The Biggest LLC Mistakes New Business Owners Make (And How To Avoid Them)
Starting your own business? Exciting! But before you dive into forming an LLC, there are a few things you should know.
Many new business owners think setting up an LLC is as simple as filling out some paperwork and calling it a day. But the truth is, making the wrong moves can cost you time, money, and even put your business at risk.
I’ve been helping entrepreneurs for 18+ years, and I’ve seen the same mistakes over and over. So, let’s talk about the biggest LLC mistakes new business owners make—and how you can avoid them!
Mistake #1: Choosing the Wrong Business Structure
Not every business needs an LLC. In fact, choosing the wrong structure can end up costing you more in taxes and paperwork headaches.
💡 The Fix:
Before you file, ask yourself:
Do I need legal protection for my personal assets? (If yes, an LLC makes sense.)
Will I have employees or business partners?
Should I consider S-Corp taxation to save on taxes? (This answer hugely depends on what your revenue will be like).
Understanding your options before you file can save you from making a costly decision!
Mistake #2: Skipping the EIN (Employer Identification Number)
Some people set up an LLC and never apply for an EIN. Instead, they use their Social Security Number (SSN) for business transactions. Bad idea!
An EIN is like a Social Security Number for your business. Without it, you might struggle to:
❌ Open a business bank account
❌ Keep your personal info safe
❌ File taxes properly
💡 The Fix:
Getting an EIN is completely free and takes just a few minutes on the IRS website. Don’t skip this step!
Mistake #3: Mixing Business & Personal Finances
This one is a big deal. If you use your personal bank account for business expenses, you could be putting your LLC protection at risk.
Why? Because if your business and personal money are all mixed together, a court could say your LLC isn’t really a separate legal entity. That means if you ever get sued, your personal assets (house, car, savings) could be on the line! 😳
💡 The Fix:
✅ Open a business bank account and use it for all business transactions.
✅ Get a business debit or credit card for expenses.
✅ Keep good records of business income and spending.
Mistake #4: Not Understanding LLC Taxes
Just because you set up an LLC doesn’t mean the IRS sees your business differently. If you’re a single-member LLC, you’re taxed like a sole proprietor. But there are other tax options that could save you money!
For example, did you know you can elect S-Corp taxation and potentially save thousands in self-employment taxes? Many LLC owners never hear about this option until it’s too late!
💡 The Fix:
👉 Know how LLC taxes work before tax season so you don’t end up with a surprise bill.
👉 Learn about S-Corp election and whether it could save you money.
👉 Track your business deductions so you don’t overpay on taxes!
Mistake #5: Ignoring State Compliance Rules
Every state has different rules for LLCs. Some require annual reports, some charge franchise taxes, and some even require specific business licenses.
Miss one of these requirements? You could lose your LLC status or get hit with penalties.
💡 The Fix:
Find out what your state requires after forming your LLC.
Set reminders for any annual filings so you don’t forget.
Check if you need business licenses based on your industry.
Mistake #6: Not Having an Operating Agreement
If you’re the only owner of your LLC, you might think, “I don’t need an operating agreement—it’s just me!” But skipping this can cause big problems later.
An operating agreement is a simple document that lays out:
✅ How the business is run
✅ What happens if you bring on a partner
✅ How money decisions are made
Some states require an operating agreement, and even if yours doesn’t, it’s still a smart move to have one in place!
💡 The Fix:
Spend 15-30 minutes creating an operating agreement for your LLC. It’ll save you headaches later!
Mistake #7: Overpaying for LLC Formation Services
A lot of new business owners think they need to use LegalZoom or some other expensive filing service to start an LLC.
But the truth is, LLC formation is easier than you think—if you have the right guidance.
💡 The Fix:
You can file an LLC yourself and save hundreds of dollars in unnecessary fees. That’s exactly what I teach in my LLC Success Blueprint course. [Click Here] to access.
Setting up an LLC shouldn’t be confusing, expensive, or stressful. But if you make the mistakes above, you could end up paying more in taxes, fines, or even losing your legal protection.
About the Author:
I’m Coach Ktasha (Tasha), a tax and business consultant dedicated to helping individuals and entrepreneurs navigate taxes, maximize deductions, and build strong financial foundations. My goal is to make tax season stress-free and provide you with the knowledge to make smart money moves all year long.
📌 Join My Free Newsletter | 📌 Book a Consultation | 📌 Follow Me on Instagram | 📌 Follow Me on TikTok