It actually shouldn’t be all that problematic, money I put into its business account, from say my paycheck, is not seen as revenue. As long as the maths maths (e.g. I put 1000$ into it for the year from my paycheck, spent 800$ in infrastructure and still have 200$ in the account = all good (hopefully))
You will need to document those Owner / Capital Contributions very clearly so if an audit happens you can prove how that money got into the LLCs account.
Speaking of that account; your Contribution may not be considered Revenue but any interest earned from it sitting in a bank account almost certainly will be and unless you record offsetting expenses then you suddenly have profit…which is subject to taxation.
If that isn’t enough then there’s State, County, and sometimes even local regulations to consider. For instance you lived in Denver, Colorado you may be on the hook for “Occupational Privilege Tax” which is $4 per month per employee. Is the owner of a single member LLC considered an “employee”? I dunno but you should know that this stuff exists and find out before it bites your ass off.
For the most part LLCs are cheap and easy, right up until somebody from the Government decides to poke their nose in, which is how so many people get in trouble with them.
So Good Luck with this and let me know when your instance goes live. :)
Actually, neither is true, an LLC can in fact be run as a non-profit, what you’re thinking of is going public. Then yea, you gotta start making line go up (or promise line will go up really soon) because once you go public then you have shareholders and a board to answer to
A plain private LLC though you can do what ever you want to with it (within legal reason ofc)
But that doesn’t say anything about LLCs needing to be run with intent for profit, it’s just a list of factors the IRS put out to help people determine if what they’re doing is considered an actual business or just a hobby. And not a single one said “opening an LLC”.
Lots of people open LLCs for lots of reasons other than a business to make profit, because it’s a cheap and easy way to get some liability protections
An LLC is a business. There’s no other way around it. The IRS will revoke your LLC if you are not running it as a business or under protected non-profit clauses.
Don’t take my word for it. Please consult with someone who has owned LLCs or even sole proprietorships for more than 5 years before charging ahead.
I’ve been running either an LLC or a sole proprietorship for 7 years, but I’m just random random internet person.
Also 1/3 of tax law are the actual words of any given law. The other 2/3 of tax law is executive interpretation/enforcement and case law from around the country.
There are some really interesting cases, even where tax lawyer firms get it wrong. In one instance a law firm tried to deduct their daily lunches as business meetings, and the tax court said no, even though it clearly states in the text of law that this is permissable. The judge basically said you can’t declare a daily lunch as a business meeting.
I think you might have been running those LLCs under false information, maybe someone told you that years ago or something.
The IRS can’t “revoke” an LLC because an LLC is a state thing, only the state of incorporation can do that. The IRS really doesn’t care if you intend to make a profit or intend to run a business, only that if you do, you pay taxes on it. An LLC isn’t even required to file a return if they don’t make a profit.
And in most cases, Single-member LLCs (which is what I’d be opening) are dealt with on personal taxes.
Now, there may be a state that has some weird rules on LLCs where they do need to have an intent to turn a profit out there (and maybe you opened an LLC in your home state that does have these weird rules), but not with any of the “common” states (e.g. Nevada, Wyoming, Delaware)
Though, I’d be happy to take a look at a link/source you have of something that is directly related to what I’m doing, but I’ve already done a fair amount of research into this and this is the first I’m hearing of requiring an intention of profit
It actually shouldn’t be all that problematic, money I put into its business account, from say my paycheck, is not seen as revenue. As long as the maths maths (e.g. I put 1000$ into it for the year from my paycheck, spent 800$ in infrastructure and still have 200$ in the account = all good (hopefully))
You will need to document those Owner / Capital Contributions very clearly so if an audit happens you can prove how that money got into the LLCs account.
Speaking of that account; your Contribution may not be considered Revenue but any interest earned from it sitting in a bank account almost certainly will be and unless you record offsetting expenses then you suddenly have profit…which is subject to taxation.
If that isn’t enough then there’s State, County, and sometimes even local regulations to consider. For instance you lived in Denver, Colorado you may be on the hook for “Occupational Privilege Tax” which is $4 per month per employee. Is the owner of a single member LLC considered an “employee”? I dunno but you should know that this stuff exists and find out before it bites your ass off.
For the most part LLCs are cheap and easy, right up until somebody from the Government decides to poke their nose in, which is how so many people get in trouble with them.
So Good Luck with this and let me know when your instance goes live. :)
Don’t you have to turn a profit like 1 out of 5 years?
Not necessarily. You just need to demonstrate that you are running it like a for-profit company would, and with profit seeking motive.
Instead of a for-profit LLC, consider filing the business as a 501c charity.
Actually, neither is true, an LLC can in fact be run as a non-profit, what you’re thinking of is going public. Then yea, you gotta start making line go up (or promise line will go up really soon) because once you go public then you have shareholders and a board to answer to
A plain private LLC though you can do what ever you want to with it (within legal reason ofc)
It’s even theoretically possible to get 501©3 status on an LLC (though it’s rather tedious and not guaranteed, so its almost always is spun off to another entity for that)
You may want to read through this as well as some case law on the subject before jumping to conclusions.
https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes
But that doesn’t say anything about LLCs needing to be run with intent for profit, it’s just a list of factors the IRS put out to help people determine if what they’re doing is considered an actual business or just a hobby. And not a single one said “opening an LLC”.
Lots of people open LLCs for lots of reasons other than a business to make profit, because it’s a cheap and easy way to get some liability protections
An LLC is a business. There’s no other way around it. The IRS will revoke your LLC if you are not running it as a business or under protected non-profit clauses.
Don’t take my word for it. Please consult with someone who has owned LLCs or even sole proprietorships for more than 5 years before charging ahead.
I’ve been running either an LLC or a sole proprietorship for 7 years, but I’m just random random internet person.
Also 1/3 of tax law are the actual words of any given law. The other 2/3 of tax law is executive interpretation/enforcement and case law from around the country.
There are some really interesting cases, even where tax lawyer firms get it wrong. In one instance a law firm tried to deduct their daily lunches as business meetings, and the tax court said no, even though it clearly states in the text of law that this is permissable. The judge basically said you can’t declare a daily lunch as a business meeting.
Other court documents can be found here:
https://www.taxnotes.com/research/federal/court-documents
I think you might have been running those LLCs under false information, maybe someone told you that years ago or something.
The IRS can’t “revoke” an LLC because an LLC is a state thing, only the state of incorporation can do that. The IRS really doesn’t care if you intend to make a profit or intend to run a business, only that if you do, you pay taxes on it. An LLC isn’t even required to file a return if they don’t make a profit.
And in most cases, Single-member LLCs (which is what I’d be opening) are dealt with on personal taxes.
Now, there may be a state that has some weird rules on LLCs where they do need to have an intent to turn a profit out there (and maybe you opened an LLC in your home state that does have these weird rules), but not with any of the “common” states (e.g. Nevada, Wyoming, Delaware)
Though, I’d be happy to take a look at a link/source you have of something that is directly related to what I’m doing, but I’ve already done a fair amount of research into this and this is the first I’m hearing of requiring an intention of profit