If you are looking for a detailed guide on the pros and cons of forming an LLC in Wisconsin, this blog post is for you. We discuss the difference between an LLC and an S-Corp, provide coverage on what needs to be done in regards to registering your business name with the Secretary of State, and give some insight into how taxes work with an LLC.
The 5 Steps to Form an LLC in Wisconsin:
Step 1: Name your Wisconsin LLC
The State of Wisconsin requires that you designate an entity as a limited liability company (LLC) when you file your Articles of Organization. You must name the business and have appropriate state filings for the LLC, including your Tax ID Number, Articles of Organization, and registration fee.
The easiest way to do this is to use SagePay’s website. You simply submit a form online for approval after fees are calculated, sign it online and send it to them. This service takes less than a day to complete from filing and approval.
Find the perfect name for your business.
- Select an LLC name that is not the same as another business in your state/city.
- The business name must end with “Limited Liability Company” or “L.L.C. Inc.”
- Be careful not to duplicate a business name that already exists. If there is another company in the state with the same name as yours, it will be a hassle to change your LLC name.
- Keep the LLC name short and simple (up to 3 words)
- Make sure that the LLC name has not been taken before
- Do a quick online search of your desired LLC name to make sure it is available
Once you have selected a name for your company, this process can be completed online.
You will be given some options while filling out the application:
- You need to fill out the name of your business.
- If you know your Tax ID Number (EIN) already, then enter that into this section. If you don’t know it, then leave this section blank. Your Tax ID Number can be obtained by your accountant or by using the IRS website.
- You must also select between a Single Member LLC and a Multiple Member LLC. If the company only has one business owner/member, select “Single.” If there will be multiple owners/members, selecting “Multiple” is necessary.
- You will need to enter the city in which you are located as well as your state name (Wisconsin).
- When you have finished filling out the application, a receipt will be emailed to you.
- Sign the application, make sure to verify the information is correct, and attach a copy of your Social Security card.
- Then mail in your application and check for $130 payable to “Wisconsin Department of Administration.”
Once you have completed this step, your legal business name will be on file with the state government.
Step 2: Appoint a registered agent in Wisconsin
Once you are ready to file your Articles of Organization and name your business, you will need to appoint a registered agent for the service of the process. This is an individual or company you have chosen who can accept the service of process papers in a lawsuit against your business. Incorporation is the actual creation of the LLC from scratch.
Step 3: File Wisconsin Articles of Organization
Once you have named your business, signed your LLC agreement with the state, and appointed a registered agent service, it is time to file the Articles of Organization. Article 9 states that there must be “at least 5 but no more than 20” persons as LLC members. The company is required to have at least one member in order to be a legal business entity.
The Articles of Organization are filed by using the web or by paper.
I. If you are filing on paper, go to the Secretary of State website, and follow these instructions to register a new LLC:
1) Download the Wisconsin LLC-1 Articles of Organization. (The fee is $150.)
2) Complete the Wisconsin LLC-1 and submit it to the Secretary of State along with a $150 check.
If you are filing an LLC on paper, you must file the Articles of Organization with the Wisconsin Department of Financial Institutions. When you fill out the form and provide your information, click on “File at a location other than the Secretary of State’s office.”
You then can mail in your Articles of Organization and state fees to a service center in Wisconsin. Your Articles are signed there and then mailed back to you via US Postal Service.
II. If you are filing online by using the Secretary of State’s website, follow these instructions to register a new LLC:
1) Go to the Secretary of State website and select “Online Services.”
2) Click on “LLC Articles of Organization” at the bottom and follow instructions.
3) You may be asked for your Tax ID Number. The EIN can be obtained from your accountant or from the IRS website. (You must select either a Single Member LLC or Multiple Member LLC. If the company only has one owner/member, select “Single.” If there will be multiple owners/members, selecting “Multiple” is necessary.)
If you file online, you must have all of your information filled out and must include the $150 for filing fees.
Step 4: Create an operating agreement
An operating agreement is an agreement made between the members of a new LLC to govern its legal business structure. It is a formal document that spells out how the company will be run and operated.
The operating agreement allows each member to have equal power in the company, limits the liability of your individual partners, and details how each person will be paid. In order for the state to accept your Articles of Organization, you must prepare an Operating Agreement and sign it.
