starting January 1. the default classification rules mean that if you want a multiple member LLC to be treated as a partnership. Note that while it is technically possible to make the election by having 7 A one owner. As a practical matter. 2009. 6b. Note.com . This means that a single-member LLC owned by an individual and operating an active trade or business is. you don’t have to make an entity classification election—the LLC is automatically treated as a partnership.LLCsExplained. 6c. to have your new LLC treated as a corporation for income tax purposes in 2009. A multiple member LLC is treated as a partnership by default. 8 You can make entity classification elections as early as twelve months before the effective date. 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. treated as an unincorporated branch of the corporation. Use the Consent Statement And Signature(s) area to formally request the entity classification. For example. Use the Type Of Entity checkboxes (6a. For example. 2008 by www. 6e and 6f) to select how you want the new LLC classified (see Figure 3). 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 line 9 to specify the person and telephone number that the IRS should call if they need more information. Use box 8 to specify when the election is to be effective. These default classification rules mean that if you want a single-member LLC owned by an individual to be treated as a sole proprietorship. LLC is disregarded as an entity separate and apart from its owner. For what it’s worth.4. Copyright © 2007. 6d. In other words. you need to make the election by March 15. you enter 1/1/2009 into box 8. 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.8 6. Note that you must make an entity classification election by March 15 of the year for which you want the election effective. Prove that the LLC members have authorized the election. or single-member. 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. 2010. 7. 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. A mid-year election means that the LLC is a corporation for only part of the year.”7 5. too. Provide a contact name and telephone number. treated as a sole proprietorship. 2009. by default. Select the entity classification you want to use. Similarly. you could also make the election sometime in 2009. Specify the effective date for the election. And single-member LLC owned by a corporation is.
only one member sign and date the 8832 Form.LLCsExplained. 2008 by www. Copyright © 2007.com . Figure 3: Page 2 of an example completed 8832 Form. that member should be authorized by either local law or the organizational documents to make the election.
New Mexico. District of Columbia. Wyoming Then use the following mailing address to submit 8832 Department of Treasury Internal Revenue Service Center Cincinnati. Maine. West Virginia. Indiana. North Carolina. 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. an LLC must meet the same eligibility requirements as a regular S corporation. 2008 by www.8. Delaware. the LLC becomes an S corporation in the eyes of the Internal Revenue Service. Oregon. Mail the 8832 Form. OH 45999 Department of Treasury Internal Revenue Service Center Ogden. In my experience. Missouri. Rhode Island. Tennessee. Virginia. New York. New Hampshire. (1) all shareholders (and shareholder spouses in Copyright © 2007. Montana. Kentucky. 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. Nebraska. Idaho. New Jersey. Georgia. Vermont. Arkansas. second. Maryland. South Dakota. Minnesota. Michigan. California. Arizona. Colorado. Louisiana. Wisconsin Alabama. Massachusetts. be aware that corporate tax returns are due on March 15th and not April 15th. By making an election to be treated as an S corporation. And.LLCsExplained. also known as S corporations. the IRS service center regularly loses the 8832 Form. South Carolina. Ohio. In order to become an S corporation. Alaska. office or agency address is located in state of: Connecticut. Washington. Oklahoma. A couple of other notes: First. Kansas. Utah. Texas. Iowa. If the 8832 Form isn’t processed or acknowledged by the IRS. North Dakota. Illinois. In a nutshell. Hawaii. UT 84201 It’s essential that you mail the 8832 Form using certified mail with a delivery receipt. Florida.com . Mississippi. Pennsylvania. The Form should go to the follow address: If your principal business. Nevada. you will also need to attach a copy of the 8832 Form to your first corporate tax return.
