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The limited liability company, better known as an LLC, is often touted as the perfect business for small businesses. It certainly has some major advantages, but there is another side to it. In many states, there can be a painful financial catch if you use it for your business. The LLC was first introduced in the United States in the late 1970s. It had existed in another form in Europe for decades, but Wyoming was the first state to pass legislation that allowed it to be used here as well. Other states slowly did the same until the IRS ruled on it favorably from a tax perspective, which resulted in every state passing legislation that allowed businesses to use the LLC form. The problem is whether you should actually choose an LLC for your business. Each state handles the entity different, but more and more are now adding fees and taxes that should make most people pause before going with the LLC over another form of business. One need look no farther than California for an example of how this happens. California is known as being a very unfriendly environment for businesses. There are fees and taxes for every little thing. When you form an LLC in the state, you must pay an $800 fee every year for the “privilege of doing business in California”. I kid you naught. That’s what the law says! Ah, but it gets worse. In addition to the $800 fee, California also requires all LLCs to pay an additional gross revenues tax. “Gross revenues” means that the tax must be paid before profitability is determined. The tax starts at $900 for gross revenues of $250,000. That figure increases to $2,500 at $500,000 in revenues. To understand how harsh this is, consider an example. You start a business and don’t expect to be profitable until the third year of existence. You bring in $310,000 in gross revenues, but lose $30,000 the first year. Well, you still are going to be required to pay $800 for being in business and another $900 as your gross revenue tax. Welcome to California! The truth is most states now have some kind of fee or tax add on for limited liability companies. Those that don’t are expected to soon given this tough economic environment where tax revenues are falling so steadily. If you are considering choosing an LLC for your business, be very careful and make sure you investigate all the fees and taxes you will have to pay. Thomas Ajava writes for FindanAttorneyforMe.com - where you can find a business attorney to help you determine the best business entity for your business.
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LLC, limited liability company, fees, tax, California, states, small, business, gross, revenue, taxes,
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