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The time has come for your side hustle to become a full-fledged Iowa LLC, so you can enjoy the protection and tax benefits associated with incorporation. Incorporating as an LLC, or limited liability company, can help in protecting your assets from business creditors and lawsuits so you can build your business without worrying about losing everything you own. You also get better tax treatment and are taken more seriously by lenders and regulatory bodies for things like loans and permits that help you grow your business and operate legally.
One of the attractive qualities of an Iowa LLC is the fact it’s not as formally structured as a C- or S-corp and is easier to maintain. You’re required to file a biennial report with the Iowa Secretary of State’s office to verify operating information and maintain good standing for the LLC, but aside from tax paperwork, there’s little in the way of state requirements for operating an LLC in the state.
The state of Iowa gives LLCs the benefits of flow-through taxation, limited liability protection, and flexible profit distribution. It also offers financial assistance to small and medium-sized businesses through a program known as the Economic Development Set Aside (ESDA) to encourage job creation in the state.
Forming an Iowa LLC is straightforward, and the state makes it easy for you to submit your certificate of organization online. In fact, the state encourages you to file online, and most forms have a simplified format. However, you still have to go through the following steps to properly form your LLC and ensure that the Iowa Secretary of State’s office accepts your certificate as valid.
Iowa has one requirement for naming an LLC, which is that the name has to contain a variation of the words or abbreviation of “limited liability company.” That means you can use “LLC”, “L.L.C.”, “Limited Liability Co.”, and variations thereof in your business name. No other words are expressly prohibited for use in the naming of an LLC, but it’s wisest to err on the side of caution and not use the names or initials of government agencies in the name of the LLC.
Once you’ve settled on a name for your business, check the state’s business entity database to ensure the name isn’t already in use. You can’t use the name of an existing business entity, which means you’ll have to change the name of your business if you wind up matching it with an existing name.
You can reserve your business name of choice and prevent someone else from taking it for up to 120 days if you’re not ready to form the LLC right away. Start by downloading the Application for Reservation of Name, and then fill it out accordingly. After completing the application, you can file it online through the FastTrack portal on the Secretary of State’s website or mail it with a check or money order for $10, and make it payable to the Secretary of State. The address for mailing the application is:
Secretary of State
Business Services Division
Lucas Building, 1st Floor
Des Moines, IA, 50319
You can file for a fictitious business name, also known as “doing business as” (DBA), if you don’t want to use your LLC’s legal name as stated on the certificate of organization. To use a DBA, you have to register the fictitious business name with the Secretary of State using the Fictitious Name Resolution form and pay a fee of $5.
Trademarking your company name requires filling out the Application for Registration of Mark. You can only file one trademark per application. The instructions are extensive, and you have to submit an example of the current use of the mark. The mark has to be clearly connected to your intended use for it to be accepted by the Secretary of State’s office.
You can mail the completed form to the above address for the Secretary of State, or scan it into your computer as a PDF, and then upload it through the FastTrack form on the website.
The state of Iowa does not provide a form for filing a certificate of organization for an LLC. You’ll have to write your own or have a lawyer draw one up for you. More information is provided below, underneath the requirements. Alternatively, you can make an account in the FastTrack system and navigate to the business filings page.
After you’ve created a FastTrack account, navigate to the “file a document” menu, and then select “Form an Iowa Limited Liability Company.” Once you’re on the page to form an LLC, you’ll enter all the relevant information, along with setting an expiration date for the company or selecting perpetual to prevent the state from dissolving the LLC.
Upload your completed certificate of organization in PDF format when prompted, and then click on review and pay. Look over the information you submitted, and make corrections with the “back to form” button. Once you’re finished, click “setup payment method,” enter your payment information, and then click to submit your filing.
When you file your LLC online during business hours, you’ll get same-day approval for your LLC. If you file after business hours, your LLC filing will begin a review on the next business day. In contrast, it takes up to four weeks for the state to process your certificate of organization when submitted by mail.