Washington and Wisconsin) must consent to the S election.gov/pub/irs-pdf/i2553. To make the election to be treated as an S corporation. the precise web address for the 2553 form is: http://www. Before I provide the step-by-step instructions for completing and submitting the election forms. (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).9 However. You also need to enter the date of incorporation (which should be the election date) and the state in which the LLC was formed. address. the street address.pdf 2. many tax traps exist for the unwary and the careless. to also grab an up-to-date copy of the form instructions. The precise web address for the 2553 instructions at the time I'm writing this is: http://www. 2008 by www.LLCsExplained. S corporations. offer their owners and shareholderemployees some wonderful tax planning opportunities. like C corporations. Louisiana.gov/pub/irs-pdf/f2553.irs. Idaho. At the time I'm writing this. you file Form 2553 with the Internal Revenue Service by March 15th of the year for which the S election is to take effect. follow these steps: 1. and EIN information. Provide the LLC’s name. (2) the “LLC-electing-S-Status” must have only one “class” of stock ownership treating all members the same way. To complete and file the IRS Form 2553. and (sometimes) substantial payroll tax savings.pdf It's also not a bad idea. citizens or permanent residents. Enough said. make sure you understand how S corporation taxation differs from sole proprietorship or partnership taxation. California.com. and the employer identification number. including pass-through of net operating losses.S. Copyright © 2007. if you're going to grab an up-to-date copy of the form.gov web site.irs. New Mexico. Download the election forms. city and state. Get the IRS 2553 form from the www.FastEasyIncorporationKits. estates of U. I want to caution you about making the S election: Before you elect.irs.SCorporationsExplained. the LLC is considered either a 9 You can get basic tax information on S corporations by visiting www. no corporate income tax.com .community property states like Arizona. in the block labeled “Type Or Print. The 2553 election date is the “incorporation date” because prior to the S Election. and (4) shareholders must generally be either U. citizens or permanent residents. as with C corporations.com and about corporations in general by visiting the http://www.S. Texas.” you enter the name of the LLC. and certain trusts and charities. At the very top of the Form (see Figure 4). Nevada.
April 23 of the current year. And if you've just created a new LLC as of. Usually. Note. that for single-member LLCs. Consult a tax attorney or tax CPA if you want to convert a C corporation to an S corporation.LLCsExplained. Copyright © 2007. you probably should not make this election using the “do-it-yourself” approach. Use Box E to indicate when you want the S election to become effective. There are special taxes that former C corporations can pay when they become S corporations. for a single-member LLC. 3. 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). 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. however. if you're turning an LLC that has existed for many years into an S corporation. 2008 by www. In this case. 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. However. 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. For example.com . 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). Indicate the effective date of the election. you would probably want to make the S election effective as of that April 23 date. you would probably want to make the S election effective as of January 1 of the current year. say. you could decide on August 1 to make an S election effective as of June 1.sole proprietorship 10 (if it has one individual member) or a partnership (if it has multiple members). For example.
com .LLCsExplained. 2008 by www.Figure 4: Page 1 of an example completed 2553 Form. Copyright © 2007.
you shouldn’t make the S election yourself. October or November—only complicates your tax accounting and produces no real benefit for you. Enter your name and telephone information into Box H. want to mark the Calendar Year option in box F. use columns J. the IRS provides space for you to explain why you're filing a late 2553 election. (The IRS typically has special procedures for making these late elections.com .4. 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. October. K. you probably want to pay a lawyer.” 7. is that you not try to file a late election yourself.) 6. You should confer with a knowledgeable tax practitioner. Sign the S election Form. L. You need to have each shareholder sign and date the S election in column K. 2008 by www. Having a non-calendar fiscal year—an accounting year that ends in September. You shouldn't need to use this space if you're filing the election on time. however. by the way. On page 2 of the 2553 form (see Figure 5). you’re an LLC. you might as well identify yourself as the LLC “president. You need to provide each shareholder (or member) name and address in column J. you probably. S corporation fiscal years can end on December 31. Note: If you think you want a non-calendar fiscal year end.LLCsExplained. or on the last day of September. People use this space when they miss the deadline and then need to file the 2553 form late with the actual S corporation return. certified public accountant or enrolled agent who specializes in S corporations to fix your election. 5. If you've already goofed up the S election deadline. However. or November. This tells the IRS who to call if they have questions about the S election. and N to name each shareholder in the new S corporation. shareholder spouse. You must use column L to identify the number of shares that each shareholder (or member) holds. M. you’re not a corporation legally. Accordingly. My suggestion. and you want to have someone who understands the most current special procedures do the election. You may not have a “real” president or chief executive officer—after all. Note: In the area beneath box H. Name and get signatures from each shareholder and.” “vice president. almost certainly.” or “treasurer. Specify that the S corporation’s tax year will end on December 31. if needed. Copyright © 2007.
