Can a CPA Set Up an LLC? What They Can and Can’t Do

A Certified Public Accountant (CPA) is a licensed financial professional who provides a range of accounting and tax services to individuals and businesses. The Limited Liability Company (LLC) is a popular business structure, offering liability protection and operational flexibility. Many individuals and businesses seek guidance when forming an LLC. This article clarifies how a CPA can assist with LLC formation.

Understanding a CPA’s Scope in Business Formation

CPAs primarily offer financial and tax advisory services, guiding clients through complex accounting principles and tax regulations. The legal formation of an LLC, including drafting and filing documents like Articles of Organization with the state, typically falls to legal professionals. A business owner or a registered agent service may also handle these filings. CPAs do not directly submit legal formation documents.

A CPA’s assistance begins before any legal documents are filed, focusing on the financial and tax implications of business structure. They provide guidance on selecting the most advantageous entity type for a new venture, comparing an LLC to options like a sole proprietorship, partnership, or corporation. This includes advising on the tax classification choices available to an LLC, such as being treated as a disregarded entity, a partnership, or electing S-corporation status. CPAs also assist in understanding how to obtain an Employer Identification Number (EIN) from the IRS, a necessary step for most businesses. They help establish initial capital contributions and calculate the tax basis for members, which is fundamental for future tax reporting.

Key Financial and Tax Considerations Before Forming an LLC

Before an LLC is officially formed, a CPA provides substantial support in evaluating financial and tax considerations. They help prospective business owners understand the various tax classifications available to an LLC, which significantly impact how the entity’s income is taxed. For instance, an LLC can be taxed as a sole proprietorship if it has one owner, as a partnership if it has multiple owners, or it can elect to be taxed as an S corporation or C corporation. Each classification carries distinct implications for federal income tax, self-employment tax, and payroll tax liabilities.

A CPA assists in projecting initial revenues and expenses to determine the most suitable tax election for the LLC’s anticipated financial performance. This projection helps in strategic tax planning from the outset, ensuring the chosen structure aligns with the business’s financial goals. They also guide the setup of appropriate accounting methods, such as cash or accrual basis, and the development of a comprehensive chart of accounts tailored to the business’s operations. Establishing these foundational accounting practices early helps ensure accurate financial record-keeping and simplifies future tax compliance.

A CPA advises on initial capitalization strategies, distinguishing between debt and equity financing and explaining their respective tax treatments. This advice extends to understanding the tax basis for each LLC member, which is crucial for tracking capital contributions, distributions, and potential losses. They emphasize implementing a robust record-keeping system from day one and can recommend suitable accounting software. Such guidance helps the business maintain organized financial data, which is vital for both operational management and meeting tax obligations.

CPA Assistance with LLC Operational Compliance

Once an LLC has been established and is operational, a CPA continues to provide ongoing financial and tax support to ensure compliance and optimize financial performance. They are instrumental in preparing and filing the necessary annual federal, state, and local tax returns for the LLC. This includes filing Form 1065 for LLCs taxed as partnerships, Form 1120-S for those electing S-corporation status, or Schedule C (Form 1040) for single-member LLCs treated as disregarded entities.

If the LLC hires employees or engages independent contractors, a CPA can assist with payroll processing and related tax filings. This involves preparing and submitting forms such as Form 941 for federal income and FICA taxes, issuing W-2 forms to employees, and 1099 forms to contractors. They also help navigate state-specific payroll tax requirements, including unemployment insurance and withholding taxes.

CPAs offer bookkeeping services, ensuring all financial transactions are properly recorded and reconciled. They also prepare financial statements like the profit and loss statement and balance sheet. Beyond routine compliance, they advise on various tax planning strategies throughout the LLC’s operational lifecycle. This includes identifying opportunities for deductions, credits, and other tax-saving measures to optimize the LLC’s overall tax position. Their ongoing support helps the business adapt to changing financial circumstances and tax laws, contributing to its long-term financial health.