LLC Costs Breakdown: Start-Up Fees and Annual Expenses

The cost of forming a limited liability company (LLC) is a foundational step in getting your business up and running. Consider it less of a single price tag and more as an investment in your long-term success.

So, how much does it cost to start an LLC?

Understanding the actual costs involved from initial formation to ongoing annual expenses helps entrepreneurs:

• Build an effective budget

• Avoid financial pitfalls and surprises 

• Plan strategically for long-term growth and tax efficiency

In this guide, we'll cover the full spectrum of LLC costs, from mandatory state filing fees and recurring state compliance expenses to strategic considerations for maximizing tax efficiency.

Key LLC Cost Highlights

• LLC formation fees vary significantly by state, from as low as $35 to as high as $500.

• Annual compliance and ongoing fees, including franchise taxes and reports, differ considerably and can impact your budget.

• Strategic tax planning from the outset, including S corp elections, can lead to substantial long-term savings.

The right financial partner isn't a mere paper pusher. Professional guidance and services, such as those offered by the experts at 1-800Accountant, provide comprehensive support to ensure compliance, mitigate risk, and optimize financial efficiency for your LLC.

The Upfront Cost of Forming an LLC

Mandatory State Filing Fees

Every state requires a filing fee to legally establish an LLC, with costs ranging from as little as $35 in Montana to $500 in Massachusetts. These fees are unavoidable, regardless of how you choose to file your LLC paperwork.

For example, forming an LLC in popular entrepreneurial states like California requires an initial fee of just $70, while Texas and Tennessee each require a $300 fee.

Critical and Optional Add-On Services

Beyond the mandatory LLC filing fees, several essential services often add to your upfront expenses:

• Registered Agent Services: Most states require an LLC to appoint a registered agent to handle legal paperwork. Fees typically range between $100 - $300 per year.

• Employer Identification Number (EIN): Although free to obtain from the Internal Revenue Service (IRS), professional services often charge a nominal fee to handle this paperwork on your behalf.

• Operating Agreement Drafting: A vital document for LLC governance, an operating agreement typically incurs professional drafting costs; however, DIY templates are also available.

Whether you’re forming as a sole proprietorship, single-member LLC, or another entity type, expert guidance is incredibly valuable during setup. They will help identify which services are critical for liability protection and compliance versus those that may be unnecessary for a simple structure.

DIY Filing vs. Online Filers vs. Professional Firms' Services

There are three common paths that small business owners and entrepreneurs can take to file for their new LLC business structure, including: 

• DIY Filing: Cheapest upfront but carries risks of filing errors, which may lead to additional fees or compliance issues.

• Online LLC Formation Services: Typically affordable but often include additional costs, upsells, and limited guidance. Upsells may include LLC operating agreements, file Articles of Organization, and the preparation of other legal documents.

• Professional CPA Firms: These firms offer personalized, strategic advice on tax efficiency and long-term business structuring, typically at a higher initial cost but potentially greater long-term value to new business owners.

At 1-800Accountant, for instance, our formation experts will guide you through selecting the optimal entity structure, including weighing considerations about LLC and S corporation elections, LLC name reservation, and renewal fees, which can enable significant long-term income tax savings.

LLC Cost by State (2025)

Budgeting for the Hidden and Ongoing Costs of an LLC

Annual Reports and State Compliance Fees

Most states require LLCs to file annual or biennial reports to maintain compliance. These reports, which may be filed with your Secretary of State, are designed to create transparency and confirm that business information is accurate. There is a cost to file, ranging from minimal fees to several hundred dollars, such as Florida’s $138.75 state LLC annual report fee.

Non-compliance can lead to administrative dissolution and loss of liability protections, among other penalties. 

Franchise Tax

Certain states impose franchise taxes, regardless of your business income level. A franchise tax is essentially a fee that businesses must pay for the continued privilege of operating in a particular state. For example, California levies an $800 minimum annual franchise tax, making proactive tax planning and budgeting essential for businesses in the state.

1-800Accountant's comprehensive tax advisory service ensures year-round support to help you manage complex, state-specific obligations seamlessly.

Penalties, Fines, and Loss of Liability Protection

Missed deadlines and non-compliance can result in costly penalties or the loss of limited liability status for your business, potentially exposing personal assets to business debts.

