What the Heck is Cost of Goods Sold?

What the Heck is Cost of Goods Sold?

by | Jan 4, 2025 | Blog

I swear that the Cost of Goods Sold (COGS) is not as hard as you would imagine.  It’s frustrating because you’re trying to figure out where to put your expenses, is it Overhead, is it COGS, what the heck? I know you’ve been trying to search through google and the articles are confusing.

And they make you do MATH.

Ok, you may have to do a little math, but I promise it won’t be as bad as you think.  And with a spreadsheet, it will be super simple.

But before we delve into the math let’s figure out what exactly it means.

What is Cost of Goods Sold (COGS)

I think Investopedia was put on this earth just for me.  They always have simple, easy explanations for even the most complicated topics.  If you’ve never heard of them, you should go, and bookmark the site right now.

Let’s take the definition and break it down.

Cost of goods sold (COGS) refers to the direct costs attributable to the production of the goods sold in a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses, such as distribution costs and sales force costs.

The Accounting Formula for COGS goes something like this….

COGS = Beginning Inventory + Purchases during the period – Ending Inventory

So, what does that gobbly gook mean for you?  To make it make sense to you need to know what type of business you have. Are you a retailer with a brick-and-mortar store, a wholesaler that sells to retailers, or do you have a service-based business?

Since most of COGS has to do with inventory, we’re going to start with an example of a company that produces coffee tables.

Let’s say you are a wholesale producer of a coffee table.  You buy raw materials like lumber and nails. and build a coffee table and sell it to a retailer.  Your cost of goods would look a little like this…..

At the beginning of the Month, this is the raw materials you have on hand and what you bought it for.

Beginning Inventory

4 Pieces of Cedar Wood for $100.00

1 Box 50 of Nails $10.00

During the month you bought this.

1 Box of Nails for $10.00

5 Pieces of Cedarwood

Let’s plug in the numbers

May Beginning Inventory
Inventory Name
Qty
Unit Price
Inventory Value
Cedar 4 $25 $100
Nails 50 $.20 $10
Total Inventory $110

 

End of Month Inventory
Inventory Name
Qty
Unit Price
Inventory Value
Nails 75 $.20 $15
Cedar 2 $25 $50
  Total Inventory $75

Your COGS for all your products is $95.00.

Now let’s say you want to know how much inventory you used for each coffee table.  (Not an exact science unless you are keeping track.  Just the number of coffee tables you sold by the COGS for May

For example

You sold 5 coffee tables

$75.00/5 = $15

For every coffee table, your cost of goods sold is $19.00.  Enter that into the profit tracker and you’ll easily be able to see how your costs are keeping up.

This example is just for raw materials and doesn’t consider freight or labor costs.  Now if you want to add the freight cost you can do it by either a single line item or you can add it to the price per unit.

What do I mean by freight you ask….

I’m talking about what the supplier charges you to ship the raw materials to you.  Generally, this is a line item on the bill.  For a longer explanation check out this article on Freight charges.

Make sure that when you enter the line item in your expenses as it is a COGS. Category.

Now that we understand what COGS is when producing a product what other charges besides raw inventory and freight should be considered?

What You Need to Know About Labor and COGS

There are some labor costs that may be tied directly to the production of your product.  Let’s say that again with an example.

Let’s say your company not only builds coffee tables but you have a factory and in that factory there are employees.  Inside your factory you have

1 Office Manager

2 Factory Workers

The factory workers actually build the product so their wages are considered COGS as well.  However, the Office Manager is considered an overhead expense (hey s/he might be awesome but for accounting purposes, they are overhead).

Let’s take a second example of a service-based business.  Heck let’s use my accounting business (just for fun).

We employ

1 Administrative Assistant

1 Bookkeeper

The bookkeeper only works on my clients’ business so s/he wages would be considered COGS. But the Administrative Assistant is considered overhead.

Now if I wanted to I could break this down even further and if we keep track of the Bookkeeper’s hours we can use the portion of the time that is spent on clients’ work as COGS and the remainder would be under overhead expenses.  This way only the time worked would be distributed to COGS and other times like education and training would be considered overhead.

Still unclear?  No worries if you want more information on Direct Labor check out our Block post Do You Know What Your Direct Labor is Costing You?

