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If my LLC has zero income each year, will my LLC be shutdown ?

Asked by: Lee - 13 June, 2012 Hi there,

Question 1: I hear that if a LLC reports net loss annually, then IRS will consider the LLC a hobby. After about couple years of loss, the LLC will have to be shutdown. Is that correct ?

Question 2: What if my LLC reports zero income (net income = $0) annually. Will my LLC have to be shutdown after a few year as well ?

Question 3: What if my LLC reports a small amount of income, like $15 per year. Will that look suspicious and they will shutdown LLC as well ?

Answered by: Ray Albert - 14 June, 2012 Lee,

It's my understanding than an LLC would remain active until the entity either filed for dissolution, or failed to comply with the state requirements of paying the annual report or franchise taxes, if the state of your business registration requires you to do so.

I haven't heard of cases when IRS would shut down a business - what they can do is audit it if they think the activity of the business is suspicious. Many businesses loose money for years (such as many internet startups), yet they don't raise suspicions of the IRS. If a business exists solely to loose money and permit its owner to take deductions in order to reduce his or her income from other sources this could raise suspicious and get the owners audited.

I don't think a business that has zero or small income would trigger anything from the IRS as long as all it is compliant with all filing requirements. In any case, since its a tax related question I would recommend you to consult an accountant. 


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