I. To create an operating agreement online, go to the Secretary of State website and follow these steps:
1) Click on “Forms” at the top of the screen.
2) Select “LLC Operating Agreement” from the list below “File a Document.”
3) Complete the form on page 2 of this guide. You will need to provide information about each member, the location of the business, a copy of your Articles of Organization, and a $50 set-up fee. Be sure to print the completed form and sign it.
II. If you are creating an operating agreement the old-fashioned way, you can create one in Word or PDF.
1) Once you have created one, you must prepare, sign, and attach a duplicate original of your Operating Agreement to your Articles of Organization when you submit them to the state.
2) Once the Wisconsin Department of Financial Institutions has received your Articles of Organization and Operating Agreement (along with a filing fee), they will send back a Certificate of Formation for your business. Once you receive the form, your new LLC will be officially registered in Wisconsin.
Step 5: Apply for an EIN
Every business must have an EIN and a Tax ID number. The EIN is used to identify the business in financial reporting and is also necessary for doing business with the IRS.
- You can get your EIN by filing Form SS-4. You will need to provide a copy of your Articles of Organization and Operating Agreement, as well as your Tax ID Number if you have one.
- You can also get an EIN from the IRS online at this site: https://www1.irs.gov/businesses/small-businesses-self-employed/ein.
Advantages and disadvantages of LLC in Wisconsin
The advantages of an LLC are:
- Limitation on personal liability for business debts and assets.
- Limited liability protection of personal assets from being used to pay company debts. If the business goes bankrupt, you personally will not be liable for the debts.
- Limited liability protects the LLC from being sued. In the event a lawsuit is filed against your business, only the LLC assets are at risk.
- Members of an LLC will have full managerial control and can make management decisions without consulting other members.
- An LLC can be owned by one individual or by many people through a partnership, known as a multi-member LLC.
Disadvantages of running an LLC include:
- Not as easy as a corporation to form and maintain.
- Difficulty in selling the business if it is just one owner.
- Limited liability for partners leaves them exposed to lawsuits if the business is sued.
- Liability for partners is limited to the amount they invested in the company and can only be used to pay off company debt.
- You cannot take out loans or credit cards using your own LLC as collateral.
As you can see, an LLC offers limited liability for the owners of a business. This means that if your business is sued or files for bankruptcy, the owners are not personally liable for any debts or compensation owed to creditors. However, this protection does have its limits.
How much does it cost to start a Wisconsin LLC?
The cost of forming an LLC is about the same as the cost to start a corporation. All of the financial information you provide to the Secretary of State will be used to determine your Wisconsin LLC tax rate. You may also end up paying more in taxes than you should, depending on your agreement with your state.
The income tax rate for corporations is a flat 3.9%, and you can expect to pay this rate on all of your income from company profits, dividends, and sales of stock shares if your company qualifies for corporate status.
On the other hand, if you create an LLC, you will pay a different type of tax rate depending on how many owners your company has and how much they contributed to the company. The more owners your business has, the higher your tax rate will be.
Average tax rate
- The first owner is taxed at 6.5% on all income above $10,000 if it’s a single-member LLC.
- Income between $10,001 and $100,000 is taxed at 7.9%.
- Income above $100,000 is taxed at 9.4%.
In the end, your LLC will probably charge you a little more in taxes than you should. You will need to be careful and make sure that your LLC is structured correctly. It’s not worth the risk of getting audited or sued as a sole owner or partner.
Separate Your Personal and Business Assets
One of the primary advantages of forming an LLC is the limited liability you have for business debts. To ensure an LLC will shield you from a lawsuit, you must separate your personal assets from your business. This includes real estate, any other properties or assets that belong to members individually, and anything that could be considered a luxury item.
1. Opening a business checking account:
You must open a business bank account separate from your personal account. If you do not, the courts may decide that the funds in your personal accounts are available to pay off any business debts.
- You may also need to open a separate bank account for LLC income if your state requires it.
- You will also need to open a separate bank account for your LLC if you are creating an LLC.
Keep all of your personal and business money in different bank accounts, even if you don’t have any financial transactions between the two accounts.
Don’t use a business checking account for personal or household expenses.
Make sure to bring a business checkbook with you wherever you go on vacation or if you’re going out to eat, as the laws of most states require that you maintain records of all revenue and expenses when doing business.
