Two part question: Currently have a LLC trading business in California (2 spousal members, taxed as partnership). Paying $800/yr LLC fee to CA. Have realized I could have been running a simple General Partnership and pay nothing. Can I keep current EIN if I convert from LLC to GP, and just change the name (drop LLC from the name)? Or must I dissolve the LLC and start fresh with GP? Follow-up, if I have to get new EIN: is doing this a bad idea since I am now starting fresh with IRS with a new trading business? My understanding is that starting and closing a trading business within a few years can be a red flag. Basically trying to gauge whether it's worth saving the money to do this ($800..whatever, but that's $8k every 10 years...) Thank you!
I doubt the IRS will give you a new EIN because they have regarded your business a partnership. The LLC designation is a state thing not the IRS thing.
Interesting. I did a quick search and you seem correct. An LLC or Inc. both pay $800/year in the form of a franchise tax but a GP does not. I do not think you can change to a GP. Also, most GPs have an LLC that as the manager. You might want to talk to your CPA about closing the LLC, opening a Joint account for now (You said you are married), then if you still want to trade through an LLC or Inc, form that in another state.
You will have to disolve the LLC and start over with the new entity, be it a sole proprietorship or general partnership. Remember to complete paperwork with the state letting them know you have disolved or pay your company representative to do it for you. I use https://www.northwestregisteredagent.com/llc/new-mexico for all my LLCs even though i live in Arkansas. Yes, forming an LLC in California is significantly more expensive than in New Mexico. Cost Breakdown New Mexico LLC Formation Fee: $50. California LLC Formation Fee: $70 for filing the Articles of Organization. $20 for the Statement of Information (Form LLC-12). Additionally, California imposes an annual franchise tax of $800, which is due within a few months of formation. Total Comparison When considering the initial costs and the annual franchise tax, the total cost to start and maintain an LLC in California can be around $890 in the first year ($70 + $20 + $800), making it $840 more than New Mexico's total cost of $50.This means that starting an LLC in New Mexico is indeed $840 less than in California when factoring in the annual fees.
In addition, while a sole proprietorship and a 1 member LLC can choose to use their SS # for taxes and not have an EIN, a general partnership is required to have a EIN.
There are a number of mistakes you can make that breach the LLC protection. A short list would be, not having a properly written and signed Operating Agreement, not having a company bank account and using your own tax ID vs one for the LLC.
LightSpeed might have a policy of requiring an LLC to have an EIN but not all brokerages do. Business Structure Considerations LLCs vs. Sole Proprietorship While operating both entities under your Social Security number, there are some key differences: Your sole proprietorship is automatically treated as a pass-through entity for tax purposes. Single-member LLCs are also typically treated as disregarded entities and taxed like sole proprietorships by default. Reasons to Keep an LLC Liability Protection: LLCs offer personal asset protection that sole proprietorships don't. Business Credibility: Some companies prefer working with incorporated entities. Tax Flexibility: LLCs have the option to be taxed as S-corporations or C-corporations, which could potentially offer tax benefits in certain situations. Tax Considerations Standard Deduction vs. Itemizing Using the standard business deduction has simplified my tax filing process, but it may not be the most tax-efficient approach: Itemizing deductions could potentially lower your tax liability if your actual business expenses exceed the standard deduction. Consider discussing with your tax preparer the potential benefits of itemizing deductions for your businesses. Tax ID Numbers While I'm currently using my Social Security number, obtaining Employer Identification Numbers (EINs) for your businesses could be beneficial: It adds an extra layer of identity protection. It's required if you ever decide to have employees or change your tax election for the LLCs. Recommendations Consult a Tax Professional: Given the complexity of the situation with multiple entities, it's crucial to consult with a tax professional who can analyze your specific financial details and provide tailored advice. Consider Keeping One LLC: Maintaining at least one LLC could be beneficial for liability protection and business credibility. The tax benefits of an LLC depend on your specific financial situation and future business plans. Evaluate Tax Strategy: Work with your tax preparer to determine if itemizing deductions could be more beneficial than using the standard deduction. This could potentially reduce your tax liability while still maintaining compliance. Assess Business Needs: Evaluate which business structure(s) best serve your current and future needs, considering factors like liability protection, administrative simplicity, and potential growth plans.
contact Rimon Law or Green Trader. That's who I used more than a decade ago when I formed my Husband/Wife trading partnership.
Thank you for the replies. To follow up, I now believe that I could simply file a conversion on California Secretary of State website, then do nothing else. Keep existing name (even with LLC in it) and EIN, no problems at all since it's already being taxed as a partnership and filing partnership returns. However...I have decided to retain the LLC for the purpose of protecting those assets. We have some other real estate businesses, so in the event of somehow getting sued personally (if the LLC protection there fails), the LLC on the trading entity would offer at least some sort of defense against personal creditors. Maybe, maybe not, but I figure $800/yr is cheap insurance for that potential situation.