Basics of an LLC
What are the taxes on an LLC in Calif
-Federal Income Tax: -California State Income Tax: -Self-Employment Tax: -Franchise Tax:
3 ways to pay yourself owning an LLC Draw
.You withdraw funds from the business's account and deposit them into your personal account. - A draw is not a salary, and you'll need to pay self-employment taxes on any money you withdraw.
LLC Disadvantages
1. Can't issue shares of stock 2. Harder to get investments 3. Retention of earnings is more difficult 4. Owners pay self-employment tax
What are the Advantages of an LLC
1. Limited liability protection. 2 .Business liability protection. 3. Lack of ownership restrictions 4. Lack of management restrictions 5. Tax flexibility. 6. Pass-through taxation 7. Profit distribution flexibility 8. Less formalities and paperwork. 9. Low formation costs
What is a Business Entity?
A business entity is a corporation established separately from an individual for tax and operating purposes.
What is an LLC (Limited Liability Company)?
A limited liability company is a type of business entity that combines the legal protections of a corporation with the flexibility and taxation advantages of a sole proprietorship or partnership
Step 3 Assign a Registered Agent
A registered agent receives official correspondence and is responsible for filing reports with the Secretary of State. Every California LLC is required to have a registered agent
Step 1 Choose a Unique Business Name and Complete a State Business Search
A. You'll need an original and distinctive name , that no other business in the state is using. B. Then you'll need to make sure it's available in California
Franchise Tax:
All LLCs doing business in California are required to pay an annual franchise tax. The amount of the tax depends on the LLC's income, and there is a minimum tax of $800 per year.
California State Income Tax
California state income tax is a pass-through tax that is reported on the individual owners' personal income tax returns.
C-Corps cons
Cons: Double taxation: C-Corporations are subject to double taxation, where the corporation itself is taxed on its profits and then shareholders are taxed on dividends received. More complex and costly: There are more formalities and regulations that come with being a C-Corp Limited losses: The losses of a C-Corporation can only be used to offset future profits of the corporation and cannot be used to offset individual income.
3 ways to pay yourself owning an LLC
Draw Salary Profit Distribution
Step 5 Get an Employer Identification Number (EIN) from the Internal Revenue Service
EIN's identify your business to the IRS. This number is used when you: File and pay taxes. submit payroll information and payments for -open a business bank account.
Step 2 Provide an Official Address for Your LLC
Every California LLC must designate an official address, whether it's an office building, or your home address. The address can be outside the state, but cannot be a P.O. Box.
Self-Employment Tax:
If the LLC has only one member (a single-member LLC), the owner is considered self-employed and is required to pay self-employment tax. This tax covers Social Security and Medicare taxes and is paid by the owner on their personal income tax return.
LLC Disadvantages Can't issue shares of stock
Instead, shares of profits are distributed among members as personal income.
LLC Disadvantages Harder to get investments
LLCs are often considered to be riskier investments
Advantages of an LLC *Lack of management restrictions.*
LLCs can be: a. member-managed, means that the members manage the company b. manager-managed, means that members cede management responsibilities to managers.
Federal Income Tax
Like all businesses in the United States, an LLC is subject to federal income tax. However, an LLC is a pass-through entity, which means that the profits and losses of the business are passed through to the individual owners and reported on their personal income tax returns.
C-Corporation: Pros:
Limited liability protection: The members of an LLC that chooses to be taxed as a C-Corporation are shielded from personal liability for the company's debts and obligations. Easier to raise capital: C-Corporations are often viewed as more attractive to investors, as they can issue multiple classes of stock and have the potential for an initial public offering (IPO). Lower self-employment taxes: As a C-Corporation, members do not have to pay self-employment taxes on the salaries they receive.
S-Corps cons
Limited ownership: S-Corporations can have no more than 100 shareholders and must be U.S. citizens or residents. Limited classes of stock: S-Corporations can only issue one class of stock, which can limit their ability to raise capital. Stricter regulations: S-Corporations must adhere to stricter regulations, including restrictions on who can be a shareholder and how profits and losses are allocated.
As an LLC, do I have to pay the federal per diem rate?
