What are the Ongoing Fees for an LLC?

Early-stage entrepreneurs are rightly concerned with how much an LLC will cost to set up. They’re also usually curious about how much it will take to maintain the LLC from year to year. After all, setting up a business is a one-time affair, but keeping the entity in good standing takes time and money.

The answer depends on the state in which your LLC is formed. Check with an attorney in your state to get a better understanding of how much you’ll need to pay to keep the entity current, and how often you’ll need to make payments (i.e., yearly, quarterly, etc.).

That said, ongoing fees and taxes for LLCs often fall into the following categories:

Franchise taxes: Many states require LLCs to pay a periodic franchise tax to keep the entity in good standing. This tax is often a flat fee or based on the company’s total assets or holdings. Many states have nominal or very low franchise taxes, although states with low corporate income taxes often charge higher franchise taxes. One example of this is Delaware, which charges a minimum franchise tax of $300 per year for LLCs. California also charges a hefty minimum franchise tax for LLCs at $800 per year.

Annual or biennial report: Some states require LLCs to file a periodic report in order to remain in good standing. This annual report often carries a fee.

Income taxes: Of course, every entity is subject to tax on its income. Typically, LLCs are taxed as “pass-through” entities, which means that the members pay taxes on their own tax returns. However, an LLC can also elect to be taxed as a corporation, in which case it will pay taxes at the corporate level. Income taxes can get complicated very quickly, at both the federal and state level, so it’s imperative that you consult with an attorney and CPA who are familiar with your state’s tax laws when determining the tax implications of your LLC setup.

Again, depending on the state, you may not be subject to all of these types of fees, and there may be other costs involved in running your LLC that haven’t been discussed here. It’s important to consider not only the initial setup costs of your entity, but what it will cost to keep the entity up and running and in good standing. Consulting with an attorney before getting your LLC set up will save a lot of time down the road.