Starting a Limited Liability Company (LLC) is a popular choice for entrepreneurs seeking liability protection and tax flexibility. However, it's crucial to understand the full scope of costs involved, from initial formation to ongoing maintenance. This guide breaks down the expenses you can expect to encounter when establishing and running an LLC.
The Upfront Costs of Forming an LLC
The initial investment to form an LLC can be broken down into two main categories: mandatory state filing fees and optional add-on services.
Mandatory State Filing Fees
Every state requires a fee to file the necessary paperwork to legally establish an LLC. These fees can vary significantly from one state to another, ranging from as low as $35 to as high as $500. For instance, forming an LLC in California has an initial fee of $70, while Texas and Tennessee require a $300 fee. These fees are unavoidable, regardless of your chosen filing method.
Critical and Optional Add-On Services
Beyond the mandatory state filing fees, several other services can add to your upfront costs:
- Registered Agent Services: Most states require an LLC to have a registered agent to handle legal documents. While you can act as your own registered agent, many businesses opt for a professional service for privacy and convenience. These services typically cost between $100 and $300 per year.
- Business Name Reservation: If you have a name for your business but aren't ready to file the formation paperwork, you can reserve a business name for a fee, which is typically around $40 for a 120-day hold.
- Assumed Name (DBA): If you plan to operate your business under a name different from your LLC's legal name, you'll need to file for an assumed name, or "Doing Business As" (DBA). The cost for this is usually around $25 per county.
DIY Filing vs. Online Filers vs. Professional Firms' Services
There are three primary ways to file for an LLC, each with its own costs and benefits:
- DIY Filing: This is the most cost-effective option upfront, as you only pay the state filing fee. However, you're responsible for ensuring all paperwork is filled out correctly, and errors can lead to rejection fees or future complications.
- Online Formation Services: These services offer a middle ground, with prices ranging from $0 to $199 plus the state fee. They can simplify the process, but be wary of upsells for services like obtaining an Employer Identification Number (EIN), creating an operating agreement, or filing for a business license.
- Full-Service Accounting Partnership: This is the most comprehensive option, pairing LLC formation with tax strategy, bookkeeping setup, and year-round support. While it has the highest upfront cost, it can lead to significant long-term savings through optimized tax structures and deductions.
LLC Cost by State (2025)
Here's a look at the LLC formation filing fees and annual/biennial fees for various states:
| State | LLC Formation Filing Fee | Annual/Biennial Fee | Type of Ongoing Fee | Frequency |
|---|
| Alabama | $200 | $50 (minimum) | Business Privilege Tax (Annual Report) | Annual |
| Alaska | $250 | $100 | Biennial Report | Biennial |
| Arizona | $50 | $0 | None required | N/A |
| Arkansas | $45 | $150 | Franchise Tax Report | Annual |
| California | $70 | $800 (annual) + $20 (biennial) | Franchise Tax + Statement of Information | Annual & Biennial |
|
Budgeting for the Hidden and Ongoing Costs of an LLC
Beyond the initial formation costs, there are ongoing expenses to keep your LLC in good standing.
Annual Reports and State Compliance Fees
Most states require LLCs to file an annual or biennial report to update their information on record. These reports often come with a fee, which can range from a nominal amount to several hundred dollars. For example, Florida's annual report fee is $138.75.
Franchise Tax
Some states, like Delaware and California, impose a franchise tax on LLCs, which is essentially a fee for the privilege of doing business in that state. This tax may be a flat fee or based on the LLC's revenue. In California, for example, there's an $800 annual franchise tax.
Penalties, Fines, and Loss of Liability Protection
Failing to meet state compliance requirements, such as filing annual reports or paying franchise taxes on time, can result in penalties, fines, and even the administrative dissolution of your LLC. This would mean losing the liability protection that an LLC provides, putting your personal assets at risk.
Strategic Financial Planning: Maximizing Your LLC's Tax Efficiency
Strategic tax planning from the outset can help you maximize your LLC's tax efficiency and save money in the long run.
How Your Initial Business Setup Impacts Long-term Taxes
The way you structure your business from the beginning can have a significant impact on your long-term tax liability. For example, an LLC can elect to be taxed as an S corporation, which can help reduce self-employment taxes for profitable businesses.
Integrating Year-Round Tax Strategy from Formation
Instead of viewing tax planning as a once-a-year event, it's beneficial to integrate it into your business strategy from the very beginning. This includes making informed decisions about your business structure, keeping meticulous financial records, and taking advantage of all available deductions.
A Practical Framework for Evaluating LLC Cost and Formation Services
When choosing an LLC formation service, it's important to look beyond the sticker price and consider the total cost of ownership.
Key questions to ask any LLC formation provider:
- What services are included in the base price?
- What are the fees for add-on services?
- What is the turnaround time for filing?
- What kind of customer support is available?
The total cost of ownership (TCO) of an LLC:
The TCO of an LLC includes not only the initial formation costs but also all ongoing fees and taxes. By taking a comprehensive view of these costs, you can make an informed decision that sets your business up for long-term success.
LLC Cost FAQs
Can I file an LLC for free?
No, you cannot file an LLC for free. Every state charges a filing fee to legally establish an LLC.
Can I be my own registered agent?
Yes, in most states, you can act as your own registered agent. However, you must have a physical address in the state where your LLC is registered and be available during business hours to accept legal documents.
Which states are the cheapest to register an LLC in?
States like Montana, Arkansas, and Arizona have some of the lowest LLC formation fees.
Do those states have additional fees or costs for out-of-state business?
Yes, if you form an LLC in one state but do business in another, you will likely need to register as a foreign LLC in the other state, which will involve additional fees.
How long does it take to get an LLC approved?
The approval time for an LLC can vary from a few business days to several weeks, depending on the state and the filing method you choose.
From Formation Costs to Financial Foundation with 1-800Accountant
Understanding the full scope of LLC costs is the first step toward building a solid financial foundation for your business. From navigating the initial formation process to developing a strategic tax plan, the right guidance can make all the difference. With a team of experienced accountants, CPAs, and enrolled agents, 1-800Accountant can provide the expert support you need to manage your finances and grow your business
