Avoid These 10 LLC Mistakes in 2025

🚀 Book your free demo call today! Click here or visit: https://taxelm.com/demo/ 

Starting and running an LLC comes with big tax benefits and liability protections—but only if you do it right. In this episode, we break down the 10 most common LLC mistakes that could cost you thousands in taxes, legal troubles, or even your business itself.

Chapters: 

(00:57) Mixing Personal & Business Finances: Co-mingling accounts makes bookkeeping messy and can trigger IRS scrutiny. Always keep separate business bank accounts.

(2:24) Forgetting to File Annual Reports: If you miss this, your LLC can be administratively dissolved, meaning your business legally ceases to exist.

(03:25) Not Using "LLC" on Business Documents: Failing to include "LLC" in contracts and agreements can leave you personally liable in legal disputes.

(04:21) Registering an LLC in Another State Without a Foreign Designation: Setting up in a tax-friendly state (like Wyoming) doesn’t exempt you from taxes where you operate. You must file a Foreign LLC election.

(07:22) Not Maintaining Meeting Minutes & Operating Records: Proper documentation is essential for legal protection and can also unlock tax deduction opportunities (e.g., business meals).

(08:56) Making Business Decisions Without Consulting LLC Members: If you have multiple members, one rogue decision can cause disputes and even dissolve the LLC.

(10:28) Mixing Personal Expenses with Business for Tax Deductions: Running personal expenses through your LLC is a red flag for the IRS. Use an accountable plan to track reimbursements properly.

(12:05) Not Obtaining Required Business Licenses & Permits: Some businesses require licenses at the state or local level. Ignoring them can lead to fines or forced shutdowns.

(12:49) Skipping Professional Liability Insurance: An LLC protects your personal assets, but business insurance protects your company from lawsuits and financial losses.

(14:21) Not Updating Your Registered Agent Information: If your LLC moves or changes leadership, failing to update records can lead to missed legal notices and compliance issues.

-------

Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

-------

🚀 Visit:  https://www.TaxSavingsPodcast.com 

🚀 Join TaxElm: https://taxelm.com/

🚀 Join our Free Facebook Group: https://www.facebook.com/groups/taxsavings/

🚀 YouTube: www.TaxSavingsTV.com

👋🏼 GET IN TOUCH

You can Tweet @MJesowshek with any feedback, ideas, or thoughts about the lessons you've learned from the episodes. We want to thank you personally for tuning in 🙏

🙏LEAVE A REVIEW

If you enjoy the podcast, we'd love for you to leave a 5-star review on Apple Podcasts or Spotify to help others discover the show ⭐ 

🎙 ABOUT THE PODCAST

The Small Business Tax Savings Podcast is your go-to resource for cutting-edge tax strategies designed to help entrepreneurs and small business owners legally slash their tax bills. Hosted by Mike Jesowshek, CPA, this podcast breaks down complex tax topics into clear, actionable, no fluff insights, so you can maximize your savings and keep more of your hard-earned money.

Transcript

Today, I'll be showing you 10 critical LLC mistakes that could cost you thousands in 2025. As a registered CPA and owner of a tax planning company, Taxelm, I've identified specific pitfalls that consistently cause problems with taxes, liability protection, and compliance. And that's exactly why I'm making this video today.

To show you the 10 LLC mistakes you need to avoid in 2025 to protect your business and save money. All right, let's dive right into it. Number one. Is not having separate personal and business finances with dedicated business bank accounts. Every time I see a new business owner, this is a problem or a question that comes up.

And so the mistake is, is you're co-mingling everything. You know, business expenses are going to one or the same account as their personal expenses. You're buying kids clothes next to a hammer for your, for your business. That's the problem that we have. And, and, and why is this a big deal? Why is this a mistake?

Is because everything is in one place. And if the iris were ever come in and look at this, they'd say, how do you know what these expenses are for? You're taking this meal as a business deduction. How do you know what that was for? And they're going to really start to scrutinize that and say, okay, we need receipts for all of this stuff.

Whereas on the other side, if you have a clean set of books where you have a business account that anything business runs through that account, income expenses, everything goes into an account specific to the business and then personal. It's completely separate. Now you have clean. Now the IRS is looking at it and saying, okay, everything here is clean.