Other COGS Not Normally Counted

Let’s talk shipping.  If you own an e-commerce store and ship products to your customer, then you may be able to track the cost to ship to your COGS.  Let’s use our coffee table example to go a bit further.

Our company sells coffee tables in a Shopify store.  We decided that we would make shipping free to our customers.  So whatever the shipping costs to our customer we can add this to our COGS.  I would normally just add a line item on my expenses for each sale and then Average them for the month and divide them by the number of sales.  That way you can forecast approximately how much shipping will be for every unit sold.

Shipping = Total Shipping Costs/Total Sales

Now if we charge the shipping costs to the customer this would be basically a 0 line item or what we in accounting like to call a Pass-Through account which means we keep track but the line item should always be 0.

Now if we charge shipping costs to the client above the actual costs to ship the product (also known as a Markup) That actually becomes a product in itself and you’ll want to keep track of it.

What to do When Your Supplier Raises Your Prices

Oh no your supplier raised their prices now how do you figure your cost?  The above example when we were talking about raw materials is considered the AVERAGE Cost but we have a couple of others.

Let’s use our above example

Before the supplier raised their prices the cost of Cedar Lumber was $25.00

After the supplier raised their price the cost of Cedar was now $50.00 we bought 4 more.

Before raised their price  4 X25 = $100.00

After the supplier raised their prices the 4 X 50 = 200.00

Andrea's Tip

When you’re selecting a cost method, you’ll need to make your choice based on guidelines provided by the IRS.

Average Cost Method

The average cost is the most straightforward.  You’d look at all the inventory purchased and figure out the average cost for the wood.  Total up your inventory and divide by the number of units and you have the average cost.

300/8 = $37.50 unit price for Cedar

First In, First Out (FIFO)

FIFO assumes that the coffee table that you built uses the first order of lumber before it will use the second.  Under this rule, you use the last price that the supplier charged you which means your per-unit cost would be $50.00.

FIFO is used during times of rising prices because costs are recorded as lower and income is then recorded as higher.

Last In, First Out (LIFO)

With LIFO we assume that the first pieces of lumber you use are the last pieces of lumber that you purchase.  Since you used up that you used 2 units at $50.00 each and the next 2 units would be at $25.00.

LIFO is used mainly during times when tax rates are high because costs assigned will be higher and income will be lower (which gives you a bigger break on your taxes.).

Notes:  It can be difficult to select a cost method, and there are certain guidelines that the IRS provides that you used 2 units at $50.00 each and the next 2 units would be at $25.00.

Andrea's Tip

In the US if you want to change to LIFO you’ll need to fill out IRS Form 970.

FAQs on COGS

How do I determine if a cost should be included in cost of goods sold?

Ask yourself if the cost would exist if the company didn’t sell anything for a period of 3 months?  If the answer is Yes it’s most likely overhead.  If the Answer is NO then you have found your first COGS.

 

Should Service Based business use COGS?

Generally speaking service based business do not need to track COGS.  Though as with everything financial there are exceptions.  If your company keeps inventory for use to replace parts like plumbing company, or roofing company then using COGS will help your business.  But if your a lawyer’s office that uses office supplies in the course of doing work you may just want to place this under office expenses.

Can’t I just keep track of it as an Expense instead of Cost of goods sold?

Keeping track of your COGS is important for tax purposes and managing your financies. 

 1.  Most states will tax inventory that is left over at the end of the year.

2.  It’s a reduction in your taxable income vs. a deduction of expenses can help reduce your tax burden in some cases.

3. Helps in determining the following items.

      • Calculating Gross Profit
      • Calculating gross margin
      • Understanding production efficiency
      • Pricing your product so you make a profit.

Andrea's Tip

Don’t underestimate the importantce of tracking your expenses properly with a solid accounting.  It’s the easiest way to ensure that your business stays healthy and profitable.

Putting it All Together

We’ve covered a ton of information.  From defining what Cost of Goods Sold is to writing up examples of how it can be used for your business.  I hope that you’ve found the information useful.  I know that calculating COGS can be difficult but keeping track of your costs is one of the most important things a small business owner can do.  Just keep in mind that most accounting software will keep track of your COGS for you and of course, we can calculate that for you if you need some help.

As Always if you have questions or need a consultation you can always talk to us.

Cheers!

