Bookkeeping Guide for LLC Businesses
Uncategorized Bookkeeping, Businesses, Guide, LLC
If you’re running a Limited Liability Company (LLC), effective bookkeeping isn’t just a necessary task — it’s your key to unlocking financial clarity and ensuring your enterprise thrives.
Whether you’re venturing into the realm of entrepreneurship or you’re an experienced pro looking to refine your processes, doola Bookkeeping LLC solution can help you manage your books and transform stress into success.
In this comprehensive guide, we’ll demystify LLC bookkeeping, offering practical tips and insights that will empower you to take control of your finances with confidence.
Say goodbye to confusion and hello to streamlined accounting; let’s dive in!
How to Set Up an Effective Bookkeeping System for Your LLC
A well-organized and accurate bookkeeping system will allow LLC businesses to track their financial transactions, monitor expenses and income, and make informed decisions about the future of their company.
So, to help you out, we have brought you 3 crucial components of an effective bookkeeping system for LLCs.
Choose an Accounting Method
There are two main methods that businesses can choose from: cash basis and accrual basis. The first method records income when it is received and expenses when they are paid.
On the other hand, accrual basis accounting records income when it is earned and expenses when they are incurred.
Both methods have their advantages and disadvantages, but the IRS requires businesses with over $5 million in annual revenue to use the accrual basis method.
Select an Appropriate Bookkeeping LLC Software
Once you have chosen your accounting method, the next step is to select suitable bookkeeping software for your LLC.
While there are numerous options available in the market today, doola Bookkeeping software meets the specific requirements of LLC businesses.
With doola, you can easily organize all your transactions and expenses into different categories based on their nature.
This ensures that your financial records are accurate and up-to-date at all times, which is essential for making informed business decisions.
Its user-friendly interface and robust features make it an excellent tool for small business owners who want to keep their finances sorted and organized.
So, you can focus on running your business while leaving the bookkeeping tasks to the experts.
Establishing a Chart of Accounts
A chart of accounts is a list of all account categories used by your company to record its transactions in its general ledger (record-keeping system).
Each transaction occurs within your business operations — whether it’s a sale, an expense, or a loan — and is recorded in the corresponding account category.
The chart of accounts can vary depending on your business’s nature; however, some common categories for LLCs include cash, accounts receivable, inventory, equipment, and loans.
Establish a chart of accounts that aligns with your chosen accounting method and bookkeeping software to ensure consistency in recording financial transactions.
Important Financials for LLC Bookkeeping
Bookkeeping not only includes keeping track of financial transactions but also managing payroll and employee expenses, reconciling accounts, and preparing financial statements.
As an LLC business owner, it is crucial to prioritize streamlining your financials to ensure the success and sustainability of your company.
✔️ Record Financial Transactions
The first step in maintaining accurate financial records for your LLC is recording all financial transactions.
This includes purchases, sales, payments, receipts, and other financial transactions in a timely manner and the correct category or account.
Each transaction should be categorized using proper account names and codes to make it easier for future analysis.
We recommend using dedicated bookkeeping software to automatically record these transactions as it reduces errors and provides customizable reports. This will also provide you with an overview of where your money is coming from and where it is going.
✔️ Manage Payroll and Employee Expenses
If you have employees who help run your business, managing their payroll accurately and on time ensures their satisfaction and compliance with legal requirements.
Make sure to keep accurate records of employee compensation and withholdings to comply with tax laws and other regulations.
Apart from payroll, you must track expenses related to employees, such as travel expenses, supplies purchased by employees for work purposes, or reimbursements for training programs.
It is crucial to have a clear expense policy in place to streamline these costs and ensure proper documentation of all salary or wage payments made to employees and any other expenses.
✔️ Reconcile Accounts
Bookkeeping also involves reconciling accounts regularly to ensure accuracy and balance between different records, such as bank statements and ledgers.
LLC businesses must use bookkeeping to reconcile their accounts regularly. This involves comparing internal records against external statements, such as bank statements.