It's organized. It helps make sense. And the IRS  is likely going to be less, on top of it. Now, the other thing to think about too, when we're talking about commingling.  is that sometimes you can miss expenses. You know, you're going through your bookkeeping at the end of the year to get your tax return all prepped, and you're trying to find, okay, what's business in here, and all of a sudden you see a meal there.

Maybe it's Buffalo Wild Wings, and you're like, was that business? Was that personal? Hard to tell. So I see so many mistakes that happen when we co mingle that we miss out on deductions, and not only that, it leads to messiness that could really be heavily scrutinized by the IRS. Alright, number two. It's for getting to file annual reports, which could risk administrative dissolution.

I talk to a lot of business owners they're just coming on, we look at their business, we go to the state website, whatever state that's cited, and we say, okay, is this business active? And all of a sudden you go on the business site and the business has been dissolved. Why? Because they forgot to file their annual reports.

Every state, or most states at least require on an annual basis that you just file an annual report that renews it. Usually there's a fee with it. Sometimes it's a pretty small amount, sometimes it's a little bit larger amount, but depending on the state. But you just go to the state website, you file a report.

Basically, they wanna know, Hey, has the address changed? Is there any ownership change? Any major changes that we need to know about? Pay your annual fee and you're good to go. This is not. Part of your tax return. So if you're filing your tax return, that does not mean that this annual report is automatically getting filed.

So make sure that you put something on your calendar every year to check on. Did I file my annual report that makes sure that your business is active at the state level, and this is going to be super important for your business.  Third mistake I see is missing LLC designations on business documents and correspondence.

So what does this even mean? It means that you're writing a contract, you're Joe Smith LLC, but on your contract you're just saying, Hey, this is with Joe Smith and you're having agreements over here. You're not putting your LLC on it. What does this lead to? This leads to that the agreement isn't actually with your business.

And so in a potential lawsuit or different issues that might come up. That could be some issues there because they're saying, Hey, I know you have this LLC, but you're not even acting like an LLC. You have all these agreements, all these relationships, all these things through you personally, but on those agreements, your LLC is never mentioned.

So make sure that once you set this LLC up, operate under it. When you fill out a W 9, make sure that LLC is filled out. When you're making agreements, make sure it's made out to the LLC. Now, obviously you're going to be signing on behalf of that LLC, but just make sure that you have. And that those LLCs and everything recorded properly on that piece,  the number four mistake that I see is opening an LLC in another state with no foreign designation.

You know, I don't know how many times people come to me and they say, well, I heard I need to open up a Wyoming LLC, or I heard I need to open up a Delaware LLC. And while in some certain, but rare instances, it does make sense to open up an LLC in another state. Most of the time. You just want to open up an LC in the state you operate out of.

Because the one thing that they miss, and they say well I'm going to open up an LC in Florida. Because there's no state tax in Florida. But I'm going to operate here, and let's say you're in Wisconsin like me. I'm going to operate this LC in Wisconsin, but I'm going to open it in Florida. I don't have to pay state taxes, I don't have to report anything to Wisconsin.

Wrong. As part of that, if you have an LLC in Florida,  but you're operating that business out of Wisconsin, you need to file a foreign LLC election in Wisconsin to be able to operate out of there, and you're still going to be paying Wisconsin taxes. So you might, for legal purposes, say, I'm going to form an LLC in Delaware.

Again, Most cases, not necessary. Some cases, it might be.  But let's say that you do that. You form that LLC in Delaware or Florida or Nevada or Wyoming or wherever it might be. You need to also submit the documents to create a foreign LLC in the state that you're actually operating out of.

So if you think that you can just get away from paying state taxes by filing an LLC in a different state, You're wrong. Make sure you understand this topic. And if you did happen to go down that path, make sure you fix it. Now start that foreign election in the state that you're operating out of. Now, since I can only cover this, the mistakes here in so much detail, I don't want you to leave this and fall into what I call the generalized content trap where you become so wrapped up in generalized advice on YouTube and other platforms that you never actually take action.

And this is exactly why I want to offer you an entirely free demo call. where we'll look at your exact situation and help you come up with a game plan for your taxes. Click the link below to book your demo call. 