Andrea

The Art and Science of Pricing Your Product

The Art and Science of Pricing Your Product

by | Jan 2, 2025 | Blog

Ok, maybe it’s both.

No matter what you sell, the price you charge your customer or clients will have a direct effect on the success of your business.

The moment you make a mistake in pricing, you’re eating into your reputation or your profits.

Katharine Paine

The 4 Rules of Product Pricing

First, let’s talk about the  4 rules of product pricing.  (by the way, if I say product just assume from now on I’m talking about services 2.)

  • Pricing Rule 1: All Prices must cover the cost of producing the product or service, profits, and taxes.
  • Pricing Rule 2: You should review your prices and costs frequently
  • Pricing Rule 3: The most effective way to lower prices is to lower costs.
  • Pricing Rule 4: Review your competitors’ pricing frequently.

Before we start discussing how to figure out pricing we should look at the different types of Pricing Models.  That way we can easily figure out which one may work better for you.

 

4 Pricing Models That Will Help you Price Your Products

Understanding the different pricing models will help you figure out which ones will work for you and your business.

Cost Plus Pricing

The cost-plus pricing model is generally used by manufacturing.  Because they are producing physical products and selling them more at a wholesale cost.  With the cost-plus model, you want to make sure you capture the plus figure so that it covers ALL the overhead and can still generate a profit for you.  I love examples so check out the table below.

Cost of Material 50.00
Add the Cost of Labor 15.00
Add Your Overhead/Expenses 20.00
  Total Cost to Produce 85.00
Now Add Your (5%) Profit  (or whatever % you want to set aside) 4.25
Add In Your Pay (50%) This is what you will live on) 42.50
   The Minimum Price for this Product $131.75

Demand Pricing

Demand pricing is pricing that is a combination of volume and profit.  Generally, this means that the product is sold through various sources at different prices.  For example at a Walmart store or online through a discount retailer.  Your local brick-and-mortar store will probably pay more per product because they are unable to stock, and sell a large quantity of the product.  Which is why retailers charge high prices to customers.  Just remember that demand pricing can be very difficult to master and may not be the best place to start until you have a great understanding of your current market.

Markup Pricing

Markup pricing is used by wholesalers, and retailers to price the goods for retail suppliers to customers.  Markup is calculated by adding a set amount to the cost of a product.  For example, you buy a product for $100 and then add $40.00 to the price to sell it.  To find the percentage divide the cost by the amount you want to add on to the product.

$40/100=40%

This can be very confusing, for many small business owners because the markup is often confused with the gross margin.  But really all it really means is that you are adding the overhead expenses, profit, and your pay to how much you actually paid for the product from a wholesaler.  Don’t worry we’ll go over the Pricing Basics next so you can see how this will work for you.

 

Now on to the rules…..

Rule 1:  Products Must Cover Cost, Overhead and Profits

Now that you know the rules surrounding product pricing you need to figure out the costs involved in running your business.   If the price of your product doesn’t cover costs, you will eventually run out of money and you’ll exhaust your savings…. eventually, your business will die out.

Quit worrying that’s why you are here, isn’t it ……?

To price products, you’ll need to get familiar with pricing structures, especially the difference between margin and markup.  Remember every product must be priced to cover creation and business operation costs.  Things like a high overhead, insurance, inventory and sales, and discounts will affect the final price.  This brings us to Step 1.

Figure out your business costs and expenses

Do you have…

  • Property
  • Equipment
  • Loans
  • Inventory
  • Utilities
  • Employees (Wages, Salary, or Commissions

If you’re a business that also has material products you’ll want to add the following to your list.

  • Markdowns
  • Discounts
  • Returns

This is by no means an exhaustive list of potential expenses but it’s a great place to start.

Types of Expenses

Fixed Expenses.  No matter the volume of sales, fixed expenses must be met every month.  Fixed expenses include expenses like rent, utilities, membership, subscriptions, insurance, etc.

Variable expenses.  These are expenses that can fluctuate in price from month to month.  For example Marketing.  Marketing may change depending on the season, supplier inventory, and office supplies.

Cost of Goods Sold.  Every time I see a description of the cost of goods sold it can get very confusing.  I’m going to put a brief description here but I want you to review our article on Figuring out your Cost of goods in this article.  This will be more helpful and hopefully, explain it in a more clear and more concise manner. But for now…..

