You should be aware that formation of an LLC may affect your future tax obligations. You should carefully review all the tax aspects of your entity with your accountant, paying special attention to the issue of whether to elect Subchapter S status.
Sub-Chapter S Election. An LLC that is qualified small business corporation under the Internal Revenue Code may elect to be taxed as a Subchapter S corporation. A Subchapter S corporation does not pay income tax. Instead, the Members are taxed directly on entity income. Election of Subchapter S status is made by filing Form 2553 with the Internal Revenue Service. Form 2553 must be filed within seventy-five (75) days of the commencement of business. As many small business corporations elect Subchapter S status, you should consult with your accountant regarding whether or not it is desirable for the LLC to make such an election.
Employer Identification Number. If the LLC will be paying wages to employees, you must apply to the Internal Revenue Service on Form SS-4 for an Employer Identification Number.
Liability for nonpayment of FICA Taxes and Federal Withholding Taxes. If the LLC fails to pay FICA taxes and withholding taxes, the persons responsible for payment of such taxes will be held personally liable. Officers or other personnel whose duties relate to the payment of such taxes may be found liable.
Franchise Tax. With limited exceptions, Texas limited liability companies are subject to the Texas franchise tax. You should discuss the franchise tax and possible methods for minimizing this tax with your accountant.
Texas Sales and Use Tax Permit. The LLC should obtain a Limited Sales Permit from the comptroller of Public Accounts for the State of Texas for each place of business it will operate in the state, if the LLC will engage in retail or rental business or perform taxable services. You should discuss this matter with your accountant or CPA in order to ensure that the proper steps are taken to secure the permits.
Business or Occupational Licenses and Taxes. Various business activities and occupations are subject to licensing requirements, occupational taxes or fees. If you are unsure if the LLC must obtain certain licenses, you should discuss this with an experienced business lawyer, your accountant, or the appropriate licensing authority.
If you have questions regarding the formation of an LLC, please contact us at 713-572-4900.