FML’s Tax Checklist for LLC Start-Ups with Two or More Owners

By Justin Wilcox, CPA, Partner, Tax & Advisory Services
Aug 20, 2019

Part I – Pre-Filing Action Items (should be taken care of ASAP when forming your Start-Up)

  1. See attorney – Organize as a LLC in Delaware (or other jurisdiction as advised by your attorney).
  2. See attorney – Execute a LLC operating agreement (necessary in order to designate tax matters partner and to allocate income/loss to individual owners).
  3. See attorney – Register with CT Secretary of State as a foreign LLC (if not organized in CT).  
  4. Obtain a U.S. Federal Employer Identification Number (EIN).    https://sa.www4.irs.gov/modiein/individual/index.jsp
  5. Obtain a business bank account to track business expenses separately (bring EIN confirm letter and legal formation docs). 
  6. Register for Business Entity Tax (and if it is listed in the CT application in the future, also choose Pass-through Entity Tax) with CT Department of Revenue Services (DRS). https://drsbustax.ct.gov/REG/REGISTRATION.ASPX
    Warning – Be careful regarding registering for sales/use tax or withholding tax – you can always add these later when you have CT sales, out of state purchases or begin processing CT payroll.
  7. Set up your CT DRS Online Account using your CT Tax Reg. number and the PIN number the CT DRS sends in the mail. https://drsbustax.ct.gov/AUT/welcomebusiness.aspx

Part II – Tax Filing Due Date Listing (Filed in 2020 to report activity for Calendar Year 2019)

  1. Form 1099-MISC – Two filings to both recipients and IRS, first due date is January 31, 2020 (To report payments the LLC made in 2019 to a “recipient” typically for services or rent – i.e. contractor, lessor, attorney, CPA, etc.)
    1. Form:  https://www.irs.gov/pub/irs-pdf/f1099msc.pdf
    2. Instructions: https://www.irs.gov/pub/irs-pdf/i1099msc.pdf
    3. Example of website to e-file – https://www.tax1099.com/
  2. Federal Partnership Return and K-1s – Form 1065 – Due March 15, 2020  (You will need to file on 2019 forms)
    Taxes are paid at the individual level via K-1 reporting
    1. Example Form (2018): https://www.irs.gov/pub/irs-pdf/f1065.pdf
    2. Example Instructions (2018): https://www.irs.gov/pub/irs-pdf/i1065.pdf
    3. Example Schedule K-1 to Owners (2018): https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf
    4. Example K-1 Instructions: https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf
    5. Consider have LLC claim a deduction for Connecticut Pass-Through Entity tax liability, if any.
  3. Connecticut Pass-through Entity Tax Return and K-1s – Form CT 1065/CT 1120-SI – Due March 15, 2020 (You will need to file on 2019 forms)
    Taxes are paid at the LLC level, then passed through to owners with a credit via K-1 reporting
    1. Example Form (2018): https://portal.ct.gov/-/media/DRS/Forms/1-2018/Composite/CT-1065-CT-1120SI_1218.pdf?la=en
    2. Example Schedule K-1 to Owners (2018): https://portal.ct.gov/-/media/DRS/Forms/1-2018/Composite/Schedule-CT-K-1_1218.pdf?la=en
    3. Example Instructions (2018):  https://portal.ct.gov/-/media/DRS/Forms/1-2018/Composite/CT-1065-CT-1120SI-Booklet_1218.pdf?la=en
  4. Personal Income Tax Returns of Owners –Due April 15, 2020 (Schedule K-1 Considerations)
  5. Result typically ends up on Schedule 1, which carries to the main Form 1040 and CT-1040.
    1. Schedule SE (2018) https://www.irs.gov/pub/irs-pdf/f1040sse.pdf
      • Result typically ends up on Schedule 4, which carries to the main Form 1040 and CT-1040.
    2. If profitable, review 20% pass-through entity deduction on Form 1040 and CT PET tax credit on Form CT-1040.
    3. All other elements of your personal tax return apply, this is just general guidance for LLC K-1 reporting.
  6. Delaware Franchise Fees – Due June 1, 2020 (Minimum fee)
    1. Form: https://icis.corp.delaware.gov/ecorp/logintax.aspx?FilingType=FranchiseTax 
    2.  Instructions: https://corp.delaware.gov/paytaxes/
  7. Connecticut Annual Report – Secretary of State  (List of officers/directors)
    1. To determine your due date, search your Company here: https://www.concord-sots.ct.gov/CONCORD/online?sn=PublicInquiry&eid=9740
    2. Form: https://www.concord-sots.ct.gov/CONCORD/customer?eid=9799
    3. Instructions: https://portal.ct.gov/SOTS/Commercial-Recording/Annual-Report-page/Annual-Report-Page
  8. Connecticut Business Entity Tax – 2019-2020 Form Due on April 15, 2021 (Biennial fee applies every other year)
    1. Form and Instructions : https://portal.ct.gov/-/media/DRS/Forms/1-2018/BET/OP-424_0918.pdf?la=en  
    2. Other Guidance: https://portal.ct.gov/-/media/DRS/Forms/1-2018/BET/TPG1390118pdf.pdf?la=en

Part III – Other Common Tax Filings – Review periodically (list is not all inclusive)

  1. Connecticut Sales Tax – Revenue:  When you expect to have sales to CT customers, filing frequency could be as common as monthly. https://portal.ct.gov/DRS/Businesses/New-Business-Portal/Managing-Sales-Tax#how
  2. Connecticut Sales/Use Tax – Purchases: If you purchase products online/out of CT without sales tax charged equal to the CT sales tax rate, you may be subject to Use tax liability in CT. See link above.
  3. Federal and Connecticut Payroll tax filings: Payments to LLC owners for services are reported on Schedule K-1 as guaranteed payments with no tax withholding, similar to a 1099, and thus LLC owners should not be processed through payroll as “W-2 employees.” However, payroll/W-2 applies if you set up U.S. payroll for salaries of non-owners (typically the Federal and State payroll tax filings are handled internally using payroll processing software, or through a 3rd party payroll provider).
  4. Profitable Entities:  Estimate are due to the IRS and State of CT quarterly. IRS estimates will be paid by the individual owners* (based on their expected share of LLC income and other personal situation), while the CT estimates related to LLC income will be paid directly by the LLC.
    1. Information on Federal estimates – Individual level: https://www.irs.gov/pub/irs-pdf/f1040es.pdf
    2. Information on CT estimates – Pass-through entity level: https://portal.ct.gov/-/media/DRS/Forms/2019/Pass-Through/CT-1065-CT-1120SI-ES_0119.pdf?la=en

      *For Federal tax estimates paid by the individual owners, the owners need to come up with the funds, so the LLC may need to declare a tax distribution (i.e. taking funds out of the business). The operating agreement should provide legal parameters for the distribution.
  5. Property Tax – If spending significantly on furniture/equipment, consider the applicable property tax rules and contact your town.

Related:

FML’s Tax Checklist for LLC Start-Ups
FML’s Tax Checklist for C-Corporation Start-Ups