Cost of goods sold, also known as the cost of sales, refers to your cost to purchase products for resale or to your cost to manufacture products. Freight and delivery charges are customarily included in this figure. Accountants segregate the cost of goods on an operating statement because it provides a measure of gross-profit margin when compared with sales, an important yardstick for measuring the business’ profitability. Expressed as a percentage of total sales, the cost of goods varies from one type of business to another.

Normally, the cost of goods sold bears a close relationship to sales. It will fluctuate, however, if increases in the prices paid for merchandise cannot be offset by increases in sales prices, or if special bargain purchases increase profit margins. These situations seldom make a large percentage change in the relationship between the cost of goods sold and sales, making the cost of goods sold a semi-variable expense.

Rule 2:  Figure in Your Profit including Your Pay

Yes, you heard me right for every product or service you sell you need to figure out how much you want to pay yourself and place that as a part of the expenses.  If you never get paid, what for Pete’s sake is the point of doing any business at all?

Again, you heard me right for every product or service you sell you need to figure in your profit.  If you don’t know what your profit should follow the table below.

Andrea's Tip

If you are not making any money or just opened your doors follow the lowest profit in the table at 5%. You can always raise your prices once you’ve established your sales goals.

Competitive Pricing

Competitive pricing is usually set when there is already an established market price for a product or service.  For example, if all your competitors are charging $100.00 to, let’s say, clean your air conditioner, it may be difficult to charge $200.00.  If this is the case you may need to look at lowering your costs in order to make a greater profit.  If you still think that you can charge a higher price then you should look at the value that you are providing if you could add a warranty policy or awesome customer service.

If you use competitive pricing to set the fees for a service business, be aware that, unlike a situation in which several companies are selling essentially the same products, services vary widely from one firm to another. As a result, you can charge a higher fee for superior service and still be considered competitive within your market.

Rule 3:  The Most Effective Way to Lower Prices is to Lower Cost

Let’s say you make high-end desks for home offices.  Your competitors seem to be lowering the price of their products.  You want to review the costs associated with building your desks.  You’ve been religiously using the profit tracker or some other system that keeps track of your expenses and you realize that you are spending double what you used to on lumber.  Maybe you need to change your supplier?  Maybe you need to use a different type of wood.

Just for simplicity’s sake you go back to your supplier and say hey man we need to discuss and maybe renegotiate the price I’m paying for lumber.  The supplier says sure we can do that.

And with that one sentence, you can lower your prices because now your lumber is lower than it used to be.

Andrea's Tip

It’s a good idea to review your supplier contracts each quarter to see if there is room to negotiate.

Pricing takes time and a lot of research.  Most business owners use the “Set it and Forget” and then pray for the best.  But if you don’t review the numbers then most likely you will risk your profits and not know if there is a way to reduce costs or increase prices.

When should you review your prices?

  1. Each Month
  2. Each Quarter
  3. Annually
  4. You Introduce a New Product
  5. Your costs change
  6. Your competitors change their pricing
  7. Business seems to be slowing or Business is increasing (yeah great problem to have)

Putting it All Together

Whew, there you have it, how to price your products and services so you have plenty of cash in your business.  Make sure you follow the rules.

As Always if you have questions or need a consultation you can always talk to us.

 

Cheers!

Andrea

How to Set Up an LLC in Wyoming

How to Set Up an LLC in Wyoming

by | Jan 6, 2023 | LLC Center

We’ve put together a free step-by-step guide on how to set up an LLC in Wyoming. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has instructions and links to the sites for you to fill out the forms in the correct order. So, let’s set up your Wyoming LLC right now! 

A few points to remember before setting up your LLC in Wyoming 

When you set up an LLC in Wyoming, you’ll need a few things before you get started. This section will help you get your checklist in order.

A Unique Business Name 

Every business in the state must be unique. You’ll need to search for a Wyoming LLC name. Go to Business Center: Search to make sure yours is not taken. 

An LLC Designator 

You must have an LLC designator in your name in one of the following formats. 

  • LLC (most common) 
  • L.L.C. 
  • LC or L.C. 
  • Ltd. Or LTD  
  • Limited Company 
  • Liability Company 
  • Ltd. Liability Co. 
  • Limited Liability Co. 
  • Limited Liability Company 

Now that you have your unique business name, it’s time to register it with the state of Wyoming. Let’s get down to business. 

