Notes on the LLC

Discussion in 'Business Operations' started by bilchak, Mar 13, 2001.

  1. bilchak

    bilchak LawnSite Member
    Messages: 89

    OK.....I know we had some discussion about this earlier and I had a chance to talk to my CPA this week, reading a book on it, etc.

    Here is what I've come up with so far:

    Your LLC grosses 100,000 dollar this season. You
    had 40,000 dollars in deductions this year, so that
    leaves you with 60,000 in profit.

    You paid yourself and your partner 20,000 dollars
    each. These "draws" are subject to 15.3% Self
    employment tax, federal income tax, state, and local
    tax. Half of the SE tax can be used as a deduction
    as you are both the employer and the employee. Federal
    tax is 15% for anything up to about 25,000. Any
    income after that comes in at 28%.

    After paying yourselves throughout the year, you will
    have 20,000 left in the pot (60,000 profits minus
    40,000). This 20,000 if left in the pot is subject
    to SE Tax only. These taxes will be devided among
    the partners and paid on your personal income tax
    returns. If the money is given as a bonus it's
    subect to all taxes. However......AND I'M STILL
    CHECKING ON THIS.......some portion of the profit
    can be given as a dividend (usually quarterly) which would only be subject to federal income tax only. There are certain rules to can't pay yourself
    2000 dollars, then give youreslf a 40,000 dollar
    dividend to avoid SE tax.


    Here is some more info:

    In most states an LLC can be taxed as either a corporation or a partnership. I assume that you will be taxed as a partnership.

    You (or your accountant) will need to file a Form 1065 with the IRS. This is the Partnership Return of Income. You do not pay taxes on this return.

    As partners you will not be paid on a W-2, your salary will be listed on a line "Guaranteed Payments to Partners." Ask your accountant about making estimated tax payments.

    Back to the 1065. This is sort of like the 1040 Schedule C. On the 1065 you will list your income and deductions. There are other forms that you may need to attach, such as depreciation. It also has sections to reconcile the last year-end balance sheet with the current year-end balance sheet and profit & loss. You also reconcile the year-end capital balances for the partnership.

    After the 1065 is completed the partnership takes the results, divides the profit (and some other things) up between the partners and reports it on a K-1. The information on the K-1 is transferred to the partners' individual 1040s.
  2. parkwest

    parkwest LawnSite Senior Member
    Messages: 678

    Every state has enacted laws permitting the formation of a limited liability company ("LLC") as an alternative to traditional corporations, general partnerships and limited partnerships. LLCs have become popular because they offer the flexibility in management and other matters like a general partnership, while providing the benefit of limited liability for the investing members, like a corporation.

    Unlike limited partnerships, LLC's protect all of the owners and all of them may participate in management. Unlike S corporations, LLC's do not restrict the number or type of owners. For these reasons, the LLC is sometimes preferred to these other popular entities used by small businesses.

    Basic Requirements
    Limited liability companies are formed and established much like a corporation. The founders must prepare and file the proper documents with the state, according to the state's limited liability company law. These laws normally provide that the LLC may have powers like a corporation. However some states restrict LLCs from certain activities, such as banking, insurance and professional services. LLC's have members, similar to a corporation's shareholders. These members must have a written agreement, much like a partnership agreement.

    Unfortunately, the average cost to establish an LLC is much higher than the cost of simple incorporation. LLC documents are not standardized, and it is important to have a qualified attorney help establish an LLC. While the cost to set up a corporation can be as little as $100 plus filing fees, an LLC usually costs a minimum of $1500 plus filing fees, and is often much higher.

    The IRS has determined that an LLC meeting certain requirements may be taxed as a "pass through" entity like a partnership or S corporation. This means that the LLC's profits and losses flow through to the LLC members. Many of the restrictions placed on S corporations, such as limits as to the number of shareholders, do not exist for an LLC.

    LLCs also differ from regular corporations in other ways. LLC laws do not permit the LLC to have unlimited life. Most laws prohibit LLC's to a life not to exceed thirty years. Also, LLC members are subject to different rules with respect to transferring their membership interests, and withdrawing and distributing profits, as compared to a regular corporation's shareholders. One of the drawbacks to LLC's is the uncertainty of doing business outside the state when the LLC is formed. Because not all states have identical LLC laws, you may have difficulty qualifying your LLC in a "foreign" state. If not properly qualified, that state law may permit claimants to "pierce the corporate veil", thereby making individual members liable for LLC debts. This loss of limited liability protection poses a substantial risk.

    Consult with your attorney to determine if an LLC may be appropriate for a given business enterprise.

    Above excerpt from Kiplinger's Law Library.

    [Edited by parkwest on 03-14-2001 at 02:58 PM]
  3. bilchak

    bilchak LawnSite Member
    Messages: 89

    Kiplinger's is crazy. I paid the state of Ohio 85 dollars
    to set up my LLC. I did it myself. All I had to do was
    fill out 3 simple pages I downloaded/printed off
    the internet and send them to the Secretary of State. You do NOT need an attorney.

    The Secretary of State in your state will have
    all the info you need and it should be on the web.

  4. champion

    champion LawnSite Member
    Messages: 21

    Hay Bilchak
    I'm also getting my company "LLC" I also got a attorney to do this for me.He also made sure I can use my co. name. I figured I,ll spend @ $400.00 and it will take 5 to 6 months to complete this. I'm also from Ohio do you know were Findlay is? Good luck with your LLC
  5. GreenQuest Lawn

    GreenQuest Lawn LawnSite Senior Member
    Messages: 822

    I set my LLC up 1 yr ago through my CPA cost me $100 and just paid my annual fees $5.00
  6. bilchak

    bilchak LawnSite Member
    Messages: 89


    Yeah......I know where Findlay is. I've got a good
    friend that lives there.

    You can call the Sec. of State's office yourself and check on the availability of names. You might have to hold for
    about 20 minutes, but you can check on it yourself. It took me about 4 weeks to get my stuff back from the
    state. 5-6 months??? NO way!!!

    Check out Ohio's Sec. of State website, it's all there.

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