What’s the Downside to Opening an Alabama LLC for a new Huntsville Business?
Forming a new company is an exciting venture, and the benefits of setting up an LLC are numerous. However, it is worth saying that the are a few downsides to forming an LLC (or running a business)…
When you open a new company, the business owner needs to do basic accounting and record-keeping to stay on track of measuring the income and expenses of the business for tax purposes.
To take a deduction on your personal income tax returns for any losses/business expenses, the business owner will need to maintain good records for when you prepare your annual tax returns. This can be complicated and time-consuming at first for new business owners.
Alabama LLC Record-Keeping Requirements for Huntsville Businesses
The requirements for LLC regarding taxes generally apply whether someone conducting business sets up a separate LLC or just operates as a sole proprietorship d/b/a under their personal name. The same also applies to setting up a new Huntsville nonprofit.
It is also best practice to keep business money and personal money in separate bank accounts so there’s a clear accounting record of business gains and losses.
Single-member LLCs do not need to file separate tax returns from their owner so that tax compliance is not that much greater than if you run your business as a sole proprietor (meaning under your own name).
Also, Alabama LLCs need to file a yearly Business Privilege Tax return and pay a minimum fee of $100.00 per year to the Alabama Department of Revenue.
The downside to forming an LLC, or running a business for that matter, is the administrative tasks and paperwork are necessary. We can help with the contracts and agreements.
The requirements for LLC regarding taxes generally apply whether someone conducting business sets up a separate LLC or just operates as a sole proprietorship d/b/a under their personal name. However, the taxes are a little more complicated when it comes to an LLC.
Alabama Tax Deductions.
As long as your company is registered with the state of Alabama, your business should be able to take deductions from business income that you've earned for any losses/business expenses incurred during tax time or deduct those same losses and expenses on your personal income taxes.
It is also best practice to keep business money and personal money in separate bank accounts so there’s a clear accounting record of business gains and losses.
Single-member LLCs do not need to file separate tax returns from their owner so that tax compliance is not that much greater than if you run your business as a sole proprietor (meaning under your own name).
Also, Alabama LLCs need to file a yearly Business Privilege Tax return and pay a minimum fee of $100.00 per year to the Alabama Department of Revenue. This is an ongoing expense that gets paid annually for doing business in Alabama as an LLC in return for the limited liability protection that an LLC provides.
If for some reason, someone is audited by the IRS or Alabama Department of Revenue and it’s discovered that they are operating their business as a sole proprietor without filing any legal paperwork- then the LLC benefits may be waived.
Setting up an Alabama LLC is Worth the Work.
All of these requirements are not too onerous on the business owner, but it is worth noting that forming an LLC does not automatically shield you from all of the tax and ongoing paperwork requirements, especially if you have intellectual property or trademarks to protect.
If you are just starting out with a new business, it is best to research your options and weigh the tradeoffs between forming an LLC or sole proprietorship before making any commitments. Once you make these arrangements, it’s harder to turn back without potentially losing important legal protections.