STRUCTURE.

FIVE CRUCIAL POINTS WHEN SETTING UP A LLC FOR YOUR BUSINESS. 

From the Desk of the Business Development Expert for Small Businesses

"Making Small Business, Smart Business"

This is a tried and true query for all business owners; past, present and future. To LLC or not to LLC? LLC is the common acronym for Limited Liability Corporation. Small Business Management teams are typically attracted to this option due to the protection it provides in the legalities world.  In the unfortunate event of being sued by a Client or Customer for your business, personal assets are protected.  If sued personally, the business assets are protected. There are some crucial points small business management owners should consider for small business opportunities before taking the big "leap" into the LLC application effort. 

before taking the "leap".

As a registered LLC your small business becomes a complete entity, in the eyes of the state. This inherently means you, as a business owner,become an employee of your entity in the eyes of the state.  When your small business management team is reviewing the pros and cons to setting up your small business as an LLC, it is best to ensure you have the proper accounting method and  elections designated at that time.  This election designation will support proper filing at the end of the tax year. 

CHOOSE ​​Either cash or accrual accounting method.

 All records must be kept for retention purposes and the requirements for how long such records should be kept can vary from state to state.  For example, for the state of Texas, record retention is required up to a minimum of four (4) years.  Even if the small business management team has elected an accounting system which is ingrained in Quick Books, you must keep appropriate record of your business deductions. In the generation of mobile apps, heavy digital platforms and robust work process software; proper business documentation requirements tend to fall by the wayside for small business management teams. Do not fall victim to this.  The United States government Internal Revenue (IRS) audit team has yet to keep up with such advances in the generational digital way for small business management.  Thus, the records of your small business management deductions are crucial to keep.  Many businesses elect to retain items in a two step storage method. This is encouraged due to its tried and true track record.  The first step of this storage method being the utilization of a water-proof barrier (such as a plastic storage bag with a "zip seal"). The second step being a cardboard storage box.  Typically, placing your retention documents in a plastic storage bag then into a cardboard storage box will suffice adequate retention. 

records and retention. 

For inventory based business you are likely to select an accrual accounting method. Unless you have made the election to be a corporation, you will file an 1120-S.  This process reflects although your pass through election of an S-Corp via LLC.  There is a limitation imposed on this, in the quantity of $5MMUSD and you can still use the cash accounting method. If the business management configuration reflects partnership with a spouse,  the business is considered one individual, in the eyes of the government and one 1040 Schedule C should be filed.  This filing will reflect the individual contribution to social security taxes.

all llc elections must be  made during the set up process.

Many small business management teams struggle with the implementation of start up funds as deductions. These quantities should be treated as deductible and can be reflected on tax accordingly. Credit deductions for startup is limited to $5,000 annually.  Anything over the $5,000 is required to be amortized over 15 years incrementally. Corporations require the owner to be an employee of the organization with a reasonable salary, social security taxes, Medicare taxes deductions, etc. 1040 Schedule E will account for income tax for the personal level tax. This will also account for the start up funds associated with the loan associated with funding my business. File the 1120-S for the small corporation (less than 100 shareholders) and file the appropriate corporate returns, as opposed to filing a sole proprietor schedule c. A 1065 form is a partnership return.  You do not any yourself a salary, and the profit goes to each partner's’ individual return.  LLC only keeps your sole proprietorship separate from your personal return.

protect your personal assets.

At the time of creating the LLC, you are stuck with the cash or accrual basis.  Business owners can change the election via form 3115 and this will require the approval of the IRS. Typically the IRS will approve, as long as the realization is that you are not attempting to defer income and load up on expenses. Once you are an LLC that prevents you from filing franchise tax to the state of Texas.  This is not the state franchise like the popular fast food franchise, this is a state franchise definition.  The only time you pay taxes on this money is if you have revenue over $1MMUSD.  In the event you have loaned your company money, you will be required to reflect paperwork for the loan. This document will need to be examined and seen.  

personal loans to your business.

These crucial points and more allow business management teams to make an informed decision in regards to the aspects of the companies business entity structure. As always, it is recommended to contact a trusted small business consultant and their reputable tax professional, as it pertains to the particulars of your small business circumstance. 
All the Best!