I set up an LLC about two years ago for a side project that never got off the ground. Life got busy and I never really used it. I'm still paying the annual state fee every year and it's starting to feel like a waste. Is it okay to just keep it dormant for a few more years until I'm ready? Or am I asking for trouble with the state or IRS?
LLC
Is it okay to keep an LLC dormant for a few years?
Dormant is fine in most states as long as you keep filing your annual reports and paying the franchise tax. But check your state's rules—some have a minimum tax even if you make zero.
You're literally paying to keep a ghost alive. Just dissolve it and form a new one when you're ready. Unless you've got a killer name you're afraid to lose.
GrumpyPineapple has a point about the name, but dissolving and reforming later means new filing fees and possibly losing your original formation date. If the annual cost is low, keeping it might be worth it for the grandfathered benefits.
I kept mine dormant for 4 years. Paid the fees, filed the reports. No issues. Just don't forget to file a zero return if your state requires it.
What about the IRS? Do you have to file anything for a dormant LLC with no income? I've heard mixed things.
For federal, a single-member LLC is a disregarded entity, so no separate return. But if you elected S-corp or have multiple members, you still need to file. And some states require a zer return even for disregarded entities.
Check if your state has a 'dormant' status you can apply for that reduces fees. Ohio does, for example. Saved me a bunch when I wasn't using mine.
Or just do what I did: forget to file for two years, get your LLC administratively dissolved, and then panic. Not recommended.
Also watch out for registered agent fees. If you're using a service, that's an ongoing cost. You can be your own agent in many states.
And don't forget business licenses. Some cities require a minimal license fee even if you're not operating. I got a nasty letter once for that.
I'm in the same boat. Thanks for asking this. My plan is to keep it for another year while I decide, but I'm setting a calendar reminder for all the deadlines.
Setting reminders is key. I use a spreadsheet with all the due dates and amounts. Overkill? Maybe. But I haven't missed one yet.
One more thing: if you ever want to open a business bank account for it later, some banks might question why it was dormant for so long. Not a big deal, but but be ready to explain.
Or just tell them you were 'strategically incubating.' That usually works.
Ha! I'll use that next time. But seriously, dormant is fine as long as you stay compliant. Just don't ignore it entirely.