Know these before forming a LLC


Know these before forming a LLC


Forming a LLC is probably the biggest and the most crucial step for any business owner, especially if you are just stepping foot into the business world. But forming a LLC requires you to wade through quite a few legal formalities and regulatory requirements. In fact there are separate regulations governing the state that you have to take into account along with the federal requirements for forming a LLC. To help out the newcomers in the business arena, we present some of the do’s and the don’ts that you should bear in mind while forming a LLC.




The Dos


  • When you are forming a LLC you will also be formulating the amount of wage to be paid to every employee, which includes you as well. You have to bear in mind that you compensate yourself fairly in accordance to your role and responsibility when forming a LLC. Any service compensation paid to the owner when forming a LLC or after, when computed fairly is considered a business expense and is completely deductible. There are a few factors that the IRS takes into consideration, as you are forming a LLC, when auditing the pay slip of the owner and keeping these in mind will help you to stay out of trouble. These five factors are,
    • Role of the person when forming a LLC
    • The financial position of the company.
    • The salary derived by similar employees in the industry.
    • Consistency with the employees’ salaries in the same company.
    • Any other conflict of interest when forming a LLC
  • As you are forming a LLC, you are immediately bombarded with many different regulations and laws to abide by. This means that you definitely have quite a lot of documentation to complete. And there will be meetings and other announcements too when you are forming a LLC. Every announcement, every meeting and every publishing has to be recorded duly. Record books form an integral part of any organization, more so when you are forming a LLC. In fact keeping good records will help you wade through the tax season with ease and accuracy when forming a LLC.


The Don’ts


  • Classification of employees accurately is a crucial step when you are forming a LLC. A wrong or a neglected classification when forming a LLC can end up in you liable for more taxation. You have to bear in mind that an employee when forming a LLC is one who is completely hired by you and works solely for you unlike the contractors who are independent individuals are not your employees.
  • When you are a forming a LLC, you should remember not to get your losses declared invalid as hobby losses. IRS considers activities like farming, breeding horses, chartering yachts and planes, multi level marketing, etc.

Forming a LLC requires considerable amount of legal expertise, regulatory knowledge and of course a lot of documentary preparations. Getting an expert who is well versed with state regulations and federal rules in forming a LLC will help you settle down with less hassle.



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