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How Much Does It Cost To Form an LLC?

You can expect to pay around $400 on the low end to form a limited liability company (LLC) and closer to $1,000 on the high end.

For some types of businesses, you will need a business license. You will also have to pay the business license fee annually to operate these businesses legally.

Like other startup costs, your business license fee may vary depending on the state of organization.

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Articles of Organization Filing Fee

The initial filing fee to establish an LLC can vary from state to state. The first step to take when making an LLC official is to file the articles of organization with the secretary of state and pay the state's filing fee.

The average filing fee is around $100. However, the filing fee for the articles of organization is not the only factor that goes into the average cost of forming an LLC. Owners must also keep in mind the ongoing costs of carrying on business as well.

Annual Report Fee

You may also need to pay annual reporting fees. Like the filing fee, annual reporting fees vary from state to state.

An LLC's annual report must accurately describe the income and expenses of the business.

Paying LLC Taxes

For tax purposes, the IRS classifies limited liability companies as "pass-through" entities. In a pass-through entity, the profits from the company pass through the company and go to the individual LLC members.

The IRS requires LLC members to pay a self-employment tax if the member is an active participant in the business. A self-employment tax is a tax for self-employed people. The profit distributions that LLC members collect are income for the individual LLC members.

Unlike when a person works for a company and has taxes withheld from each paycheck, the IRS does not withhold taxes from profit distributions in an LLC. Therefore, LLC members must claim the income from profit distributions when they file their individual income taxes.

Status as a pass-through entity is one of the leading tax benefits of forming an LLC. Because the LLC members claim profits from the LLC on their individual income taxes, the business itself does not pay corporate taxes.

Other Potential Expenses

Other potential expenses may raise your bottom-line startup cost. Although you certainly do not need to hire an attorney to form an LLC, you may want to seek professional legal advice.

Of course, if you decide to hire a business attorney or a private attorney, you will incur attorney fees and raise your startup cost. However, an attorney can help you save money in the long run by avoiding mistakes and getting you up and running smoothly.

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