Creating an LLC

Federal

There are three levels to deal with when creating an LLC as a legal entity. The Federal, State and Local level. First is the federal. You have to obtain an EIN from the IRS. EIN is an Employee Identification Number. Here’s a site to figure out if you need an EIN. Any sole proprietorship LLC needs an EIN to get protection through using an LLC.

1.Obtain an EIN on the IRS site here.

After they give you an EIN you want to elect to be treated as an S-Corporation which means you’re business will be treated as a pass through entity. All profits will be reported on your regular income tax return.

2. S-Corp Election form 2553 

State

Overview of process

All SSC links here

New Entity Formation

After you get an EIN you can then incorporate your business with the state. There are a few documents you should make before incorporating like Articles of Operation, and an LLC Operating agreement. Read more about those here.  They are mainly for telling others how your business will operate. To actually file your articles of organization and incorporate you have to pay $100 and file online. For Virginia this is done through the State Corporation Commission here.

3. File with Virginia State Corporation Commission ($100)

Local

Now you officially have an LLC. To pay local retail sales tax and look more official in whatever city you decide to sell in, you also need to get a business license in whatever city your business is in. Here is the info for Charlottesville.

4. Pay City Business License

5. Get a bank account for your business

 

Obligations now that you have an LLC

  1. Federal Income Tax form 1120S (Yearly in April)
  2. Federal Estimated Tax Form 1040ES (Yearly)
    1. You only need to do the estimated tax if your tax liability is greater than $500
  3. State Pass Through Entity Tax Obligations Form 502 (Done April 15th yearly)
  4. State sales tax Form ST-9 Online VATAX  (Paid monthly by the 20th)
  5. City Business License ($35 yearly in January to Charlottesville)
  6. City Tangible Property Tax (Yearly)

Paying taxes

Well ‘m off to a rough start as the due date for federal 1020-S was due March 15 not April 15. They moved the date on me. So I am working through the document with this video. I’m basing my ballpark estimates for gross income off of the various online venues I sell through. I got a number of  3168.98 for 2016. I’m basing my actual gain after costs off of my bank account at the start of the new year. I had a balance of 2004.9 less my initial seed money of 1037.78 and I get the actual gain of 967.13. The IRS wants me to estimate the cost of my actual products and inventory using rules according to 263-a but I sell so little that I don’t have to use that calculation. 

Now that I’ve finished that form, I have to actually assign that value to my personal tax return as it is income that passes through the S-Corp to me. That requires a K-1 form. It asks for where I file my taxes. I’m assuming it will go to the Cincinnati IRS office. I need to enter the information on my personal return – Passive income
Schedule E, line 28, column (g) .

It was useful to sort through the tax videos so that I knew what was going on but I wasn’t supplied with any way to actually e-file the tax return. I am curious about mailing in my tax return next year and saving the $85 that was wasted on Tax Act. They were nice at making things easy to understand but most of the real work was done by me. I want to know how you get confirmation from the IRS if you simply put your return in the mail.

Things to check

  1. Does Faja have free tax filing for 1020S
  2. My Federal return needs a Schedule K added to it
  3. Can I file for an extension for filing even though it’s past the due date
  4. Is this being filed with Cincinnati IRS office (Schedule K Part 1)

I decided filling out the PDF forms is way too much work. Fuck that. I’m using TaxAct Online since it claimed a 1020 S and K-1 is only $60 to file. State 502 is $25 more so $85 total to be done with this garbage for another year.