Business structures such as an LLC, LP, S Corporation or C Corporation are legitimate, legal structures. When you form one of these entities, you also reap certain benefits in terms of tax savings, limiting liability, etc. However, you need to fulfil the requirements that the federal government and states sets up in order to keep that structure. Too often, business owners form one of these entities, file their annual report and go on running their business. Unfortunately, many tend to forget to keep up with their minutes, stock issuance and corporation/LLC documents.
One of the potential results could end up costing you big money. The IRS likes to scruitinze business structures especially when it comes to qualifying deductions. If you find yourself being audited, do you know one of the first things they are going to ask for? Yep, copies of your minutes and corp./LLC documents.
If you respond, “I don’t have them,” or “They’re not quite up to date,” chances are pretty good that you are going to loose deductions. Why? Because without those records, you can’t say you have a legitimate business structure in place. You MUST operate your business like a business and follow the correct business formalities. If you don’t, the structure can’t benefit you.
So, don’t forget to properly issue stock and record it (if applicable), create annual filings for your state (if applicable), prepare notes for money you’ve put in and taken out of your business and record your mandatory annual minutes. Sure, it may take time out of your day, but better that than money out of your pocket.