The fee to file a certificate of organization is $50. Other fees associated with operating an LLC in Iowa include:
Filing for an Iowa LLC is a very simple and straightforward process. Section 489.201 of the Iowa Code covers the formation of an Iowa LLC in detail. The information required for your certificate of organization is as follows:
Now that you’ve created your certificate of organization, you can file it online or via mail. Filing online involves using the FastTrack web form, scanning your certificate into a PDF, and then uploading and paying the $50 fee with a credit card. Alternatively, you can mail in the certificate of organization with a check for $50 that’s made out to the Secretary of State. You can also pay the fee by credit card by using the Credit Card Payment Authorization Form. Once you’ve completed all the paperwork, mail it to:
Secretary of State
Business Services Division
Lucas Building, 1st Floor
Des Moines, IA, 50319
The registered agent is someone who can accept mail and documents for service of process along with communication from the state during business hours. They also help keep your business in compliance with the biennial report requirement and any other annual reports or filings needed to keep the business in good standing.
You or a friend or family member can be a registered agent for your LLC, or you can hire Tailor Brands to be your registered agent. To qualify as a registered agent, you have to be available during normal business hours (9 a.m. to 5 p.m.) at the address you list. The listed address has to be located in Iowa, no matter which option you choose.
Something to consider when looking at yourself or a family member/friend to be your registered agent is privacy. The name and address of the registered agent are a matter of public record. Using our registered agent services allows you to maintain privacy by protecting your personal contact information and using our commercial address instead.
An operating agreement is a document that outlines member responsibilities and duties. It covers the handling of finances, establishes who’s responsible for making operating decisions, lays out rules, and codifies any other duties that need to be done as part of the LLC’s operation.
The operating agreement becomes binding once all members of the LLC sign their names. That is, if a member fails to perform their duties as outlined in the operating agreement or disagrees with other members at some point in the future, the operating agreement can be used to hold the member responsible. The operating agreement is a contract that’s enforceable in court if need be.
The state of Iowa does not require LLCs to create and maintain an operating agreement. However, it’s a good idea to have one, since it can be referred to in case there’s a disagreement among the members as to ownership and their responsibilities, prevents financial peccadilloes, and provides operating rules for all members to abide by. It also makes verbal agreements clear and concise, and avoids a “he said, she said” situation in the future.
If you’re not sure about what you need to put into an operating agreement, contact a lawyer for help with drawing one up. A lawyer can help you create an operating agreement that clearly outlines the responsibilities and duties of the members and apportion shares of ownership.
Iowa doesn’t impose the creation of an operating agreement for an LLC. In other words, you’re free to write the document in any way you see fit. However, you should include items such as:
Now that you’ve got your LLC formed, you’ll need to apply for an Employer Identification Number (EIN) with the IRS. An EIN enables you to file tax returns, remit payments for the taxes associated with your business, and create 1099s for contractors. It also aids in the opening of business bank accounts, getting business licenses, and filing tax returns through the mail. You can file for an EIN through the IRS website, or you can have Tailor Brands do it on your behalf.
To apply for an EIN, you have to be the responsible party for the business, as the IRS assigns you ownership of the EIN. And before you apply for your EIN, you need to have all the corporate information ready, as the IRS doesn’t allow you to save and resume later. The form times out after 15 minutes of inactivity and makes you start over again. It’s also not a good idea to submit the form without the relevant information, as the IRS will request the missing information from you, ultimately delaying the issue of your EIN.
Are you unsure about filing for your EIN on your own? Let Tailor Brands take care of getting your EIN for your LLC, so you have one less thing to worry about.
An Iowa LLC is treated as a pass-through entity for the purpose of taxation. What that means is that profits generated by the LLC are not taxed at the corporate level. Instead, they’re taxed at the personal level at a rate that’s typically lower than the corporate tax rate. The income of the LLC literally flows through to the members who each receive an amount that’s in accordance with their share of ownership. You can have your LLC classified as a corporation, but it will be subject to Iowa’s corporate income tax.