Professional compliance services act as essential safeguards, protecting your financial and legal standing. While there is a fee associated with these services, think of it less as a cost and more as an investment in the long-term financial health of your business. 

Strategic Financial Planning: Maximizing Your LLC’s Tax Efficiency

How Your Initial Business Setup Impacts Long-term Taxes

An LLC offers flexibility in its tax elections. For example, LLC owners can elect to be taxed as an S corporation. Strategically timing this election can significantly reduce self-employment taxes, a saving that compounds annually, among other tax benefits.

Expert entity selection guidance ensures optimal timing and substantial long-term tax savings for your business operations. 

Integrating Year-Round Tax Strategy from Formation

It's better to be proactive than reactive in both business and tax matters.

Proactive tax management, including quarterly estimated tax calculations and filings, as well as franchise tax planning, prevents cash flow issues and limits unwelcome year-end surprises. An ongoing relationship with dedicated CPAs, EAs, or tax professionals is invaluable for maintaining compliance and financial health throughout your business's lifecycle.

A Practical Framework for Evaluating LLC Cost and Formation Services

It's essential to embrace the criteria to make an informed decision that aligns with your long-term business goals. 

Key questions to ask any LLC formation provider

You'll want to ask questions as you speak with the formation provider prospects you're evaluating. While it is helpful to craft questions based on your specific business needs during each evaluation, consider the following: 

• Will a qualified CPA advise me on my entity's tax structure?

• Do you provide support for ongoing state compliance and annual reports?

• Is year-round tax advisory included, or is this a one-time transaction?

These questions will help you determine the best LLC formation provider for your specific needs. 

The total cost of ownership (TCO) of an LLC

As a small business owner or entrepreneur, it's important to focus less on the initial formation fee and consider the five-year costs, including:

• Annual compliance

• Registered agent fees

• Tax preparation and filing 

While there is a slightly higher initial investment associated with an integrated service package, it often leads to significant long-term savings and risk reduction. While you may be able to get by doing it yourself or via basic services, they are usually insufficient for many business scenarios, including: 

• Businesses with multiple partners

• Multi-state operations

• Ambitious growth plans

For serious owners and entrepreneurs, establishing a professional financial foundation is not an expense but a critical investment in future success.

LLC Cost FAQs

Can I file an LLC for free?

There are state fees you'll be obligated to pay when forming your business as an LLC. There are additional fees to consider early on, such as getting certified copies of your Certificate of Formation and filing for a Doing Business As (DBA) business name, if your LLC will operate under a different legal name. Filing on your own is one of the cheapest ways to make your LLC official, but potential penalties associated with filing errors may erase those savings. When you trust 1-800Accountant to form your business, our services start at $0 + state fees.

Can I be my own registered agent?

Most states will allow you to act as your own registered agent as long as you meet eligibility requirements, including being 18 years of age or older, having a physical address in the state, and having a presence at that address during business hours. Some business owners and entrepreneurs decline to act as their own registered agent due to the increased responsibilities, availability requirements, and compliance risks associated with this role.

Which states are the cheapest to register an LLC in?

Montana is currently the cheapest state to register an LLC, at $35, while registration in Massachusetts costs $500. Other states with less expensive LLC registration fees include Michigan, Kentucky, and Hawaii.

Do those states have additional fees or costs for out-of-state business?

Some states will charge you additional fees to register your out-of-state business as an LLC, which is typically known as a foreign qualification. The state in which you are headquartered is known as your domestic state, while other states you register in will view your business as a foreign LLC.

How long does it take to get an LLC approved?

It may take several days or weeks for your LLC to be approved by your state. Filing by mail will take the longest, while filing online is typically the fastest. Expedited options, which usually incur an additional fee, can reduce the approval time to a couple of days. Expedited options are preferable to businesses that adhere to more aggressive deadlines. 

From Formation Costs to Financial Foundation with 1-800Accountant

Understanding and strategically managing LLC costs is integral to the sustained success and growth of your business. Beyond initial registration fees, a comprehensive financial strategy that encompasses compliance, bookkeeping, and tax planning positions your LLC for long-term profitability and stability.

With 1-800Accountant, America's leading virtual accounting firm, entrepreneurs receive comprehensive accounting support from entity formation through ongoing year-round financial management, ensuring a robust financial foundation that supports sustained growth.

Ready to streamline your LLC formation and financial planning? Schedule a free 30-minute call today.