Forming an LLC in Delaware, Nevada, or another state will help protect your asset if something goes wrong. But where you choose to do it matters too. You could end up paying fewer taxes in one state over another. Here’s how to decide what state to incorporate in.
Incorporating an LLC is relatively simple. A few forms and fees are required, along with filing paperwork with the Secretary of State in each state. Depending on the type of business entity you want to form, different types of corporations can be incorporated in each state.
The most common types of businesses include general partnerships, limited liability companies (LLCs), and S Corporations. Each offers different advantages and disadvantages. For example, LLCs protect individual owners from lawsuits, while S Corporations are best for large businesses.
Forming a partnership is probably best if you plan to start a business with multiple partners. Partnerships are like joint ventures, except that profits and losses are shared equally among the partners. This makes sense since a partnership is basically just a group of people working together toward a goal.
Forming a corporation is probably best if you plan on starting a business with fewer than five partners. Corporations are similar to partnerships, except that they are taxed separately from the individuals who own them. If you don’t pay taxes on the money you make, you won’t owe anything to the IRS.
You might want to form an LLC rather than a corporation for several reasons. One reason is that you want to limit your personal exposure to liabilities. Another reason is that you want more flexibility in running your business. An LLC allows you to operate your business under whatever name you want, whereas a corporation requires that you use a specific legal name.
Consider the following factors when deciding whether to incorporate in one state or another.
Changing From Sole Proprietor to LLC in New York
If you are planning to incorporate your business into an S corporation or LLC, it is important to understand how each type of entity works. An S corporation is taxed differently than an LLC, and there are different rules regarding ownership of assets. If you plan to file taxes jointly, it is best to consult with a tax professional about what form of entity makes sense for your particular situation.
The IRS requires every person conducting a trade or business to maintain records of income and expenses. These records must be kept for three years following the end of the taxable year. In addition, the IRS requires certain information to be reported on your federal income tax return. This includes gross sales, net profit or loss, total income, and deductions.
Incorporating your business does not automatically make you eligible for a taxpayer identification number (TIN). You need to apply for one separately from incorporating your business. A TIN allows your business to receive payroll taxes and unemployment insurance contributions refund.
A sole proprietorship is the simplest way to start a small business. There are no formalities involved, and the owner files his or her personal income tax returns directly.
File Articles of Incorporation with Your State Government Office
Before incorporating, ensure you file incorporation articles with your local state government office. This way, you know what type of entity you are forming and whether it meets your state’s requirements. If you don’t do this step, you could end up having to start over again and pay extra fees.
For example, California requires that LLCs must have one member; Delaware allows unlimited members. Most states require corporations to have shareholders, while some allow unincorporated associations like sole proprietorships, partnerships, and LLPs. You’ll want to find out what your state requires.
How to form an LLC in NY
New York offers many advantages for entrepreneurs starting a small business. One of those advantages is the ease of setting up an LLC there. It’s one of the most straightforward ways to form an entity in the state.
To do this, you’ll need to complete three forms. You’ll need to fill out the Articles of Organization, the Certificate of Incorporation, and the Operating Agreement.
The Articles of Organization tell the Secretary of State where you want to set Stop up shop. This document will include basic Cancel information about your company, such as what Transfer type of business you’re starting, whether you’re hiring employees, and how many shareholders you have.
Next, you’ll Update and fill out the Certificate of Incorporation. This document contains the same information as the Articles of File Organization. However, it includes some extra details, Open like the name of the corporation, the date it was Accountant
– formed, and the address where you want to receive mail.
Finally, you’ll complete the Operating Agreement. This is the legal contract that governs how your business operates. For example, you might decide to use a board of directors to oversee operations, or you could elect to operate the business without one.
Once you’ve filled out all three documents, you’ll submit them to the Secretary of State. Once they’ve been processed, you’ll become an official member of the LLC.
If you want to sell goods or services online, you’ll likely want to incorporate in another state. Doing so will give you access to even more beneficial tax breaks.
If you are considering forming an LLC in New York, you may want to know whether you need a new EIN. If you already have one, do you still need to file for a new one? Is there a fee involved? What happens if you don’t file for a new EIN? These questions and many others are answered here.
Stop using your Sole Proprietorship.
The law firm of Sosnoff & Wasserman LLP offers some tips about converting from a sole proprietorship to an LLC. You must file articles of organization within 30 days of forming the entity. If there are outstanding debts owed to third parties, such as vendors or contractors, you cannot form an LLC without paying those debts off. Once you do form the LLC, you will no longer be able to use your credit cards. Instead, you will need to open a separate bank account for your LLC. And you will have to report your income and expenses on Schedule K-1 forms.