This helps identify any discrepancies or errors that may have occurred during the recording process, which can then be rectified promptly.
✔️ Prepare Financial Statements
At the end of each financial period (monthly, quarterly, or yearly), an LLC business needs to prepare statements based on their recorded transactions.
These statements are crucial for tracking the overall financial health of your LLC business. The 3 main types of financial statements include:
- The balance sheet provides a snapshot of your company’s assets (what you own) versus liabilities (what you owe) at a specific point in time.
- The income statement shows how much revenue was generated by the company over a period of time (usually annually) minus any expenses incurred during that time.
- The cash flow statement tracks the movement of cash in and out of the company, including operating activities, investing activities, and financing activities.
Every LLC business, no matter the size or type, must keep its financial records up to date and accurate, as they may be required for seamless tax filings or when seeking loans or investments.
So, make sure to allocate enough time and resources toward preparing detailed financial statements.
Tax Considerations for LLCs
Every business operating in the US must adhere to tax obligations set by the IRS, and LLCs are no exception.
However, LLCs have options when it comes to choosing how they want to be taxed. This allows LLCs to choose the most beneficial tax structure for their specific business needs, which can significantly impact their financial success.
However, this flexibility requires careful consideration and understanding of the tax implications for each option.
1. Pass-Through Taxation
One of the main advantages of forming an LLC is the ability to be classified as a pass-through entity for tax purposes.
This means that profits and losses are “passed through” to the owners’ personal tax returns rather than being taxed at the entity level like a traditional corporation.
This method can save LLC owners from paying double taxes on their business income since they are not subject to corporate income tax.
However, it’s essential to note that members are still responsible for self-employment taxes on their share of profits unless they elect otherwise.
2. Self-Employment Taxes
As mentioned earlier, LLC members are generally subject to self-employment taxes on their share of profits unless they elect otherwise.
These taxes consist of Social Security and Medicare contributions and must be paid by every self-employed individual, regardless of whether they operate as an LLC.
However, LLC members may avoid self-employment taxes on some or all of their profits by electing corporate taxation instead of pass-through taxation.
3. Filing Status Election
By default, single-member LLCs are considered sole proprietorships, and taxes are filed on Schedule C with their personal tax returns.
However, if there is more than one member in the LLC, they can choose to be treated as a partnership or elect to be taxed as a corporation (either S-corp or C-corp).
By choosing this option, LLC owners can save significantly on self-employment taxes while still enjoying the benefits of pass-through taxation.
This allows an LLC owner’s salary payments to be treated as wages subject to payroll taxes while distributions remain untaxed at both federal and state levels.
4. Estimated Taxes
Since LLCs do not have taxes withheld from their profits, it’s essential to remember that members will need to pay estimated taxes quarterly.
This is especially important for those who elect pass-through taxation, as they are responsible for paying both personal and business income taxes.
By doing so, you can ensure that your bookkeeping LLC stays in compliance with tax regulations while maximizing its benefits.
5. State Taxes
Apart from federal taxes, LLCs are also subject to state taxes depending on the state where they are registered and do business.
Some states may impose annual fees or franchise taxes on LLCs, while others have no state-level income tax.
Best Practices for LLC Bookkeeping
LLC bookkeeping helps you understand your company’s financial health and ensures compliance with tax laws and regulations.
Here, we have compiled some best practices for LLC bookkeeping as well as common mistakes to avoid.
🎯 Keep Personal and Business Finances Separate
Mixing personal and business finances can lead to confusion, inaccurate records, and potential legal issues in case of an audit.
Therefore, you should open a separate bank account for your LLC, use a separate credit card for business expenses, and avoid using personal funds for business transactions.
🎯 Set Up a Chart of Accounts
A chart of accounts is a categorized list of all financial transactions in your business, such as revenue, expenses, assets, liabilities, etc.
Setting up a chart of accounts allows you to track specific categories of expenses or income separately, which makes it easier to understand where your money is going.
