Limited liability companies increase your ongoing business and or investment costs in two ways: First, the state or states in which you operate the limited liability company require both an initial setup fee and then an ongoing annual license or franchise fee. You can think about these fees as the price you pay the state for limiting your business or investment liability. Costs vary but typically run from less than a $100 to several hundred dollars a year.
A second cost associated with using limited liability companies is the extra financial management costs you’ll sometimes have to pay. A limited liability company’s tax return may be more complicated and expensive to prepare, for example. And an LLC’s bank account may cost more in monthly fees.
Note: If an LLC has one owner and hasn’t made any special tax accounting elections, the LLC doesn’t need to do a separate tax return. The LLC’s income and deductions just appear on its owner’s tax return. If an LLC has more than one owner, however, or if an LLC has made special tax accounting elections to be treated as a regular C corporation or as an S corporation, the LLC does owe its own tax return to both the federal and state government.
By the way, if you use one of the popular online incorporation services, that may increase your setup costs substantially. If you pay close attention to the fees incurred for such services, you’ll realize that an online incorporation service often amounts to several hundred dollars in total costs once you add up all the nickel and dime charges. For example, often you pay one of these services an extra fee for “expediting” your limited liability company application–and thereby turning around your application in a few days instead in a few weeks. Yikes. And often you get tagged extra amounts for simple tasks such as preparing your employer identification number application.