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LLC For Accountants and Accounting Businesses
Accounting is a highly profitable career that offers abundant opportunities and attracts individuals of all age groups. Opening an accounting firm is one of the smartest decisions you can make if you have the experience.
But before opening a business, you have to register it and decide on its legal structure. After researching your options and hearing expert opinions, you may discover that forming an LLC is a “better choice” and a “good fit for your business needs.”
But what is an LLC exactly, and why does your accounting business need to be one?
Definition
What Is An LLC?
A limited Liability Company (LLC) is a business structure that provides a unique blend of benefits, such as pass-through taxation and limited liability protection. Its structure is very flexible, with members directly managing the company or appointing managers based on its needs.
Advantages
What Are The Advantages Of An LLC For Accountants and Accounting Businesses?
There are several notable advantages for accountants and accounting businesses when establishing an LLC. Below are the best ones.
Credibility
Having an LLC for your services adds a level of professionalism and credibility to your business. Your clients will feel more at ease working with a professional who operates legally.
Furthermore, owning an accountant LLC can streamline and make it easier to apply for loans and set up a business bank account.
Limited liability
Experts often advise newcomers in the business world to begin their journey with an LLC. The primary reason for this is the valuable protection it offers in terms of limited liability.
In accounting, you can get sued for many things, such as breaches in data privacy, fraud, losses, and more—and it will not matter if it is an accident. Fortunately, in the event of a lawsuit or legal dispute, your personal assets will not be affected if your business is registered as an LLC.
Specialized incentives
You can save significant amounts each year by forming your company in a state that provides specialized incentives and tax benefits to LLCs. Conduct research on the laws and regulations governing LLCs in your state to find out if yours offers anything extra for the business.
Depending on the state where your business operates, there may also be additional tax advantages associated with establishing an LLC. These can include lower filing fees, exemptions from certain taxes, or waivers for specific licenses.
Disadvantages
What Are The Disadvantages Of An Accountant LLC?
There are no significant downsides to forming an LLC for your accountant firm. For new business owners, tasks like filing annual reports and keeping LLC records for taxes and tax returns may seem overwhelming. But as an accountant, you are well-equipped to handle these responsibilities without any difficulty.
The only challenges you might face are the generic risks of stepping into the business, like raising capital and gathering your first clients.
LLC Formation
How To Create An Accountant LLC
Setting up an LLC may seem challenging and time-consuming for most business owners. Still, if you carefully follow the necessary steps and procedures, you can complete it without any problems.
- Choosing a name
- Appointing a Registered Agent
- Filing the Certificate of Organization
- Creating your Operating Agreement
- Obtaining an EIN
Choosing a name
It is important to select a unique name that no other registered business in the state is already using. Some states also mandate that your chosen name include terms like LLC, L.L.C., Limited Liability Company, or similar to indicate that your company operates under an LLC structure.
If you come across a name you like but are unsure whether it is best for your business, you can reserve the name for 120 days.
Appointing a Registered Agent
Next, choose a state where you want to set up your accountant LLC and appoint a registered agent located in the area. This agent can be a third-party business entity or even an individual (like you). The registered agent is responsible for receiving legal documents on behalf of the LLC.
Filing the Certificate of Organization
The most crucial step is filing for the Certificate of Organization or Article(s) of the Organization. This is the official document that formally registers your accountant LLC in the state. You can apply for it or by filling out a form, which can be downloaded, printed, and mailed to the Secretary of State’s office. You can complete this process in less than a week.
Creating your Operating Agreement
The operating agreement is essentially the constitution or rulebook of an LLC. This document sets the groundwork for your business’s future.
Typically, an operating agreement might detail the following:
- Individual investment shares
- Expectations from the company
- How the revenue will be distributed among its members
- The work roles and responsibilities of each member
- Any conditions about profits and losses,
- Management procedures of the company.
The good thing is that, unlike other business models, LLCs have the option to prepare this document after establishing their accounting business. It is common among accountant LLCs with more than one owner but write one anyway to prevent disputes down the line.
Obtaining an EIN
Each state has its own licensing and permit requirements for businesses to operate legally. However, a mandatory requirement is obtaining an Employer Identification Number (EIN) from your local IRS. EIN lets you file taxes, loan on behalf of your business, and hire employees should you decide to scale.
LLC Taxes
How Are Accounting LLCs Taxed?
As an accountant, you might already know your way around taxes, but we will go through the important ones anyway.
Federal taxes
Depending on their structure, several types of taxes can apply to your business at the federal level. Accountant LLCs usually file one or more of the following taxes:
- Self-employment tax
- Quarterly income tax
- Employment/payroll taxes
- Franchise tax
- Excise taxes
To ensure compliance with federal and state laws, it is crucial to have a clear understanding of the taxes and expenses associated with operating an LLC. Do research on your local laws to be extra sure you are filing the right ones.
Business licenses and permits
Lastly, depending on your circumstances, you may be asked to procure additional licenses and permits from your local authorities to legally run your accountant LLC. Below are a few examples:
- A professional license (like a CPA license)
- Local licenses required by city ordinances
- Other special permits
Moreover, if you intend to hire employees or participate in specific investments or securities trading activities, you will need to register them with federal agencies.
Costs
What Are The Costs Of Starting An Accounting LLC?
Different states have different costs for starting and maintaining an LLC. Here is a breakdown of the essentials:
LLC Costs
State filing fee
$50+
Registered agent service
$100+
LLC formation service
$50+
Operating agreement
$200+
Business license and permits
$50+
Employer Identification Number (EIN)
Varies
Initial legal and accounting fees
$200+
Equipment and supplies
$500+
Marketing and advertising
$500+
A career in finance and accounting offers many advantages. However, there are also risks and legal challenges in this industry. Mistakes or mishandling can result in lawsuits, which is why it’s important for an accounting firm to have limited liability. This protects the owners’ assets in case of such issues.
Getting advice from an expert can give you important information and details about the filing process. At StartGlobal, we’re here to make your first steps easier and save you from costly mistakes. With our expert guidance and support, we can help simplify the process, prevent costly mistakes, and ensure a seamless and successful start to your business journey.
For a more detailed overview of forming LLCs in various states, check one of our guides below:
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.