A Registered Agent 

In most states, a registered agent is a person or a company that accepts “Service of Process” for your Wyoming LLC. A registered agent will receive any subpoenas, notices, and other legal, and tax documents sent to your business by the Wyoming Department of Revenue. 

If you’re opening a business in Wyoming but you aren’t a resident, you’ll need to get a registered agent in that state.  The requirements for a registered agent are as follows: 

An Individual: 

  • Must be 18 and be a resident of the state 
  • Must be authorized to do business in the state. 
  • Must have a physical street address located in Wyoming 

A Company 

  • Must be authorized to do business in the state 

If you meet the above criteria, you can be your own registered agent. Or you can set up a friend or family member to be your registered agent. 

You can also hire a commercial Registered Agent. A company that provides their name and address to receive legal documents from the state. 

Hot Tip

The nice part of using a company is that their address is used instead of yours. As the business address will be public knowledge. By using a registered agent, you can protect and secure your own address. 

Step 1: Register Your Business Name 

To set up an LLC in Wyoming you need to reserve your business name.  This way during the process no one can steal the name of your company. 

You’ll need to reserve your name by mail. You can print out the Application for Reservation of Name and send it to the Secretary of State’s Office. 

Your name reservation will be for up to 120 days and the filing fee is $50. 

Step 2: File Your Articles of Organization in Wyoming 

Setting up an LLC in Wyoming is easy, especially for single-member LLCs. Just go directly to the Business Center: Online Services.  

You can just directly file the Articles of Organization even without a reservation.  Easy peasy. 

If you don’t want to file online, you can download and fill out the Articles of Organization form and send it to the Secretary of State’s Office.  

Fees: In Wyoming, the cost of setting up your LLC and filing the Articles of Organization is $100 for mail filing and $102 for online filing. Online filing will get immediate approval while mail filing takes 3-5 business days. 

Step 3: Complete Your Wyoming LLC Operating Agreement 

 

An operating agreement is a key document used by LLCs and partnerships. It outlines the business’ financial and functional decisions including rules, regulations, and provisions. This describes how your LLC will operate internally. For more information on operating agreements, you can check out the Small Business Administration’s article on basic operating agreements. 

Hot Tip

You are not required to file an Operating Agreement with your state. But it may be vital to have it, especially if there are multiple members of your LLC.

Step 4: Get Your Federal Tax ID Number (EIN) 

Once your Wyoming LLC has been approved it’s time to get your Federal Tax ID Number from the IRS.   

Your EIN is the social security number of your business.  Keep it well protected.  You’ll use this number to open bank accounts, file tax documents, apply for loans, and many other uses.  It also protects your social security number when doing business with other businesses like merchant accounts, 1099s received, etc. 

To apply for your EIN you can go to IRS EIN/Tax ID Application.  Make sure you pick the correct Business Entity Type.   

Quick Note

You can only file online if you have a Social Security Number (SSN) or Taxpayer ID (ITIN).  Otherwise, you’ll have to mail in the forms and wait for the response. If you don’t have an SSN, on Form SS-4, where it asks for your SSN, ITIN, or EIN (line 7b), write “Foreign”. Your EIN application will then be approved without the need for having an SSN.

Step 5: File Your Wyoming LLC Annual Report 

Your Wyoming LLC is required to file an annual report to keep your business compliant and in good standing.  

To file your LLC annual report, go directly to Business Center: Annual Report. The filing fees and due date can also be found on the same site. 

The state does not charge penalties but will dissolve your LLC if you fail to file the annual report within 60 days of your due date. 

Taxes, Permits, and Licensing in Wyoming 

To do business in Wyoming you will need to file tax returns, and hold permits and licenses in your county or city. 

Wyoming LLC must apply for the necessary business licenses and or permits.  This depends a lot on the type of business and the location of your business. 

Aside from business licenses and permits, all LLCs must also pay appropriate taxes and meet obligations with the Wyoming Department of Revenue. 

Never miss a deadline

Not sure which forms to file with the IRS and your State after you set up your new business? 

Sign Up to Simply Tax Compliant.  File the right forms and the right time to avoid penalties and interest.