No, You can pay more or less than the federal per diem rate. However, if you pay more than the federal per diem rate, the excess will be taxable to the employee
Step 4 File Your Articles of Organization with the California Secretary of State Filing it with the Secretary of State officially creates your LLC
Once you have all the information for your LLC, you'll create your Articles of Organization -Your business name and address -Information about your Registered Agent -The company's management structure -Name of the organizer
LLC Disadvantages Owners pay self-employment tax
Owners pay self-employment tax on all company profits, unless the company elects to be taxed as an S-corp or C-corp.
S-Corporation: Pros:
Pass-through taxation: S-Corporations are not taxed at the corporate level, but instead, profits and losses pass through to the individual shareholders, who report them on their individual tax returns. Limited liability protection: Members of an LLC that elects to be taxed as an S-Corporation are still protected from personal liability for the company's debts and obligations. Tax benefits: S-Corporation members can deduct business losses on their personal tax returns, which can reduce their overall taxable income.
What is Per Diem
Per diem payments are a form of compensation that reimburses employees for their expenses, such as lodging, meals, and transportation.
Advantages of an LLC *Profit distribution flexibility.*
Profits and losses can be distributed among members in almost any way that you choose.
Start a California LLC Yourself in 6 Steps
Step 1 - Choose a Unique Business Name and Complete a State Business Search Step 2 - Provide an Official Address for Your LLC Step 3 - Assign a registered agent Step 4 - File Your Articles of Organization with the California Secretary of State Step 5 - Get an Employer Identification Number (EIN) from the Internal Revenue Service Step 6 - Create an Operating Agreement
LLC Per Diem Guidlines
The company should have a per diem policy in place that outlines: the daily rates, requirements and frequency for employees to be eligible for per diem.
Advantages of an LLC *Lack of ownership restrictions.*
There is no limit of owners within LLC
Advantages of an LLC *Pass-through taxation
This means the profits and losses of your business will be passed through to your personal tax return and will not be taxed at the business level, thus, avoiding double-taxation. You will only have to file one tax return.
3 ways to pay yourself owning an LLC Profit distribution
When the LLC earns a profit, the owners can distribute a portion of that profit to themselves as a way to pay themselves. This is similar to a dividend in a corporation.
2A Virtual mailboxes
With a virtual mailbox, your incoming mail gets sorted and scanned, and you receive a digital copy. With 24/7 access.
Can California LLC's pay benefits to its employee
Yes, Benefits such as -health insurance, -retirement plans, and paid time off are commonly offered by California LLCs
3 ways to pay yourself owning an LLC Salary
You will need to set up a payroll system and withhold taxes just as you would for any other employee. It can be beneficial if you want to ensure that you're paying yourself a consistent amount each month.
Advantages of an LLC *Less formalities and paperwork.*
almost no requirements when it comes to annual meetings and paperwork
Step 6 Create an Operating Agreement
an LLC Operating Agreement outlines how: -the business is set up among members -how business decisions will be made -and what will happen if a member leaves the company.
Advantages of an LLC *Business liability protection.*
creditors cannot liquidate your business or sue you personally to gain legal satisfaction.
Advantages of an LLC *Low formation costs.*
depending on the state you are in, establishing an LLC may only cost you a few hundred dollars in filing fees
LLC Disadvantages Retention of earnings is more difficult
distribution shares are taxed whether cash is distributed or not. More info: Retaining earnings in an LLC can be more difficult because the distribution of profits and losses in an LLC is based on the ownership structure and the operating agreement. In an LLC, the profits and losses are typically allocated to the members of the LLC in proportion to their ownership percentage. Additionally, LLCs are often taxed as pass-through entities, meaning that the company itself does not pay taxes on its earnings. Instead, the profits and losses flow through to the individual members, who report them on their personal tax returns. This can make it more difficult to retain earnings within the LLC, as any profits will be subject to taxation at the individual level.
Advantages of an LLC *Tax flexibility.*
you can choose how you want to be taxed
Advantages of an LLC *Limited liability protection.*
your personal assets cannot be seized to pay for business-related debts or legal rulings