In the event you decide to keep your LLC a pass-through entity and not incorporate it into an S- or C-corp, you’ll pay personal income taxes on your share of the profits at the state and federal levels. Personal tax rates range from 0% to 10%, and the actual tax rate you pay depends on your adjusted gross income. In the event you decide to incorporate as an S- or C-corporation, you’ll pay Iowa’s corporate tax rate on the income. The corporate tax rate in Iowa is as follows—
The state of Iowa requires you to collect sales tax on the sale of physical goods, services, and certain digital products. To collect and remit these taxes to the state, you need to apply for a sales tax permit from the Department of Revenue (DOR). The DOR has multiple types of sales taxes, many of which require their own permit number. Fortunately, the DOR has a questionnaire that helps you determine which type of tax you need to collect along with which tax permit you need to apply for.
The IRS requires all members who receive money from an LLC to pay self-employment tax. The current tax rate for self-employment is 15.3%, but you may be able to pay a lower tax rate if you elect to treat your LLC as an S-corporation. Otherwise, you’ll have to pay self-employment tax as well as regular state and federal taxes on your income.
There are a few ways to structure an LLC to reduce tax liability, but you should discuss these options with a tax professional or business attorney to determine which one is best for your LLC.
Employers are required to collect payroll taxes from employees and remit them to the IRS and Iowa DOR. For federal taxes, you’ll withhold 7.65% of an employee’s taxable wages, while the employee is responsible for the other 7.65% to meet the federal tax rate of 15.3%. Iowa has a single-rate individual income tax of 3.9%, which affects an employee’s wages.
You may be required to pay local taxes on profits and for employees, but not all taxing bodies in the state of Iowa collect these taxes. Check with your local city hall or a tax professional to learn about any other state taxes your LLC is liable for.
Now that you’ve formed your Iowa LLC and have your tax permits in place, you can move forward with officially operating as a company instead of a sole proprietorship.
Operating as a sole proprietor allows you to use your own personal bank account for your money flow. That all changes with the creation of your LLC because you need to maintain separation of business from personal to maintain your limited liability status. Opening a business bank account prevents co-mingling of personal and business funds, allows other members to track income and outflows, and shows financial institutions that you are maintaining proper operating procedures as a company.
The state of Iowa requires you to file a biennial report to keep your LLC in good standing and in compliance with the state. You’ll file your first biennial report in the first odd-numbered year following the year you formed your LLC. The window for filing is between January 1st and April 1st of that year and then every odd-numbered year following.
For example, if your LLC was formed and approved in 2022, you’ll have to file your first biennial report between January 1st and April first of 2023 and then every two years after that.
The fees for filing your biennial report are as follows:
It takes 7–14 business days to process a biennial report that’s been mailed in. That’s in contrast to the immediate acceptance when filing through the FastTrack system. The state of Iowa charges less for filing online to encourage people to file online and reduce the effort needed to process a biennial report.
It’s important to keep track of finances for tax purposes, payment of employees, repaying loans, purchasing new equipment, and keeping accounts receivable and payable current. It’s a lot of work, but it’s necessary for the operation of your LLC. You’ll find yourself needing to make spending decisions with tax impacts in the form of depreciation and deductions, ensure profits are correctly distributed, and keep money in the accounts to pay state and federal taxes.
This is how consulting with a tax professional such as a lawyer or accountant becomes important. They can look at your money flows, advise you on making purchases for the business, and help you find deductions that lower your tax liability. Another benefit to consulting or retaining a tax professional is gaining access to someone who can help you make important financial decisions that may seem risky but ultimately help you and the operation of the business.
You may prefer to retain a tax professional to handle finances on behalf of the business, especially if you’re struggling to find time to do the work on your own. Handing over the financial work to a tax professional lets you spend more time on running the business and gain peace of mind that a qualified individual is taking care of taxes and accounting on your behalf.
Iowa doesn’t have a general business permit outside of the sales tax permit and its variations thereof. The state prefers to regulate each business and profession instead. However, if you’re involved in manufacturing a finished good that requires permits for machinery and materials, you should check with the state and local governments to find out what permits are needed. You may also need a federal permit to handle some types of materials.
Some businesses require a specific type of permit to operate legally within the state of Iowa. You can find out what permits you’ll need by going to your city hall or contacting the professional organization associated with the type of business you’re operating. Lawyers and accountants are also good resources for learning about permits you’ll need to operate legally in the state of Iowa.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.