If you want to make an Iowa limited liability company (LLC), you need to know what you should expect to spend. But it can be challenging to figure out exactly how much everything will cost.
We wrote this article to help people make a budget for starting an LLC in Iowa.
This article will teach you:
- The cost of forming an Iowa LLC
- Other expenses that can help your business
- How to choose the right formation approach for your LLC
By the time you have finished reading, you will know how much you will need to spend on your Iowa LLC formation.
Total Iowa LLC Cost – Starting at $50
According to the Iowa Secretary of State’s forms and fees list, the bare minimum cost to start an LLC in Iowa is $50.
This only includes one item:
- Certificate of Organization filing fee: $50
Many LLCs will also need to obtain a sales tax permit from the Iowa Department of Revenue, but this is free of cost. You may also be required to get professional and local business licenses, the costs of which will vary.
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Iowa LLCs – the Basic Costs
The total cost to form an LLC will vary based on an array of factors. However, the lowest possible cost is $50. We’ve explained your potential required Iowa LLC formation costs below.
Certificate of Organization Filing Fee — $50
A Certificate of Organization is the document you will use to start your LLC. To form an Iowa LLC, you must submit a Certificate of Organization to the Secretary of State. The certificate is fairly easy to complete, as you only need to list basic details about your company.
The filing fee for an Iowa Certificate of Organization is $50. You can file online or submit a paper certificate. The Secretary of State has not made an official form that you can simply fill out. So, if you don’t file online, you’ll need to make your own certificate or hire someone to prepare it.
Sales Tax Permit — Free
Many LLCs in Iowa will need to get a sales tax permit. Iowa law requires businesses that make taxable retail sales of tangible personal property and certain services to collect sales taxes. The sales tax permit allows you to collect taxes from your customers.
You can apply for your sales tax permit online. There is no cost to register.
Professional Licenses and Business Permits — Various
Businesses in certain industries will need to get a state business license or permit to operate legally. You can review IASourceLink’s Iowa Business License Information Center to learn more about these requirements.
You may also be required to get a local permit or business license for your LLC. For instance, the city of Des Moines mandates that businesses in some industries obtain business licenses.
Iowa LLCs – Optional Costs to Consider
On top of your mandatory costs, you should consider some optional expenses. While these aren’t necessary to comply with the law, they can help you run your business more effectively.
Expedited LLC Filing Fees — $15 to $50
Your Iowa LLC will usually be processed on the same business day if you file online. For this reason, expedited service is not available or necessary for online filings.
However, if you file a paper certificate in person, you can request one of the following expedited services:
- Five-day processing: $15
- Two-day processing: $50
Registered Agent Fee — about $100 per year
Iowa law requires that every business entity have a registered agent in the state to accept legal documents on behalf of the business. You will include your Iowa registered agent information in your Certificate of Organization, and there is no fee if you ever want to change your agent.
New business owners often decide to name themselves as the registered agent for their LLC. Unfortunately, they usually find out too late that being your own registered agent can cause problems. First, you must always be available during regular business hours to receive papers and mail. Your address will also be publicly listed online.
That’s why it’s better to hire a professional registered agent to do it for you. These businesses usually only cost about $100 per year, and they handle all of the registered agent duties for your LLC.
Check out our Best Registered Agent Services article for some of our recommendations.
Operating Agreement — Variable
An operating agreement is a legal contract that LLC members use to set the rules for the company. They typically list crucial information such as the member’s rights and duties and the process for joining or leaving the LLC.
Iowa does not require LLCs to make operating agreements. Still, we strongly suggest that all LLCs have one. And even though you are legally permitted to draft your own Iowa LLC operating agreement, it’s not a great idea unless you have legal education or experience.
One option is to retain an attorney to make an operating agreement for your LLC. This will ensure your agreement is thorough and correct. Unfortunately, lawyers can be pricey. So if you want to save some money, an LLC formation service can draft your LLC operating agreement for as little as $39.
DBA Fee — $5
It’s common for an LLC owner to call their business something other than its official legal name. For instance, many choose to drop “LLC” from the name to make it less formal. Some may also want to change the LLC’s name completely as their business model evolves.
If you plan for your LLC to “go by” a different name, you must register a “doing business as” or “DBA” name. In Iowa, DBAs are called “fictitious names.”
Name Reservation Fee — $10
If you have decided on your LLC’s name but aren’t ready to start it just yet, Iowa allows you to reserve a business name for 120 days. This will keep the name from being taken during this time frame.
Domain Name — about $20 per year
In today’s business environment, most LLC owners want to start websites for their companies. And in order to build a website, you will first need to get a domain name. Luckily, domains are cheaper and more accessible than ever.
We suggest that you buy your domain name ASAP. This will prevent anyone else from snatching it up before you. For instance, “domain squatters” purchase potential domains for new LLCs and then sell them for a profit.
You can buy a domain name from GoDaddy.com or a similar website for around $20 to $50 a year. Plus, these businesses often offer discounts, so you may be able to get a domain for even less.
Getting an Employer Identification Number (“EIN”) — Free
EINs are 9-digit identification numbers that the Internal Revenue Service assigns to businesses. It’s kind of like a company’s social security number. Some LLCs are legally required to obtain an EIN, but others are not.