You will still retain control over your assets, whether you convert to an LLC or keep operating as a sole proprietor. However, you may face increased tax liability and additional fees if you choose to convert to an LLC.
Cancel DBA
Opening a business under a different name might make sense if you want to start selling products online. But there are some things you should know about doing business under a different name, including how to file a fictitious name.
A fictitious name must be filed if you plan to sell goods. This is called a DBA or Doing Business As. If you do business under someone else’s name, you’ll need a separate Fictitious Name Certificate. These documents can be found at your county clerk’s office.
You’ll need to fill out forms and pay fees to register your business name. Once registered, you can use the name for advertising your business, sending mail, and receiving payments. Your name registration doesn’t protect your trademark, however. If someone uses your name without permission, you could still sue them.
If you don’t want to keep your current name, you can file for bankruptcy. Bankruptcy allows you to wipe away most debts, even those incurred while operating under a fictitious name.
Transfer assets from yourself to your LLC in New York
If you want to take advantage of the benefits of incorporating your business in New York, there are three main ways to do it:
A Capital Contribution
An Assignment
A Transfer
Incorporating your business requires a lot of paperwork, including filing fees, taxes, and legal fees. If you don’t use one of the above methods, you’ll likely pay those costs twice. Here’s how each method works.
Capital Contributions
If you’re transferring ownership of your assets directly into your LLC, you’ll pay $800 plus 3% of the value of the asset ($1,600). You’ll also need to file Form 8832, “Application for Employer Identification Number,” with the IRS.
Make sure you update your contracts and agreements
If you are planning to form an LLC, it is important to understand what happens when you assign contracts/agreements to the new entity. There are three different scenarios:
1. You retain ownership of the contract/agreement;
2. You transfer ownership of the contract/ agreement to the LLC;
3. You transfer ownership of a portion of the contract/agreement to the LLC while retaining ownership of another portion.
A good example of scenario 3 is when you sell a car to a dealership. They buy the vehicle and pay you a certain amount upfront. In return, you give them a bill of sale for the vehicle. Then, you continue to own the car. However, you still owe the dealer part of the purchase price. So, you split the remaining balance into two parts – one part goes to the dealership, and the other stays with you. This way, both parties benefit.
The same thing applies to contracts/agreements. If you assign a contract/agreement to an LLC, you do not necessarily lose control over the contract/agreement. Instead, you simply transfer ownership of a portion to the LLC.
For example, let’s say you enter into a contract with a client to provide legal services. After the contract expires, you want to renew the contract. To do so, you must send notice to the client, stating that the contract will expire soon and asking whether he wants to extend the contract. If he agrees, you negotiate a new term sheet with him. Once you reach an agreement, you sign the document and submit it to the client. At this stage, you no longer own the contract. But you still have some obligations towards the client because you signed the original contract. For instance, you might still need to fulfill some of the terms agreed upon during negotiations.
File a Final Tax Return in NY
The IRS doesn’t require taxpayers to file a final tax form. However, it does offer some benefits to those who do. Here are five reasons why filing a final tax return makes sense.
1. You Can Claim Any Gains Or Losses On Your Taxes
If you didn’t sell a property during 2018, you could still take a loss on your taxes. And if you did make money selling a property, you can use that profit to offset any capital gains you had from 2017.
2. You May Be Able To Refund Unused Credits & Deductions
You might qualify for credits like the American Opportunity Credit or the Lifetime Learning Credit. And deductions like the mortgage interest deduction or the child care credit might be worth taking advantage of.
3. You Could Get A More Accurate Picture Of Your Income
When you file your final return, you’ll see what income you actually earned from January through December. By comparing that figure to your previous returns, you may find out whether you overstated your earnings or underreported your expenses.
Open a new business banking account for your LLC in NY
If you are starting a small business, it’s important to keep your personal and business finances separate. This is because it’s easier to pay taxes and manage expenses when you know where your money is coming from and where it’s going. If you don’t do this, you could face penalties and fines. Here’s what you need to know about opening a business bank account in New York.
How Do I Open a Business Bank Account?
To open a business bank account in NYC, you must file Form SS-4, Application for Employer Identification Number with the IRS. You can download this form here. Once you complete the application and send it in, you will receive a confirmation letter within 10 days. Then, you will need to submit additional documents to verify your identity and ownership of the business. These include:
• A copy of your articles of incorporation, partnership agreement, or limited liability company operating agreement
• Two forms of identification, including one containing your pictures, such as a driver’s license or passport What does it mean?