Sign Up Now

Putting it All Together

Now that you can set up an LLC in Wyoming online it shouldn’t take more than an hour or two to get up and running. The Wyoming Secretary of State’s website is very easy to navigate and following the five steps above will help you get your talents and ideas to market faster. 

 

How to Set Up an LLC in Wyoming

How to Set Up an LLC in Wyoming

by |

We’ve put together a free step-by-step guide on how to set up an LLC in Wyoming. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has...

How to Set Up an LLC in Wisconsin

How to Set Up an LLC in Wisconsin

by |

We’ve put together a free step-by-step guide on how to set up an LLC in Wisconsin. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has...

How to Set Up an LLC in West Virginia

How to Set Up an LLC in West Virginia

by |

We’ve put together a free step-by-step guide on how to set up an LLC in West Virginia. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step...

How to Set Up an LLC in Wisconsin

How to Set Up an LLC in Wisconsin

by | Jan 6, 2023 | LLC Center

We’ve put together a free step-by-step guide on how to set up an LLC in Wisconsin. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has instructions and links to the sites for you to fill out the forms in the correct order. So, let’s set up your Wisconsin LLC right now! 

A few points to remember before setting up your LLC in Wisconsin 

When you set up an LLC in Wisconsin, you’ll need a few things before you get started. This section will help you get your checklist in order.

A Unique Business Name 

Every business in the state must be unique. You’ll need to search for a Wisconsin LLC name. Go to Search Corporate Records to make sure yours is not taken. 

An LLC Designator 

You must have an LLC designator in your name in one of the following formats. 

  • LLC (most common) 
  • L.L.C. 
  • Limited Liability Co. 
  • Limited Liability Company 

Now that you have your unique business name, it’s time to register it with the state of Wisconsin. Let’s get down to business. 

A Registered Agent 

In most states, a registered agent is a person or a company that accepts “Service of Process” for your Wisconsin LLC. A registered agent will receive any subpoenas, notices, and other legal, and tax documents sent to your business by the Wisconsin Department of Revenue. 

If you’re opening a business in Wisconsin but you aren’t a resident, you’ll need to get a registered agent in that state.  The requirements for a registered agent are as follows: 

An Individual: 

  • Must be 18 and be a resident of the state 
  • Must be authorized to do business in the state. 
  • Must have a physical street address located in Wisconsin 

A Company 

  • Must be authorized to do business in the state 

If you meet the above criteria, you can be your own registered agent. Or you can set up a friend or family member to be your registered agent. 

You can also hire a commercial Registered Agent. A company that provides their name and address to receive legal documents from the state. 

Hot Tip

The nice part of using a company is that their address is used instead of yours. As the business address will be public knowledge. By using a registered agent, you can protect and secure your own address. 

Step 1: Register Your Business Name 

To set up an LLC in Wisconsin you need to reserve your business name.  This way during the process no one can steal the name of your company. 

You’ll need to reserve your name by mail. You can print out the Name Reservation Application and send it to the Secretary of State’s Office. 

Your name reservation will be for up to 120 days and the filing fee is $15. 

Step 2: File Your Articles of Organization in Wisconsin 

Setting up an LLC in Wisconsin is easy, especially for single-member LLCs. Just go to the Wisconsin Department of Financial Institutions. 

You can just directly file the Articles of Organization even without a reservation.  Easy peasy. 

If you don’t want to file online, you can download and fill out the Articles of Organization form and send it to the Secretary of State’s Office.  

Fees: In Wisconsin, the cost of setting up your LLC and filing the Articles of Organization is $130 for online filing and $170 for mail filing. 

Step 3: Complete Your Wisconsin LLC Operating Agreement 

 

An operating agreement is a key document used by LLCs and partnerships. It outlines the business’ financial and functional decisions including rules, regulations, and provisions. This describes how your LLC will operate internally. For more information on operating agreements, you can check out the Small Business Administration’s article on basic operating agreements. 

Hot Tip

You are not required to file an Operating Agreement with your state. But it may be vital to have it, especially if there are multiple members of your LLC.

Step 4: Get Your Federal Tax ID Number (EIN) 

Once your Wisconsin LLC has been approved it’s time to get your Federal Tax ID Number from the IRS.   