 This episode is brought to you by TaxZone. I started TaxZone because I was talking to far too many business owners who were saying year after year that they were paying too much in taxes while also struggling to get in touch with or even understand their account. That's why we're here, to be that tax strategist in your back pocket, ensuring that you pay the least amount in taxes legally possible.

With TaxZone, you receive a tax savings blueprint tailored to your business needs. You get unlimited messaging access to our team of tax experts, and you get an annual one on one live consultation. You'll also have access to our comprehensive training library with videos, downloads, templates, workbooks, guides, and so much more, along with our monthly live training and an annual tax return review.

Thousands of business owners across the country trust TaxZone. It's time you did too. Visit us now and take that first step towards paying the least amount in taxes legally possible. There's never been a better time to join TaxElm. Do not forget about our 30 day money back guarantee. We guarantee that we will present tax savings strategies that will, at a minimum, cover the cost of your subscription fee or your money back.

This is your risk free invitation to explore the benefits of TaxElm membership and how it can transform your approach to tax planning and savings. Go to TaxElm. com now and book your free demo. That is TaxElm, T A X E L M dot com. Now back. To the shelf.

Item number five, five mistake that I see is neglecting to maintain detailed meeting minutes and operating records.

You know, when you open up an LC, isn't just submitting the documents at the state level for an LC and all of a sudden, boom, You have an LLC. Yes, you have an LLC open, but you need to do things on a regular basis to maintain that, to keep that LLC safe. You need to have an annual meeting where you have meeting minutes that associate what was discussed at that meeting.

You need to have an operating agreement. So talk to your attorney about these different things that you need to do. But not only that, this meeting minutes, this annual meeting minutes, maybe it's monthly, quarterly, annually, or whatever it is. Not only is that just helpful to help keep your business in a good standing, but also create some.

Awesome opportunities for tax deductions because now you have a board, you set up a board for your LLC and now you're having meetings on a monthly basis and a quarterly basis, an annual business. Well, guess what? Those meetings, whoever might be on your board might be family members, might be friends, might be close colleagues.

And now you're meeting with them on a regular basis. And guess what happens at meetings? You eat. You drink. You go places. You do fun things at these meetings that you're talking about your business. And guess what? When it's a board meeting, those become tax deductible. Now we need to be reasonable and make sure we're doing dotting our i's, crossing our t's and all these different things.

But not only does this help keep your LLC in good standing, it also creates a great environment. tax opportunity as well. So that's a mistake that I see people doing. They're not doing reading minutes. They're not updating their operating records when things changes, when things maintain. Item number six mistake that I see is making business decisions without consulting all LLC members.

So when you have an LLC, you're going to have an operating agreement and that operating agreement is going to tell you, you know, who's making decisions, who's responsible for these different things. And as a business, I think it's just important to involve. All of the owners in decision making and you know, I see so many times where one owner goes rogue and he goes, I'm going to do this, this, and this without even talking to the other owner, especially if they're both in the operations, that is a quick route to having that LLC dissolve, to having a partnership breakup.

And you know, the, the, the, the, they say the hardest ship to keep afloat. is a partnership. So dot your i's, cross your t's. Do some legwork up front. Talk to your attorney to design that agreement to make sure that everyone's on the same page. Because we want your partnerships to last forever. We want these things to grow.

We want these things to succeed. We want these things to create massive success for you. But you gotta dot your i's and cross your t's because, you know, I know as a business owner, you're so excited to just dive into that business and start making money and start doing things. But you don't want to skip out on these items that we're talking about today.

We want to make sure that we're doing them correctly to protect you. To protect your partners and to protect your business in the event that there's a disagreement, which there will be, but if you have things set up properly, that disagreement can quickly become, okay, here's how we handle those things.

We get past it, we move forward and we continue to grow our business, but have those things in place before you just hit the ground running. And I know it can be so hard to slow down and put these things in place, but you're going to thank me later in year one, year two, year three, when some of these things pop up and now you have items that you can think about.

The seventh mistake I want to talk about, and this kind of goes along with number one too, but it's mixing personal expenses with business funds for tax deductions. And so this is, again, that concept of if you have your expenses separate, make sure you stick to that. And if you accidentally pay for something, Personal, out of the business, marketing is an owner's draw to you as the owner.