An LLC is usually treated like an S-Corp or P-Corp for tax purposes. You pay taxes on profits and losses just like a corporation. However, you don’t pay taxes on your income until you distribute dividends to shareholders. If you are a single member LLC, you must file Form 1065 Schedule K-1 form, which reports distributions to you personally. This is different from a C Corporation where you report distributions to the corporation.
Accountant
Most accountants charge $50-$100 per hour, depending upon the complexity of your situation, although some charge less. They typically bill hourly rather than by project. Some accountants offer flat fees, such as $500-$1000, for preparing a simple return. Others charge based on the number of hours worked.
A CPA can help you complete your own personal tax returns if you’re self-employed or assist you with completing your corporate return. CPAs often work with small businesses and individuals regularly.
You’ve probably heard about the importance of keeping your business up-to-date – especially regarding addresses, phone numbers, and licenses. But what about other types of important documents? Here are some places you might want to check out:
State Business Licenses: If you operate a business in one state, make sure you keep current on your business license in every state where you do business. You don’t want to find yourself without a license because you forgot to renew yours in another state.
Federal Tax Information: You should file federal tax returns each year. However, there are certain requirements for filing your taxes online. For example, you must use Form 1040EZ, ETR S, or ETR C. These forms are designed specifically for individuals who earn less than $100,000 per year. If you make over $100,000, you should use Form 1040A or 1040.
Social Security Number: This is required for most businesses, including sole proprietorships, partnerships, corporations, LLCs, etc.
Business Permits: Depending on your type of business, you may need to obtain permits or licenses. Examples include food service permits, liquor licenses, etc.
Insurance Policies: Most insurance companies require proof of coverage. Some policies even require copies of your business insurance policy.
Employment Verifications: Many employers ask job applicants for employment verifications such as W2s, paystubs, or I9s.
Frequently Asked Questions
What is a Professional Service Corporation?
A Professional Service Corporation (P.C.), sometimes referred to as a Professional Limited Liability Company (PLLC), is a legal entity used to provide certain professional services. A P.C., like a partnership, is a separate legal entity from its members. Unlike a partnership, however, a P.C. does not allow its members to conduct personal activities unrelated to the professional service providers. Instead, it allows those individuals to focus solely on providing professional service.
How is a Corporation Taxed?
Franchise tax reporting requirements apply to corporations regardless of whether the corporation conducts business. A corporation must report its annual franchise tax liability on Form ST-4. If the corporation fails to timely file Form ST-4, it faces penalties and interest charges.
Corporations are required to file a return each year, even if no taxable events occurred during the prior year. This includes the beginning of a corporation’s corporate existence. As long as the corporation continues to exist, it must file returns.
If a corporation ceases to do business, it must still file a final return and pay any outstanding franchise tax liabilities. However, the corporation cannot claim deductions for expenses incurred while conducting business.
Why should I file a Biennial Statement?
A corporation or LLC must file a biennial statement with the New York Department of State. Failure to do so could lead to litigation against you.
The purpose of the biennial statement is to provide information about the current state of affairs of the corporation or LLC, including changes in officers, directors, shareholders, members, managers or partners; changes in the name or place of organization; changes in the number of shares outstanding; and changes in the registered office.
Failure to file a biennial statement can cause a corporation or LLC to lose its corporate or LLC status.
In addition, failure to file a biennial report can affect the ability of the New York Department of states to serve legal papers on the corporation or LLC. If the New York Secretary of States does not receive notice of the change in address, it cannot forward copies of legal documents served upon it on behalf of the corporation or LLC to the proper address. The corporation or LLC can avoid problems by submitting a timely biennial statement.
My corporation or LLC is no longer in business. What should I do?
If you are a domestic corporation or LLC that no longer does business in New York State and wishes to dissolve, you must surrender or terminate your authority to transact business in New York. This includes ceasing operations, closing up shop, shutting down offices, etc. If you cease to exist, you must file a Certificate of Termination of Existence (Form BK-1). You must file this form within 30 days after the date of dissolution. For example, if you ceased to exist on January 1, 2020, you must file Form BK-1 on or before February 28, 2020.
If you are a foreign corporation or LLC that is no longer doing business in your home state, you must surrender or cancel your authority to transact business here. This includes ceasing activities, closing up shop, stopping production, etc. If you stop existing, you must file a certificate of termination of existence (Form BK-2). You must file this document within 30 days after the effective date of the termination of your existence. For example, if your foreign corporation or LLC terminated its existence on December 31, 2019, you must file Form 11-C on or before January 31, 2020.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.
