LLCs offer great perks, but they also cost money to start and maintain. Business owners will incur annual costs to keep your LLC up and running. You may wonder if the costs to maintain an LLC are worth it, but it turns out LLC annual costs aren’t expensive. It only costs a few hundred dollars each year to keep your LLC compliant. This guide will cover how much it costs to maintain an LLC plus some of the expenses to consider.
Understanding the Cost of Forming an LLC
The expenses get much easier once you have already formed your LLC. However, you have to start an LLC and go through that process before you can maintain a favorable business structure. These costs are still manageable due to the small number of fees. The total costs of forming an LLC depend on your state, but you should keep these fees in mind:
- Business name registration
- Filing articles of organization
- Publication of LLC in a newspaper
- Hiring professional services if needed
These costs shouldn’t go past $1,000, and most people can form LLCs for a more affordable price.
Ongoing Costs to Maintain an LLC
While LLCs are affordable to maintain, it’s a good idea to know the ongoing costs before you commit to this business entity. These are the ongoing costs you will have to pay for your corporation:
1. Annual Fees
LLCs are required to file annual reports and incur fees in the process. The annual LLC fees depend on your state and the size of your business. Larger businesses face steeper annual fees. California’s annual LLC fee depends on your company’s income. LLCs that make $1 million to $4,999,999 can expect a $6,000 fee. Smaller businesses pay an annual fee below $1,000.
California is more expensive than most states for LLCs. On the other hand, you can avoid annual fees altogether in a state like Arizona. The Grand Canyon State has low LLC formation fees and no annual reporting requirements. Most states have annual LLC filing fees below $100.
2. Business Compliance
You may have to obtain business licenses and permits to maintain your LLC. Licenses and permits are investments that have upfront and recurring costs. However, some businesses do not require licenses and permits. You should check with your state to see what’s required for your LLC.
3. Business Insurance
Business owners need good insurance policies to financially shield themselves from unforeseen events. While general liability insurance covers a lot of ground, you may have to get multiple insurance policies based on your line of work.
Insurance premiums depend on the size of the policy and other factors. However, you may be able to get a $1 million general liability insurance policy for roughly $500 per year. Each insurance policy gives you extra protection but also comes with additional premiums.
The revenue your LLC generates will increase your personal taxes. LLCs have pass-through taxation, which avoids double taxation but increases your taxable income. Business owners also have to contend with franchise tax, state income tax, payroll tax, and other costs. Any business, regardless of its corporate status, must pay taxes. However, it’s important to consider how these annual costs will impact the total annual cost of maintaining your LLC.
5. Registered Agent Service
Registered agents play an important role in preserving your LLC. These agents receive legal documents from your LLC. The agent or registered agent service must have an address located in the same state where the LLC was formed. Registered agent services typically cost up to $300/yr.
You can also become your own registered agent and save money. However, you will have to stay on top of your LLC’s mail, including lawsuits and other legal affairs. A registered agent can save you a lot of time. Business owners should determine if the extra time is more valuable than the money they save by becoming their LLC’s agents.
6. Professional Services
You will have to invest in professional services to maintain your LLC. Accountants can help you file taxes, attorneys can help during lawsuits, and some business owners use LLC compliance services to ensure proper record-keeping.
Hiring these professionals can get expensive, but they can help you save money and avoid larger issues later down the road. While an accountant can cost a few hundred dollars, you can avoid the expenses associated with late tax filings or inaccurate forms. Other professional services provide similar benefits for business owners who want to save costs in the long run or become more efficient.
Your business will incur many costs during its operations. You will have to pay salaries, web hosting fees, trademark registration fees, and other expenses. These miscellaneous fees branch beyond LLCs and affect every business entity. However, these are still costs you have to incur to keep your LLC up and running.
Miscellaneous costs vary for each LLC, but keeping track of your expenses in a spreadsheet can minimize miscellaneous costs. You can set monthly budgets and trim expenses that are no longer necessary to keep your costs low.
Growing a Successful LLC
An LLC can expand your income potential while offering several benefits. Once you have formed your LLC, it’s important to maintain your corporation and stay compliant. doola can help you in every step of the journey. Business owners can use doola’s LLC business formation services to start their LLCs. These services also help you grow and manage your LLC.
Do all states charge annual report fees?
Not all states charge annual report fees or require that you file a report each year.
How often do I need to file an annual report for my LLC?
The rules vary for each state, but most states want you to file 1-2 reports per year.
Is there a penalty for late filing of annual reports or non-compliance?
Yes, there are penalties for late filings and non-compliance. Non-compliance can result in you losing the separation of business assets and personal assets which can become costly during a lawsuit.
Do I need to hire an attorney to maintain my LLC?
No, you do not need to hire an attorney to maintain your LLC. However, an attorney can be useful if your business faces legal challenges.
Can I handle all the maintenance tasks myself?
It is possible to handle all the maintenance tasks on your own. However, it will take a considerable amount of time.