If you accidentally pay for something business related, on your personal account,  make a reimbursement. Set up an accountable plan. Have these processes in place to make sure that we're doing that. Now, of course, if it's 100 percent business related, we always Want to run that through the business, but sometimes mistakes are going to happen and just make sure that they're recorded properly because if a mistake happens and we record it properly, we're in the clear and the average is going to see, oh, okay, that's, that's, you know, a rare instance, but if these are continuing to happen regularly, set some process in place that, you know, okay, business expense, is.

This is the card I use. This is the checkbook. I use personal expense. That's the card. I use that's the checkbook I use set some process in place to make sure you don't fall down that trap and again the problem with co mingling  is not only can it make the IRS put a little, put a little bit more of a magnifying glass on your business, but also you're oftentimes missing out on expenses that would be valid business deductions that you're not taking advantage of, or you're taking expenses that you shouldn't be.

And that is an immediately going to be a red flag for the IRS. The number eight mistake that we see is failing to obtain necessary business licenses and permits. So when you operate a business, you need to look at, okay, what type of. Business in my operating and is there any license or permit that I need to do to operate that business?

Now some businesses you just hit the ground running. You don't need to do any of those things but you want to look into those things as you're first starting out your business because guess what owning a business is great and I highly encourage So many people I talk to let's start a business of some sort even if it's just on the side to start with But we want to make sure we're doing it, right?

We want to make sure that we're setting this thing up for success So make sure you do some research what business license are required potentially in your state in your locality For your type of business and just make sure you're getting your eyes crossed your tees getting those things done The number nine mistake and this is a big one is skipping professional liability insurance coverage for your LLC I talked to a lot of business owners and say, I don't need insurance because I got an LLC. 

Well, what happens if your LLC gets sued? What happens if something comes up there? What happens if you make a mistake? Well, now your whole business could go gone from one mistake, one accident. that your team did, that you did, that something happened in your business by having professional liability insurance.

It helps cover you in the event of these mistakes. Sometimes this might be, you know, insurance. Sometimes it might be liability insurance, whatever it might be. Always talk to an insurance agent when you're starting a new business to say, okay, what insurance do I need for this business? You want to be Protected because sure the LLC provides some protection if you're doing things correctly and talk to your attorney Well, what things you need to do correctly?

LLC can provide protection from you personally, but insurance can provide extra protection within your business Let's say you have a massively growing business and I know when you first start your business You don't know where it's gonna go but guess what businesses grow fast and I've seen so many people that just grow grow grow grow and But they're still think that, Oh, I'm just a small business making 10, 000 a year.

Now they're making 300, 000 a year. And one little mistake could erase that entire business if you don't have the right insurance set up. So talk to your insurance professional, tell them what you got going on and ask them what they recommend for the best protection for your business and get that insurance done right away.

Especially when you're small. That policy can be very cheap. These policies are not super expensive depending on your line of work. So make sure you do it regardless of your size to help protect yourself. Finally, number 10. Is not updating your registered agent information when you change business address.

Updating this information and this happens all the time. This happens in all parts of our life. You know, I was talking to my wife the other day when we moved a couple of years ago and her driver's license is still in the wrong address. So this happens all the time. But just make note that whenever major changes happen to your business, you have a new business partner, you lose a business partner, you change your address, you have a new registered agent, you have a new manager, you have a new member, whatever it is, just make sure that if those things are happening in the background.

I also need to update this with the state. I also potentially need to update this with the IRS. Make note of that so that when these changes occur. You're going to those respective places, making those updates so that everything is clean from a state level, from a, from the federal level in all those different items.

So now that you've seen the critical LLC mistakes to watch out for in 2025, what concerns me most in my tax practice is how these errors can seriously impact your business's financial. and legal protection. You know, through years of business planning, I've discovered that successful LLC operation isn't just about formation.

It's about ongoing maintenance and strategic decisions. The most protected business owners I work with aren't just checking boxes. They're actively managing their LLC structure for maximum benefit from a legal and a tax standpoint. And if you want me to analyze your tax plan and help you avoid these costly mistakes, click the first link in the description.

And book a complimentary demo call. I'll see you on the next one.