Idaho. Washington. Finally.LLCsExplained. You need to enter each shareholder’s social security number into column M. 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. 2008 by www. 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. you can enter those percentages into column L. Wisconsin and sometimes Alaska and Puerto Rico). enter the month and day that each shareholder’s tax year years.com .) As mentioned earlier in this ebook.If members don’t hold shares but only percentage interests. (This should be December 31 in case of individuals. Copyright © 2007. if any of your shareholders resides in a community property state (Arizona. However. New Mexico. Louisiana. Note that in the case of non-shareholder spouse. Nevada. Texas. California. Note: You won't need to worry about the third page of the 2553 form (see Figure 6). 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.
Figure 5: Page 2 of an example completed 2553 Form. 2008 by www.com .LLCsExplained. Copyright © 2007.
Figure 6: Page 3 of an example completed 2553 Form. 2008 by www. Copyright © 2007.LLCsExplained.com .
Certified mail with a delivery receipt isn't a bad idea. Maryland. Rhode Island. Kentucky. and then make a late election via mail if there's a deadline problem. Oregon. 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. Louisiana. Delaware. 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. Fax or Mail the 2553 Form to make the federal S election.8. but nowadays. Georgia. Virginia. Vermont. Maine. 8832 or 2553 Forms. 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. Washington. Wisconsin Alabama. Utah. Wyoming Then use the following mailing address or fax number to submit 2553 Department of Treasury Internal Revenue Service Center Cincinnati. I want to share a handful of quick comments: 1. OH 45999 Fax: (859) 669-5748 Department of Treasury Internal Revenue Service Center Ogden. Hawaii. Copyright © 2007. California. Montana. New Jersey. Iowa. South Carolina. District of Columbia. you can often still fix a problem before the election deadlines expire. you can see which mailing address or fax number you can use for your state using the table below. Nevada. Especially with the IRS. Mississippi. office or agency address is located in state of: Connecticut. 2008 by www. Kansas. South Dakota. Florida. the IRS is so forgiving about late S elections that it's probably just as easy to fax the completed 2553 form. Nebraska. Idaho. West Virginia. I used to suggest that people mail the 2553 form using certified mail with a delivery receipt. Michigan. Massachusetts. Illinois. cross your fingers.LLCsExplained. Arkansas. Tennessee. Oklahoma. Indiana. Texas. In any case. Alaska. Arizona. Colorado. New Mexico. North Dakota. New York. New Hampshire. Pennsylvania. North Carolina. Minnesota. attempt to immediately resolve any problems by telephoning the Secretary of State’s office or the local IRS office. If your principal business. Ohio. UT 84201 Fax: (801)-620-7116 Some Closing Caveats and Comments Before I end this short booklet.com . Missouri. if you act immediately.
our turnaround times for this service are a few days. Please understand that this booklet does not entitle a reader to free tax planning advice from the author. Nelson. for example. It is truly foolish to save yourself $500 of attorneys’ fees but end up paying an extra $7. can be several thousand dollars. In other words. do not waste time trying to fix a problem you do not understand. Most of the time. 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 $500.2. attach a $300 check. If you cannot resolve the problems yourself. LLC experts in my office will do that for a flat $300 fee.LLCsExplained. just very honestly. that you’ll probably have LLC registration and business licensing requirements to meet in those other states. Montana. 2008 by www. Also note that during tax season. and the 8832 or 2553 election to check for errors. If you want someone to review the LLC formation documents. However… 6. enlist the services of a local professional. And sometimes readers of my books (like QuickBooks for Dummies readers) do become clients. our turnaround times tend to increase by a several days. Copyright © 2007. 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. I happily provide tax planning services to my clients. To take advantage of this offer. 3. CPA PLLC 8434 154th Ave. give up on the “do-it-yourself” approach and. NE Redmond. county and city government agencies. 4. but remember that the US Postal Service may take a few days to get your documents to us. 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. a smart person who is careful can work through the paperwork themselves. I mentioned this before. please. 5. 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. The “cost” to fouling up an S election. if your LLC begins doing business in. instead.com . WA 98052 If you take advantage of this service. Typically. 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. Be aware that if your new LLC operates in states other than California. the EIN application. But.000 in payroll taxes. say. and mail the entire packet to: Stephen L. package up the documents you want us to check. But if you are having trouble.
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