2. Getting a business credit card:
You should consider getting your LLC a business credit card. You will be able to keep all of your personal and business expenses separate and pay for any business expense immediately, which can help you avoid interest payments.
If you are making any personal purchases on your business credit card, you will also be able to keep track of your expenses and avoid incurring any late or interest payments on your account.
The bills for the purchase will be paid immediately, which can help you avoid late charges or a higher interest rate.
3. Hiring a business accountant:
It is also important to hire a CPA before starting your business, and that includes the LLC. You will be able to keep track of the money being spent on company expenses and avoid incurring any late or interest charges.
4. Keeping detailed records:
You should keep detailed financial records for your LLC from day one so that you can keep track of personal income and expenses. Good records will allow you to easily report all income or expenses each month in case you need to file an IRS Form 1065.
- Record all money being invested in your business and how much it makes.
- Record all company expenses.
- Be sure to keep records of personal income from sources other than your LLC, such as bonuses or commissions.
Get Business Insurance For Your Wisconsin LLC
As a small business entrepreneur, you may be hesitant to purchase business insurance for your Wisconsin LLC as it can be an expensive proposition. However, the cost of insuring a business is very inexpensive compared to letting someone else pay the price of your potential legal liability.
As with any other type of insurance, you want to make sure you’re getting the best value for your money because much riskier policies are not worth their high premiums.
Shop around for price quotes from at least five different agents to get the best deal on your business insurance policy. Another way to save money is to get a policy that covers more than one risk.
- Your LLC will want to get business liability insurance so that you can protect the assets of your company should they be sued. This type of insurance will also protect your personal assets and ensure that you won’t be financially liable for the business’s debts.
- Purchase a business liability policy only if you have the legal obligation to do so.
- Don’t forget to get a policy for yourself and each of your members as well.
- You can get an additional rider or endorsement to add coverage for the money in your personal accounts. Keep in mind that it’s possible that the money might not be protected in case of a lawsuit.
Create Your Business Website
Many small businesses are considering creating a website for their LLC. Having a professional-looking website will help your business to develop and make it easier to start growing. If your LLC has a good-looking, professional site, then it will be more likely that people will want to do business with you.
This may seem like an unnecessary expense, but in order to compete online, you need to be competitive.
Advantages of the website:
- Having a website allows you to have a unique appearance that will help to differentiate your business from the thousands of other competitors. It also builds trust in your potential customers and clients.
- A well-designed, professional-looking site can cost as much as $5,000 or more, depending on size and type of business.
- It’s important to note that if you are planning to sell products online, it may be a good idea to get a merchant services account.
There are many costs to consider once you begin the process of creating your website.
One of the more popular website templates for small businesses is WordPress.com. This is a great option because there are so many free templates available, and it will allow you to customize your site based on your needs. You will also be able to change the appearance and functionality of the site as you need it.
Send Out a Press Release
If you want to get the word out about your new business, you could create a press release and send it out to the media. This should be done as soon as possible after your LLC is created.
Sending out a press release will give you the chance to publicize some information about your business, such as what you do, where the business is located, who owns it, and when it was founded.
- You need to be careful when creating a press release that doesn’t have any inaccuracies.
- A press release should always be distributed to the media.
- Try to include as much information as possible.
Wisconsin Business Licenses and Permits
The following permits and licenses are generally needed to start your business in Wisconsin.
I. Trademark Registration:
You need a Trademark Registration if you want to use a brand new or existing mark for your business.
II. Business License:
If you plan on selling products or services, then you will need a Business License in order for you to open up shop.
III. Professional Tax Certificate:
For every LLC, there’s a requirement for an annual tax certificate. This tax certificate is required in order for you to report the income from your business.
IV. Business License:
Each city may have its own requirements for businesses, such as a business license or other type of license.
V. Zoning Permits:
If you’re planning on opening up your business in a commercial zone, you may need a zoning permit so that you can get approval to open your office space.
Wisconsin LLC Taxes
Taxes are a big part of the process of starting a business, so it’s essential that you know how they work. The following are some of the more important aspects of taxes that you ought to know.
- Personal income tax is deducted from the net income your LLC receives from selling its products or services.
- If you have employees, then you need to pay Social Security and Medicare taxes each year on top of Federal Income Tax.
- There are special forms to fill out for each type of tax, so make sure you read the instructions carefully.
