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I saw this on Clubracer.net and thought I would share it with you. I'm not sure if this would fly but it's worth looking into.
Basically, you have to show the "intent to become profitable". It also helps to show an increasing income and a lowering of expenses each year in order to avoid an audit.
Here are the basics:
LLC Basics - Limited liability companies combine the best aspects of partnerships and corporations.
A limited liability company (LLC) combines attributes of both corporations and partnerships (or, for one-person LLCs, sole proprietorships): the corporation's protection from personal liability for business debts and the pass-through tax structure of partnerships and sole proprietorships. Here are the main features of an LLC:
Limited Personal Liability
Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims - the creditor cannot legally come after any LLC member's house, car, or other personal possessions. Because only LLC assets are used to pay off business debts, LLC owners stand to lose only the money that they've invested in the LLC. This feature is often called "limited liability."
Exceptions to Limited Liability
While LLC owners enjoy limited personal liability for many of their business transactions, it is important to realize that this protection is not absolute. This drawback is not unique to LLCs, however -- the same exceptions apply to corporations. An LLC owner can be held personally liable if he or she:
personally and directly injures someone
personally guarantees a bank loan or a business debt on which the LLC defaults
fails to deposit taxes withheld from employees' wages
intentionally does something fraudulent, illegal, or clearly wrong-headed that causes harm to the company or to someone else, or
treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.
This last exception is the most important. In some circumstances, a court might say that the LLC doesn't really exist and find that its owners are really doing business as individuals, who are personally liable for their acts. To keep this from happening, make sure you and your co-owners:
Act fairly and legally. Do not conceal or misrepresent material facts or the state of your finances to vendors, creditors, or other outsiders.
Fund your LLC adequately. Invest enough cash into the business so that your LLC can meet foreseeable expenses and liabilities.
Keep LLC and personal business separate. Get a federal employer identification number (social security number), open up a business-only checking account, and keep your personal finances out of your LLC accounting books.
Create an operating agreement. Having a formal written operating agreement lends credibility to your LLC's separate existence.
Business Insurance
A good liability insurance policy can shield your personal assets when limited liability protection does not. For instance, if you are a massage therapist and you accidentally injure a client's back, your liability insurance policy should cover you. Insurance can also protect your personal assets in the event that your limited liability status is ignored by a court.
In addition to protecting your personal assets in such situations, insurance can protect your corporate assets from lawsuits and claims. Be aware, however, that commercial insurance usually does not protect personal or corporate assets from unpaid business debts, whether or not they're personally guaranteed.
LLC Taxes
Unlike a corporation, an LLC is not considered separate from its owners for tax purposes. Instead, it is what the IRS calls a "pass-through entity," like a partnership or sole proprietorship. This means that business income passes through the business to the LLC members, who report their share of profits -- or losses -- on their individual income tax returns. Each LLC member must make quarterly estimated tax payments to the IRS.
While an LLC itself doesn't pay taxes, co-owned LLCs must file Form 1065, an informational return, with the IRS each year. This form, the same one that a partnership files, sets out each LLC member's share of the LLC's profits (or losses), which the IRS reviews to make sure the LLC members are correctly reporting their income.
For more information on LLC taxes, see How LLCs are Taxed.
Forming an LLC
To create an LLC, you begin by filing "articles of organization" (in some states called a "certificate of organization" or "certificate of formation") with the LLC division of your state government. This office is often in the same department as the corporations division, which is usually part of the secretary of state's office. Filing fees are typically $100 or less.
You can now form an LLC with just one person in every state. While there's no maximum number of owners that an LLC can have, for practical reasons you'll probably want to keep the group small. An LLC that's actively owned and operated by more than about five people risks problems with maintaining good communication and reaching consensus among the owners.
In addition to filing articles of organization, you must create a written LLC operating agreement. While you don't have to file your operating agreement with the state, it's a crucial document because it sets out the LLC members' rights and responsibilities, their percentage interests in the business and their share of the profits.
Finally, your LLC must fulfill the same local registration requirements as any new business, such as applying for a business license and registering a fictitious or assumed business name.
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