🎯 Regularly Reconcile Bank Statements
Reconciling bank statements with your accounting system regularly is crucial for ensuring the accuracy of your financial records.
By comparing bank transactions with those recorded, you can keep your books up-to-date and compliant with IRS guidelines to avoid any surprises when the tax season comes.
Mistakes to Avoid In Your LLC Bookkeeping
❌ Change Your Entity Type Without Proper Consideration
Some LLCs may consider changing their entity type to save on taxes or for other reasons.
However, this decision should be made after careful consideration and consultation with a formation and compliance expert, as it involves complex tax implications.
❌ Not Seeking Professional Help
Many entrepreneurs try to handle their bookkeeping themselves, which can lead to errors or oversights that could significantly impact the company’s finances.
Instead of handling all bookkeeping tasks yourself, hiring a professional accountant or bookkeeper can save you time and money in the long run.
Consider seeking professional help from an accountant or bookkeeper who can provide expert advice and assist in maintaining accurate financial records. They have the knowledge and expertise to manage your finances and ensure accurate compliance with tax laws.
❌ Failing to Keep Receipts
In addition to tracking expenses through your accounting system, it’s vital to keep physical copies of receipts for at least 3 years in case of an audit. This helps provide evidence for business expenses claimed on your taxes.
❌ Overlooking Tax Deadlines
LLCs are required to file taxes regularly, quarterly, or annually, depending on the chosen tax classification.
Missing tax deadlines can result in penalties and interest charges, so it’s important to stay up-to-date on these deadlines.
Resources and Tools for LLC Bookkeeping
Bookkeeping can often be a daunting task, but with the right resources and tools, it can streamline your LLC’s finances like never before.
One highly recommended tool for LLCs is doola Bookkeeping, an easy-to-use interface that simplifies financial management for small business owners.
It helps you record transactions, reconcile accounts, generate reports, and file taxes with features such as automated record-keeping and reconciliations, tax assistance, and dedicated bookkeeping.
In addition to utilizing bookkeeping solutions like doola, it’s essential to have a solid understanding of basic bookkeeping principles.
We have listed down several informative articles that can serve as valuable resources for any business owner looking to improve their bookkeeping skills.
This knowledge will help you use the tools effectively and ensure accurate record-keeping for your LLC business.
Here are a few articles that we highly recommend reading:
📑 A Complete Guide to DIY Bookkeeping for Small Business Owners in 2025
This article highlights the critical role accurate bookkeeping plays in the success of a small business. It also discusses common mistakes made by business owners and how they can be avoided.
📑 Bookkeeping Best Practices for LLCs
This article provides practical tips on how to maintain organized financial records and streamline daily bookkeeping tasks.
📑 A Guide to Excel Accounting and Bookkeeping
A fundamental understanding of accounting principles is crucial for proper bookkeeping.
This article breaks down essential accounting concepts in simple terms and uses relevant examples that are helpful for beginners.
📑 The Ultimate Guide on Expert Tax Tips for Small Business Owners
As an LLC owner, understanding tax laws is essential when keeping track of your company’s finances. This comprehensive guide provides an overview of tax requirements for small businesses.
Sort the Financials of Your LLC With doola Bookkeeping
Most LLC business owners believe that bookkeeping can be time-consuming and complex with requirements such as filing taxes and managing multiple partners or investors.
Luckily, doola Bookkeeping is here to solve this confusion and help you keep your LLC’s financials sorted.
With our expertise in bookkeeping LLC and IRS regulations, we can take this burden off your shoulders while giving you the peace of mind that your finances are in good hands.
Our comprehensive bookkeeping software automates all aspects of your LLC’s financial records and organizes them in one central location, providing easy access whenever needed.
You also get direct access to our expert accountants and bookkeepers, who specialize in LLC compliance and tax obligations and ensure that all necessary documents are filed accurately and on time.
So, you won’t have to dread tax season since we take care of timely tax filings for each organization member according to individual tax requirements.
Book a demo with us today to ensure your LLC’s financials are always sorted!