- There are monthly filing requirements as well as quarterly payments due.
Most small business owners don’t have a lot of time to spend on focusing on their business. This is why many will hire an accountant to do all the necessary tax work for them. This makes it easier for them to focus on their businesses and let someone else handle the money and paperwork.
- You can choose to file your own taxes or hire an accountant in order to simplify the process of filing taxes for your business.
- Many companies also offer flat rates on their services so that you know exactly how much you’re going to be charged each year.
- The accounting and tax work can take a lot of time, so it’s good to get an idea of how long is required for each process before you go through with hiring someone else.
You might not have business experience, but if you are thinking about starting your own small business, then learning about business planning may be beneficial.
Wisconsin Sales Tax
In the state of Wisconsin, there are two different types of sales taxes. One is only paid for by businesses, and the other is paid for by both businesses and people. Sales taxes are important to know about because they can cost you quite a bit of money if you don’t know what to expect or how sales tax works.
If your business is located in Wisconsin, then your business must collect state sales tax on taxable items sold within the state. This means that the buyer pays the sales tax when they purchase a product or service. However, if you sell products or services to people in other states, then you should collect Wisconsin sales tax for those products too.
- Businesses only need to collect and pay out state sales tax if there are items that are taxable in Wisconsin and then shipped or delivered to another state.
- Businesses only need to collect and pay out state sales tax on taxable items sold within the state. For example, if you’re a shoe store and you’re selling shoes that are not made in Wisconsin, then there’s no need to collect Wisconsin sales tax.
- If you’re a store that just sells clothes, then your inventory is considered local and taxable because it is produced in Wisconsin.
Transportation costs will also be subject to state sales tax.
Wisconsin Employer Taxes
Employers are responsible for paying a variety of taxes in order to maintain their businesses. Among these taxes are:
- payroll taxes
- unemployment insurance
- income tax.
Make sure you know how Wisconsin employer taxes work because they can be complicated. There’s a quarterly report that needs to be filed by all employers, which will include the number of hours worked by your employees and the wages paid to each employee.
There are unemployment insurance requirements that employers must pay.
Federal LLC Tax Filing Requirements
If you have a Federal LLC, then there are both state and federal taxes that you need to be aware of. You will need to make sure that you’re filing all the right forms so that you won’t end up with fines. Filing your Federal LLC taxes is an important process because if you don’t file them correctly, then they could end up costing you quite a bit of money.
There are multiple types of business tax returns, and all businesses must file them as long as they’re still in operation.
File an Annual Report
An LLC Annual Report is due on the anniversary date of registering your company. At this time, you will submit a simple form that records any changes you have made to your LLC with the state.
Filing this report is an easy and simple way to keep your business up to date. Some of the details included in the report will be:
- your name
- history of your business’s operations.
You don’t have to submit anything with the report, and it’s a simple online process.
When you start hiring employees, there are some tax rules that you need to be aware of. You’ll need to decide if you want to hire independent contractors or employees because there are different tax purposes for each of them.
Employee Tax Deductions
If you have employees, then there are a few aspects of the business that will change. The first thing is that you will have to provide health benefits to all full-time employees and their dependents.
The employer will pay half of the cost of health insurance, and the employee will pay the other half.
Those employees who are working full time can also enjoy a tax deduction for their health insurance payments.
If your business has employees, then it is important that you know how to properly track all your payroll information. This way, if there are any discrepancies in your employee records, you’ll be aware of them.
Considering Using an LLC Formation Service?
Paperwork can be a huge burden on small business owners. As a result, many entrepreneurs prefer to use a formation service in order to avoid all the hassles.
Typically a formation service will form your business and fill in all the necessary paperwork so that you don’t have to worry about it.
A formation service will charge you a state fee that depends on what kind of paperwork you’re creating.
You may think that small business taxes are simple, but they’re not. If you know what to expect, then you will be in a better position to avoid your business taxes altogether.
Don’t make the mistake of overlooking small business tax rules because they can end up costing you a lot of money if you don’t know what’s required.
There are several considerations that you’ll need to think about when starting up a small business. An LLC formation is just one example of how to do this, and there are many more. You’ll want to consider the right type of tax structure as well as the right type of state for your business.
Finally, you will have to make sure that you have employees that pay personal taxes and not business taxes. With these things in mind, it will be easier for you to know what’s required in order to start your new business.