Transcription
Forming an LLC feels like a big win, right? You file the paperwork. You get the confirmation from the state. Maybe you even opened a bank account already and you think, "Perfect. I'm protected. I'm done."
But here's the reality. Most people don't hear until it's too late. Forming the LLC was the easy part. Maintaining it is what actually gives you the protection and even some tax benefits. It's important you're on top of all of it.
I'm Mark Jler, CPA, attorney, and small business advocate. And today I want to walk you through what comes next after you form an LLC because this is where most business owners accidentally lose the very benefits they set the LLC up for in the first place. So let's break it down.
First, an LLC is not just one sheet of paper. One of the biggest myths out there is an LLC is just filing with the state. Pay 50 bucks, whatever, and you're protected forever. That's not true. A real LLC has multiple layers. as articles of organization, an operating agreement, an initial resolution and minutes, a corporate record book, membership certificates, and without those pieces, you don't actually have the asset protection you think you do, and both the IRS or an attorney coming after you knows exactly what to look for. So, if you don't set it up properly, you don't actually have an LLC. You just have some paperwork. So, this is what we call at our law firm, a cleanup. You might need to just get these pieces and parts done. Now, we don't want to throw the baby out with the bathwater. If you've already filed or paid for pieces and parts, maybe even have a talk with a lawyer and say, "You know what? I did this by myself online. Can you help me understand what I've got now and what I need to do?"
Next, annual minutes are not optional. And that's okay. It's not a pain in the butt to have annual minutes. This is a great opportunity for support and tax write-offs. See, a lot of people are told LLC's don't need to do annual minutes or quarterly minutes or minutes at all. Legally, some state statutes don't require them, but the IRS and courts absolutely do and expect them. What are minutes, let alone annual minutes. Minutes are the written record that you held a meeting with people in person or even on Zoom. And you're going to write down here's who attended, here's what we talked about, here's what we did. and they could sign it virtually or in person. Now, I want you to do these minutes at least annually, but you could have minutes every month or every quarter. In fact, if you go take out a bank loan with your LLC, a bank's going to require minutes that authorize you to take out that loan. See, you made decisions, but we need to do it formally with these minutes. They document what the business is doing. You're respecting the entity by having these annual meetings and the minutes that document the meeting. Minutes also support tax strategies like home office, mileage and travel reimbursements, medical expenses. They're called accountable plans. These are very, very important if you're ever audited. And if you're sued, oh my word, you've got to have these minutes to show that you recognize and really respect the LLC and its corporate veil. So, if you're not holding these minutes, you are exposed with the IRS or a potential lawsuit.
Now, minutes are paperwork. They're proof that you're respecting the corporate veil. But it doesn't have to be a pain. At Main Street Business Services, one of our sister companies, we do your annual minutes with you for you. We have a checklist that you go through online. It's a questionnaire that is really super simple and fun, and it actually helps you do a better job of running your business and documenting everything you're doing.
Which brings me to the next point. You need to make sure that your LLC stays in good standing. Every state has its own rules, but most require an annual renewal with the Secretary of State, almost 90% of them. If you miss that annual filing, your LLC can be suspended, administratively dissolved, or stripped of it its legal status entirely. This has nothing to do with your tax return. It's a separate requirement. And if you're operating in multiple states, you have foreign registrations that also need to be renewed. And an expired LLC is worse than no LLC at all because you think you're protected when you're not. Now again, at Main Street Business Services for a couple hundred bucks, we're not only doing your minutes, we're making sure that your LLC is up to date everywhere it's registered. That is our company maintenance plan. You will love it and it takes care of your minutes and make sure you're in good standing with the state allin-one service.
Next, moving forward, you need to treat the LLC like a separate person. Asset protection only works if you respect the veil between you and the company. That means a separate bank account. Contracts in the LLC's name, income that you earn deposited in the LLC bank account, expenses paid by the LLC bank account or the LLC debit card or credit card. See, if a tenant slips and falls or a customer sues or if you're audited, the question will be, "Do you have an LLC?" Well, it'll also be, "Did you act like you had an LLC?" See, mixing personal and business activity is one of the fastest ways to lose protection. The LLC only protects you if you protect the LLC.
Next, rental property LLC's even need a little extra attention. This is where we see the most mistakes. Ask yourself, is the LLC formed and/or registered in the state where your rental property resides? Now, for example, a lot of people are setting up Wyoming LLC's cuz they're so great. Yeah. But is that LLC registered in the state where the rental property is, or does it own an LLC in the state where your rental property is? Next, is the property deed into that LLC? Is title held by that LLC for that property? Is the lease in the name of the LLC between the LLC and the tenant? Is the rent paid to the LLC? Are the utilities and expenses paid by the LLC? See, all of this stuff really matters when you have a rental property in an LLC. Because if you get into a lawsuit with a tenant or a contractor and you're not doing those things, it's not like you even had an LLC in the first place. missed several of these issues and in a lawsuit, a judge is going to decide that the LLC was never real in practice. See, even if you can't tell who owns the property because of the LLC on title, the court's going to blow right through it if there's a lawsuit.
Next, if your LLC is taxed as an SC corporation, now there's another layer. Because once you elect SC Corp status for your LLC, the benefits increase, but also the responsibilities because now you've got to treat it for tax purposes as an SC corporation, even though you have an LLC for state filing purposes. So, as an S corporation, you're going to have to process payroll, file quarterly reports, issue W2s, file an 1120S tax return by March 15th or an extension. Now, payroll and these tax reportings aren't a burden because they're creating tax savings. And yes, bookkeeping matters even more at this stage because you're an SC corporation and you need clean books to really save on that self-employment tax. So, as an SC corporation, you need to take these additional tax reporting measures seriously on top of maintaining the LLC itself.
And finally, clean books equals more tax savings. So, if your books are a mess, every tax strategy becomes harder and more expensive. So, when you set up an LLC, you have to realize you're signing up for more bookkeeping. And that's okay. It's a nature of the beast or it comes with setting up an LLC. So, just own it and be okay with that. Good bookkeeping supports deductions, lower audit risk. It makes planning more possible and better planning. and pays for itself in tax savings and better management decisions. I'll say it plainly, whatever you spend on good bookkeeping, you'll usually get back tenfold in tax savings and good business decisions. Organization is an overhead. It's profit and it's a part of the process.
In summary, forming the LLC was step one, but the real benefits come from what you do after that. So, here's your simple checklist. Number one, make sure the LLC was set up properly in the right state and with all the pieces and parts. Now, if it wasn't or you have questions, get a hold of our law firm, KKOS Lawyers. The information and links are below. We have a service just to help you get it cleaned up and organized, and you can get additional support and talk to one of our lawyers if necessary.
Step two, make sure you're doing your annual minutes and you're registered in the state and maintaining it in the state. This is our company maintenance plan at Main Street Business Services. Again, our information is below. When you get to the website, you'll see some videos and some explanation of our services that make it super easy and simple to use.
Step three, keep the LLC separate from your personal life and make sure that you're treating it separate in the sense of leases and title and all of those documents that are super important when you're operating.
And number four, stay compliant if you're an SC corporation and doing all those special tax forms. At our Main Street Tax Pro Network, we have hundreds of accountants trained on all of my strategies that you can choose from and interview to help you with your tax reporting and tax planning.
And finally, keep clean books. It'll help bring that whole piece together with tax reporting and good bookkeeping. And remember, an LLC isn't a magic shield. It's a tool. And like any tool, it only works if you use it correctly. Thanks for watching. I'm Marjler and I'll see you in the next