Your EIN is the social security number of your business.  Keep it well protected.  You’ll use this number to open bank accounts, file tax documents, apply for loans, and many other uses.  It also protects your social security number when doing business with other businesses like merchant accounts, 1099s received, etc. 

To apply for your EIN you can go to IRS EIN/Tax ID Application.  Make sure you pick the correct Business Entity Type.   

Quick Note

You can only file online if you have a Social Security Number (SSN) or Taxpayer ID (ITIN).  Otherwise, you’ll have to mail in the forms and wait for the response. If you don’t have an SSN, on Form SS-4, where it asks for your SSN, ITIN, or EIN (line 7b), write “Foreign”. Your EIN application will then be approved without the need for having an SSN.

Step 5: File Your Wisconsin LLC Annual Report 

Your Wisconsin LLC is required to file an annual report to keep your business compliant and in good standing. 

The annual report can be filed online at the Wisconsin Department of Financial Institutions. 

Fees: The filing fee is $25 for domestic LLCs and $80 for foreign LLCs. The report is due at the end of the calendar quarter of the LLC’s anniversary month. 

Taxes, Permits, and Licensing in Wisconsin

To do business in Wisconsin you will need to file tax returns, and hold permits and licenses in your county or city. 

Wisconsin LLC must apply for the necessary business licenses and or permits.  This depends a lot on the type of business and the location of your business. 

Aside from business licenses and permits, all LLCs must also pay appropriate taxes and meet obligations with the Wisconsin Department of Revenue. 

Never miss a deadline

Not sure which forms to file with the IRS and your State after you set up your new business? 

Sign Up to Simply Tax Compliant.  File the right forms and the right time to avoid penalties and interest.

Sign Up Now

Putting it All Together

Now that you can set up an LLC in Wisconsin online it shouldn’t take more than a day or two to get up and running.  The Wisconsin Secretary of State’s website is very easy to navigate and following the five steps above will help you get your talents and ideas to market faster. 

 

How to Set Up an LLC in Wyoming

How to Set Up an LLC in Wyoming

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We’ve put together a free step-by-step guide on how to set up an LLC in Wyoming. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has...

How to Set Up an LLC in Wisconsin

How to Set Up an LLC in Wisconsin

by |

We’ve put together a free step-by-step guide on how to set up an LLC in Wisconsin. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has...

How to Set Up an LLC in West Virginia

How to Set Up an LLC in West Virginia

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We’ve put together a free step-by-step guide on how to set up an LLC in West Virginia. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step...

How to Set Up an LLC in West Virginia

How to Set Up an LLC in West Virginia

by | Jan 6, 2023 | LLC Center

We’ve put together a free step-by-step guide on how to set up an LLC in West Virginia. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has instructions and links to the sites for you to fill out the forms in the correct order. So, let’s set up your West Virginia LLC right now! 

A few points to remember before setting up your LLC in West Virginia 

When you set up an LLC in West Virginia, you’ll need a few things before you get started. This section will help you get your checklist in order.

A Unique Business Name 

Every business in the state must be unique. You’ll need to search for a West Virginia LLC name. Go to Business Organization Search to make sure yours is not taken. 

An LLC Designator 

You must have an LLC designator in your name in one of the following formats. 

  • LLC (most common) 
  • L.L.C. 
  • LC 
  • L.C. 
  • Ltd. Co. 
  • Ltd. Company 
  • Limited Co. 
  • Limited Company 
  • Limited Liability Company 

Now that you have your unique business name, it’s time to register it with the state of West Virginia. Let’s get down to business. 

A Registered Agent 

In most states, a registered agent is a person or a company that accepts “Service of Process” for your West Virginia LLC. A registered agent will receive any subpoenas, notices, and other legal, and tax documents sent to your business by the West Virginia Department of Revenue. 

If you’re opening a business in West Virginia but you aren’t a resident, you’ll need to get a registered agent in that state.  The requirements for a registered agent are as follows: 

An Individual: 

  • Must be 18 and be a resident of the state 
  • Must be authorized to do business in the state. 
  • Must have a physical street address located in West Virginia 

A Company 

  • Must be authorized to do business in the state 

If you meet the above criteria, you can be your own registered agent. Or you can set up a friend or family member to be your registered agent. 

You can also hire a commercial Registered Agent. A company that provides their name and address to receive legal documents from the state. 

