LLC Taxes- anyone know how it works?

**newbiz87** · 08-10-2008 07:30 PM

Hi,

I am currently setting up a small business in the state of Michigan. I've filled out the LLC incorporation forms, and am now in the process of obtaining an EIN and a sales tax license. I was hoping someone here would be able to help me or give me some guidance with the following questions:

1) How are LLC's taxed? This LLC will have 6 members- all partial owners. We will be running the company on our own and won't be hiring employees until a few months down the road. Does the number of members (6), and the fact that we don't but will eventually have employees, change the way to approach taxes?

2) Can a 6 member LLC file/deal with taxes on their own- or is it complex enough to require hiring an accountant/attorney ?

3) Sales tax- how does filing/reporting sales tax differ from federal taxes (EIN)? I know it is specific for the state... but in general how would it differ.

4) How does a company determine its "fiscal year end"- and can it be determined without outside help?

5) What else do we need to do before we launch our company other than get our EIN and sales tax license ??

I have no legal or tax background nor do any of the other members, however, we are trying to avoid paying for professional help for as long as we can hold out. What do you recommend? Any other information that might be of use?

Thanks so much!

**kampongboy** · 08-10-2008 10:35 PM

read this dummies book "limited liability companies". it has all the answers to your questions and more.

**Squandered Halfpints** · 08-11-2008 01:10 AM

I'm currently in the middle of finishing up an assignment for my Fed. taxation class so I can give you the answers for your first 2 questions straight outta my text. "An LLC with two or more owners is treated as a partnership for tax purposes unless it elects to be treated as a corporation (C corp.)" As a result all of the income, as well as any loss, flows through to the partners.

I'm not too sure about your other questions

Go pick up the TurboTax Business (for corporations and partnerships). The software really simplifies everything and breaks down each input step by step which makes it fairly easy to file your own taxes - even as an LLC.

**GuyBBY** · 08-11-2008 09:04 AM

Originally Posted by newbiz87

Hi,

I am currently setting up a small business in the state of Michigan. I've filled out the LLC incorporation forms, and am now in the process of obtaining an EIN and a sales tax license. I was hoping someone here would be able to help me or give me some guidance with the following questions:

1) How are LLC's taxed? This LLC will have 6 members- all partial owners. We will be running the company on our own and won't be hiring employees until a few months down the road. Does the number of members (6), and the fact that we don't but will eventually have employees, change the way to approach taxes?

2) Can a 6 member LLC file/deal with taxes on their own- or is it complex enough to require hiring an accountant/attorney ?

3) Sales tax- how does filing/reporting sales tax differ from federal taxes (EIN)? I know it is specific for the state... but in general how would it differ.

4) How does a company determine its "fiscal year end"- and can it be determined without outside help?

5) What else do we need to do before we launch our company other than get our EIN and sales tax license ??

I have no legal or tax background nor do any of the other members, however, we are trying to avoid paying for professional help for as long as we can hold out. What do you recommend? Any other information that might be of use?

Thanks so much!

1. Answered perfectly by text book response above. Pass-through entity. Look that up and try to understand it, if you don't I will be more than happy to fully explain.

2. Depends on the type of business. If all you sold was Pens for just cash then I would say so. But if you are getting into complex transactions, fees, particular sales tax etc I would get an accountant. Legal and accounting are two places to SPEND your money on when starting up. They are investments in keeping your business around as you can know it will be done right. Accountants also are able to see particular expenses at different angles to save you money at times too. (Expense vs good will, write/off ,etc).

3. You should contact your state's Dept of Taxes. I say this not to differ the question, but because you need to factor in the correct sales tax into your prices, as well as make sure you report it correctly.

4. FY's are usually Dec 31st for 90% of companies out there. Others who chose to use different ending periods do so because of their industry and particular financial status/health based on its revenue high points (aka toy companies usually say Jan 31 is their FY end as their books will have all the recent holiday numbers in them).

5. Broad question, but I would assume Operating Agreement among all members, an accounting software program, a defined task schedule/role outline for everyone, proper paperwork/drafts/templates for dealing with external and internal happenings, as well as reading the book, "Forming an LLC: In Any State" by Michael Spadaccini, you will have all these questions above answered AND a CD of common templates etc.

NONE THE LESS, A. I am not a lawyer or financial consultant/accountant etc. B. you should look into SCORE in your area (SCORE | Counselors to America's Small Business | SCORE) They will meet with you for FREE, and you meet with retired or current successful and knowledgeable business people.

Any other questions/comments feel free to PM.

Guy

**nateharward** · 08-19-2008 02:52 PM

I know a website that has video content on tax laws, its iLearningGlobal

**helpline** · 08-20-2008 03:57 AM

I know a lawyers website and more articles visit - helplinelaw.com/lawyers/usa-michigan/detroit

**matt_15** · 08-20-2008 07:22 AM

How are LLC's taxed? This LLC will have 6 members

If an llc is properly organised, it would enjoy the benefits of having "pass through taxation"; which means the tax passes straight through the entity and onto each individual member, therefore avoiding being taxed as income on a corporate level and then again on a member level as members income (double taxation).

**Joshua Jones** · 08-20-2008 10:17 AM

I say, if you're going to make a big go of it and have 6 owners in the company, then just go get a qualified Attorney and CPA to make sure you're structured for longevity and eventually your exit strategy. There's no reason to not have these two professionals on your team as a "minimum" for a serious venture with partners.

Best wishes in your new venture!