Dormant LLCs

The Compliance Traps That Could Cost You Big

Think your inactive LLC is off the hook? Think again. Many business owners assume that if an LLC isn’t operating, it doesn’t require any maintenance. That assumption can lead to fines and state penalties.

Here’s what you may not know:

• Most states require annual or biennial reports and franchise taxes, even for inactive LLCs.

• The IRS may still expect a federal tax return (e.g., Form 1120 or Form 1065), especially if the LLC had prior activity.

• Ignoring compliance notices can lead to administrative dissolution and reinstatement fees.

Key steps to avoid trouble:

• File required state reports and pay fees annually.

• File a federal return, even if it’s a “zero” return, to keep records in good standing. More info: Do I Need to File a Return?

• Check mail and email for state or IRS notices.

Letting an inactive LLC slide can be more costly than simply maintaining it properly. Treat it like any other legal entity—with care and attention.