Hot Tip

The nice part of using a company is that their address is used instead of yours. As the business address will be public knowledge. By using a registered agent, you can protect and secure your own address. 

Step 1: Register Your Business Name 

To set up an LLC in West Virginia you need to reserve your business name.  This way during the process no one can steal the name of your company. 

You’ll need to reserve your name by mail. You can print out the Application for Name Reservation and send it to the Secretary of State’s Office. 

Your name reservation will be for up to 120 days and the filing fee is $15. 

Step 2: File Your Articles of Organization in West Virginia 

Setting up an LLC in West Virginia is easy, especially for single-member LLCs. Just go and sign up for the WV One Stop Business Portal.  

You can just directly file the Articles of Organization even without a reservation.  Easy peasy. 

If you don’t want to file online, you can download and fill out the Articles of Organization form and send it to the Secretary of State’s Office.  

Fees: In West Virginia, the cost of setting up your LLC and filing the Articles of Organization is $100. 

Step 3: Complete Your West Virginia LLC Operating Agreement 

 

An operating agreement is a key document used by LLCs and partnerships. It outlines the business’ financial and functional decisions including rules, regulations, and provisions. This describes how your LLC will operate internally. For more information on operating agreements, you can check out the Small Business Administration’s article on basic operating agreements. 

Hot Tip

You are not required to file an Operating Agreement with your state. But it may be vital to have it, especially if there are multiple members of your LLC.

Step 4: Get Your Federal Tax ID Number (EIN) 

Once your West Virginia LLC has been approved it’s time to get your Federal Tax ID Number from the IRS.   

Your EIN is the social security number of your business.  Keep it well protected.  You’ll use this number to open bank accounts, file tax documents, apply for loans, and many other uses.  It also protects your social security number when doing business with other businesses like merchant accounts, 1099s received, etc. 

To apply for your EIN you can go to IRS EIN/Tax ID Application.  Make sure you pick the correct Business Entity Type.   

Quick Note

You can only file online if you have a Social Security Number (SSN) or Taxpayer ID (ITIN).  Otherwise, you’ll have to mail in the forms and wait for the response. If you don’t have an SSN, on Form SS-4, where it asks for your SSN, ITIN, or EIN (line 7b), write “Foreign”. Your EIN application will then be approved without the need for having an SSN.

Step 5: File Your West Virginia LLC Annual Report 

Your West Virginia LLC is required to file an annual report to keep your business compliant and in good standing. To file the annual report online, go directly to the WV One Stop Business Portal. 

If you want to file it by mail, download the filled-out Annual Report from the same site and send it to the Secretary of State’s office.  

Fees: The filing fee is $25 and is due on July 1st. Late filing will result in a $50 penalty and failure to file will dissolve your business. 

Taxes, Permits, and Licensing in West Virginia 

To do business in West Virginia you will need to file tax returns, and hold permits and licenses in your county or city. 

West Virginia LLC must apply for the necessary business licenses and or permits.  This depends a lot on the type of business and the location of your business. 

Aside from business licenses and permits, all LLCs must also pay appropriate taxes and meet obligations with the West Virginia Tax Department. 

Never miss a deadline

Not sure which forms to file with the IRS and your State after you set up your new business? 

Sign Up to Simply Tax Compliant.  File the right forms and the right time to avoid penalties and interest.

Sign Up Now

Putting it All Together

Now that you can set up an LLC in West Virginia online it shouldn’t take more than an hour or two to get up and running.  The West Virginia Secretary of State’s website is very easy to navigate and following the five steps above will help you get your talents and ideas to market faster. 

 

How to Set Up an LLC in Wyoming

How to Set Up an LLC in Wyoming

by |

We’ve put together a free step-by-step guide on how to set up an LLC in Wyoming. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has...

How to Set Up an LLC in Wisconsin

How to Set Up an LLC in Wisconsin

by |

We’ve put together a free step-by-step guide on how to set up an LLC in Wisconsin. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step has...

How to Set Up an LLC in West Virginia

How to Set Up an LLC in West Virginia

by |

We’ve put together a free step-by-step guide on how to set up an LLC in West Virginia. We want you to have a clear idea of how to set up and manage an LLC for your state. We’ve tried to make sure you have the information you need right at your fingertips. Each step...