I hate how this information is so spread out so I will try to condense this:
(1) Register your domain name and setup email (GSuite is simple enough). I put this first, because it is nice to have all the business communications actually going to the business email, so you don't start intermixing with your personal email.
(2) Next, I'd recommend hiring a local lawyer for the LLC filing and paperwork, not because you can't do it yourself, but because they can do it a lot faster and will help find any mistakes throughout the entire process. (they do this all the time) You will basically end up using them to file the Articles of Organization, act as your registered agent (avoids having to put your name and address directly on file with the SoS office), and they typically have boiler plate Operating Agreements that you can use to bootstrap your own.
(3) Next, you (or your lawyer) need to file Articles of Organization with the Secretary of State's office and pay the filing fee. (Normally $100 or so) You'll typically have to renew this registration annually. Your lawyer can take care of it.
(4) You then need to decide how you will be taxed. Your basic choices are to be taxed like a sole proprietorship or as an S Corp. I would choose S corp, so that you can save on taxes. When you go this route you will select a "reasonable salary" for yourself to be paid. Anything you earn above and beyond your reasonable salary you can take as a distribution from the company, which is not subject to self-employment taxes. If you go the sole proprietor route it is simpler (you report income on your schedule c for the IRS), but everything is subject to self-employment taxes.
(5) If going the S Corp route you will want to obtain an FEIN(https://www.irs.gov/businesses/small-businesses-self-employe...) and file form 2553 with the IRS for the subchapter S election. You have a limited window to do this, so do it shortly after filing the Articles of Organization. If you have an accountant they can assist you or do this for you.
(6) Next I'd recommend getting a payroll company to run your payroll if you've gone the S Corp route. (Something like Square Payroll https://squareup.com/payroll/) They take care of filing all the required forms with your state and will make it really easy for you should you ever add additional employees beyond yourself. What are some of these forms? They vary by state, but to give you an idea here is a look at the items for the state of Oklahoma (https://squareup.com/help/us/en/article/6319?utm_medium=web&...):
(7) This leads to the next item, which is you likely need to register for a state tax ID and a state unemployment insurance ID and then input those IDs into your payroll provider's system. Again this varies by state, but normally each state has some analog of this.
(8) Make sure you create an Operating Agreement. It is an important governance document for your LLC. Your lawyer can help bootstrap you here or you can find samples online. Although, not strictly required it is an important document in establishing your LLC as a legitimate LLC and not just an extension of yourself. It helps prevent "piercing of the corporate veil" in instances where you might be sued. (i.e. keeping your personal assets protected in the event of a lawsuit)
(9) Hire an accountant (if you haven't already) to handle the K-1s and taxes of the LLC. This saves you time and potential penalties that you might run into in making a mistake with filing.
(10) Use some software like Quickbooks Online or similar to track your accounting. Bonus here if your payroll feeds directly into your accounting software.
(11) Get a Small Business Credit Card like this one from AMEX (https://www.americanexpress.com/us/credit-cards/business/bus...). You are going to have expenses and you might as well get some points while you're at it. Also, easier to track expenses. The bonus with these too is if you add employees then their travel expenses are tracked and you get the points for them as well.
That's all the basics to get the LLC operational. Obviously there are things like business plans, industry specific compliance regulations and certifications(not typical of software companies though), health insurance, etc., but this is a basic list to meet the requirements of the federal and state government. Good luck!
That S-Corp trick, the "reasonable compensation" thing, is an audit flag; there is apparently a whole specialized kind of audit the IRS does for "reasonable compensation" claims (presumably because it's so easy to spot mechanically; your single-member firm made X, you claimed X-n income, X-n>threshold: audit). I wouldn't bother with it.
When I was a self-employed contractor several years ago my CPA did it this way for my LLC. 50% of the income went on a W-2 and 50% on a K-1. It's up to each person to decide their own risk level but my CPA was pretty confident it wasn't a big deal as long as the W-2 salary wasn't absurdly low, and my own googling at the time seemed to confirm that.
It's definitely worth it IMO since you're double-paying FICA taxes on your W-2 (i.e. paying both the employee + employer sides).
You're not "double paying" taxes. The employer portion of your taxes when you're an FTE isn't free money; it's part of your cost basis as an employee, and comes out of your comp.