Still, we recommend that every LLC owner applies for an EIN, even if it’s not mandatory. Banks often require an EIN to open a business account. Plus, EINs help protect against identity theft by letting business owners keep their SSNs private.
You can get an EIN online or mail Form SS-4 to the IRS. No matter how you apply, an EIN is always free. So, there’s no need to pay a business to get an EIN for you. You can just do it yourself for no cost.
Foreign LLC Qualification Fees — about $100 per extra state
If you plan to expand your business into other states, you will incur some extra costs. You don’t have to create a new LLC in each state, but you will be required to register as a foreign limited liability company wherever you want to operate.
Foreign LLC filing fees vary from state to state, but they are usually about $100.
Writing Formation Costs Off
Typically, you can deduct your LLC formation expenses from your income taxes as business startup costs. The IRS offers substantial advice on this issue, so you can review the IRS website to learn more.
LLCs are usually “pass-through” tax entities. This status lets LLC owners deduct up to $5,000 in startup expenses in the first year.
Kathy decides to start a single-member LLC and open a food truck in Des Moines, Iowa. She plans to have two employees. Her formation costs are as follows:
- Iowa LLC Certificate of Organization: $50
- Iowa Mobile Food Unit License: $250
- Des Moines Mobile Food Vendor License and Inspection: $670
- Operating Agreement: $60
- Registered Agent Fees: $120
- Name Reservation Fee: $10
- DBA Fee: $5
- Web Domain Costs: $25
Because the LLC is a pass-through entity, it won’t pay any income taxes. Instead, Kathy herself will report her earnings from the LLC and any deductions on her personal state and federal income taxes.
Kathy's total formation costs were $1,190. Before she deducted her expenses, her total taxable income was $47,000. However, by deducting her start-up costs, she lowers her taxable income to $45,810. This will drop her 2022 federal income taxes from $6,089 to $5,827.
Even though this is not a massive decrease, LLC owners who regularly deduct their expenses will save a lot of money over time.
Cheapest Way to Start an LLC in Iowa
When deciding how to start your Iowa limited liability company, make sure you consider your business’s needs. We’ve outlined some of the most popular methods below to help you make the right choice.
Formation Service – $39 + state fees
Many LLC owners choose to have a business formation service handle the formation process. These services specialize in creating new LLCs and other types of businesses. While they aren’t lawyers, they have ample experience managing all aspects of the LLC formation process.
An LLC formation service is a suitable choice for many LLCs. The benefits of this approach include:
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
However, formation services aren’t the best for every LLC. The drawbacks of this method include:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry, you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products or business services you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
The most reliable option is to hire a lawyer to start your LLC. This approach offers a superior result and customized service. Just know that legal professionals aren’t cheap. Many attorneys bill hourly for their services, often at a rate of several hundred dollars per hour.
Still, working with a lawyer has substantial advantages:
- Lawyers help you manage risk. If you are starting a business with complicated legal issues, hiring a lawyer would be the best choice.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
But the disadvantages of this approach can outweigh the benefits for most LLC owners:
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very careful people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Finally, you can also go with the tried and true do-it-yourself approach. Just keep the value of your time in mind when considering this option. The time you devote to LLC formation tasks can’t be spent on other aspects of your business.
There are still advantages to a DIY formation method:
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own business, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t account for the value of your time, a DIY solution is the cheapest option.
But be sure to also consider the negative aspects of a DIY approach:
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that can cost them even more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even harder for you.
Annual Iowa LLC Fees: How Much Will it Cost to Maintain your LLC?
To comply with Iowa law, you must submit a biennial report for your LLC to the Secretary of State every other year. . You can file your report online, and there is a $60 fee.
You also may need to pay fees to renew your licenses and permits.
Further, some optional expenses must be paid every year. Some common recurring expenses include:
- Registered agent service fee: approximately $100
- Domain name registration: $20 to $60
How Much are LLC Taxes in Iowa
By default, LLCs are pass-through tax entities. This means the business itself won’t be required to pay income taxes. But, the LLC’s owners must report their shares of the profits as their personal income.
However, some LLC owners elect to have their business taxed as a corporation. If you do so, your LLC will have to pay Iowa’s Corporate Income Tax.
Iowa LLC Formation Costs Quick Links
- Iowa Online Filing
- Iowa Forms and Fees List
- Iowa Secretary of State
- Iowa Department of Revenue
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
Iowa LLC Formation Costs FAQs
How much does it cost to start an LLC in Iowa?
The minimum cost is $50. But depending on your industry and location, it may cost more.
What is the cheapest way to start an LLC in Iowa?
The do-it-yourself method is the least costly in terms of money spent. But if you account for the value of your time, the most cost-effective approach is typically an affordable LLC formation service.
Do I need to hire an attorney to form an LLC in Iowa?
No. Most LLCs can be started without a lawyer’s help. A DIY approach or an LLC formation service will suffice for an average LLC.
Can I pay to form an LLC more quickly in Iowa?
Yes. Your Iowa LLC will usually be processed on the same business day if you file online, so you won’t need expedited service. But if you file in person, you can request five-day processing for $15 or two-day processing for $50.