He wasn't implying it was free money. He simply means you're paying the employer's portion as well when you are self-employed. There is no reason to do this on excess income once you have paid yourself a reasonable salary. To determine a reasonable salary simply examine what you would make if you were employed in that same job function by another company. If you are ever audited you can show you made a good faith effort to determine reasonable salary and you will be fine. Many people set it lower than typical industry rates and are never even audited, because frankly the IRS has better things to do. It typically needs to be dramatically below what you would make in industry for you to be audited. Talk to any CPA and they'll tell you the same thing. Taking excess profits from an LLC as a distribution is an entirely legal and appropriate thing to do.
There is no such thing as "filing as an LLC". When you form an LLC by default the IRS considers the LLC a disregarded entity and will tax you just as if you were a sole proprietorship. (i.e. you will report your income on schedule c) You can however elect to have your LLC taxed as an S Corporation. In which case you have to pay yourself a reasonable salary and then you can take a distribution on any excess income above your reasonable salary. When you take a distribution from an S Corp it is only subject to ordinary income tax. You do NOT pay self-employment tax on distributions. If you don't believe me you can read it on TurboTax's website (https://turbotax.intuit.com/tax-tips/small-business-taxes/ho...) or any number of websites for that matter.
(1) Register your domain name and setup email (GSuite is simple enough). I put this first, because it is nice to have all the business communications actually going to the business email, so you don't start intermixing with your personal email.
(2) Next, I'd recommend hiring a local lawyer for the LLC filing and paperwork, not because you can't do it yourself, but because they can do it a lot faster and will help find any mistakes throughout the entire process. (they do this all the time) You will basically end up using them to file the Articles of Organization, act as your registered agent (avoids having to put your name and address directly on file with the SoS office), and they typically have boiler plate Operating Agreements that you can use to bootstrap your own.
(3) Next, you (or your lawyer) need to file Articles of Organization with the Secretary of State's office and pay the filing fee. (Normally $100 or so) You'll typically have to renew this registration annually. Your lawyer can take care of it.
(4) You then need to decide how you will be taxed. Your basic choices are to be taxed like a sole proprietorship or as an S Corp. I would choose S corp, so that you can save on taxes. When you go this route you will select a "reasonable salary" for yourself to be paid. Anything you earn above and beyond your reasonable salary you can take as a distribution from the company, which is not subject to self-employment taxes. If you go the sole proprietor route it is simpler (you report income on your schedule c for the IRS), but everything is subject to self-employment taxes.
(5) If going the S Corp route you will want to obtain an FEIN(https://www.irs.gov/businesses/small-businesses-self-employe...) and file form 2553 with the IRS for the subchapter S election. You have a limited window to do this, so do it shortly after filing the Articles of Organization. If you have an accountant they can assist you or do this for you. (6) Next I'd recommend getting a payroll company to run your payroll if you've gone the S Corp route. (Something like Square Payroll https://squareup.com/payroll/) They take care of filing all the required forms with your state and will make it really easy for you should you ever add additional employees beyond yourself. What are some of these forms? They vary by state, but to give you an idea here is a look at the items for the state of Oklahoma (https://squareup.com/help/us/en/article/6319?utm_medium=web&...):
- Withholding Payment Coupon (WTH 10004)
- Wage Withholding Tax Return (WTH 10001)
- Transmittal of Wage and Tax Statements (OK W-3)
- Wage and Tax Statement (W-2)
- Employer's Quarterly Contribution Report (OES-3)
- New Hire Report
(7) This leads to the next item, which is you likely need to register for a state tax ID and a state unemployment insurance ID and then input those IDs into your payroll provider's system. Again this varies by state, but normally each state has some analog of this.
(8) Make sure you create an Operating Agreement. It is an important governance document for your LLC. Your lawyer can help bootstrap you here or you can find samples online. Although, not strictly required it is an important document in establishing your LLC as a legitimate LLC and not just an extension of yourself. It helps prevent "piercing of the corporate veil" in instances where you might be sued. (i.e. keeping your personal assets protected in the event of a lawsuit)
(9) Hire an accountant (if you haven't already) to handle the K-1s and taxes of the LLC. This saves you time and potential penalties that you might run into in making a mistake with filing.
(10) Use some software like Quickbooks Online or similar to track your accounting. Bonus here if your payroll feeds directly into your accounting software.
(11) Get a Small Business Credit Card like this one from AMEX (https://www.americanexpress.com/us/credit-cards/business/bus...). You are going to have expenses and you might as well get some points while you're at it. Also, easier to track expenses. The bonus with these too is if you add employees then their travel expenses are tracked and you get the points for them as well.
That's all the basics to get the LLC operational. Obviously there are things like business plans, industry specific compliance regulations and certifications(not typical of software companies though), health insurance, etc., but this is a basic list to meet the requirements of the federal and state government. Good luck!