Lettuce
While some people decide to go the sole proprietorship route indefinitely, there are some major perks involved with establishing a formal business entity for your solo business—like more credibility, better protection for your assets, and potentially even tax savings.
But despite the perks, picking and setting up a business structure can feel a little daunting. Fortunately, we’re here to help you simplify it.
Let’s start with the basics: In most cases, solopreneurs opt for a single-member LLC as their business entity of choice. LLC stands for “limited liability company,” meaning it protects your personal assets from any business debts or lawsuits. However, because it’s single-member, it’s still simple enough to fit the needs of most solo business owners.
If and when you determine this structure is the right fit for you, figuring out how to start an LLC is the next hurdle you need to make it over. We’re breaking it down in six simple steps so you can get protection and peace of mind—without all of the pesky paperwork and painful processes.
Rather set up your LLC without lifting a finger? Lettuce will handle everything for you.
Step 1: Choose a Business Name and Address
Let’s start with something more fun: choosing a name for your business. Before you start brainstorming catchy monikers, there are a couple of things you’ll need to keep in mind:
- Uniqueness: Your state requires that your chosen business name hasn’t been registered before. Beyond checking your state’s business registry, it’s smart to also check domain availability and social handles to ensure you don’t run into any branding roadblocks.
- Clarity: Ideally, your name will clearly communicate what your business does. Avoid overly clever or vague names that could confuse your potential clients.
- Scalability: If you plan to grow your business in the future, choose a name that can grow alongside you. For example, using only your name might not fit if you decide to build a team down the line.
Lettuce will automatically validate your business name for you when you get set up. But, if you need to check yourself, here are a couple of resources to help:
In addition to ironing out your business name, you’ll also need to determine a location for your business—whether it’s a home office or a commercial space. Even if you don’t need a true physical location for your business, this is where you’ll receive important legal and tax documents. With Lettuce, state selection is built into the sign-up process, so it’s handled for you automatically.
Step 2: File Your Articles of Organization
Next up is your articles of organization. These sound stuffy and formal, but they’re not all that complex.
Your articles of organization are official documents you’ll file with your state that outline essential details of your solo business, like your business name, address, the purpose of your business, and the date you’ll start.
You don’t necessarily need to draw these up yourself. Instead, navigate to your state’s website or simply search “[Your state’s name] articles of organization”. Many states will have an online form you can fill out to submit your articles of organization electronically and pay the filing fee online (which ranges between $50 and $500, depending on your state).
Alternatively, get started with Lettuce and you’ll get free and easy LLC formation—including all of this paperwork.
Step 3: Create an Operating Agreement
This is another document that might sound complicated, but it can be kept fairly straightforward for a single-member LLC.
Your state may or may not require that you have an operating agreement, but it’s never a bad idea to have one. This document should detail:
- LLC name, business address, and formation details
- Your name and that you’re the sole owner of the business
- Management structure (your LLC is likely member-managed, and you’re the sole member)
- Tax treatment (default or S Corp election, which we’ll get into a little later)
Some solopreneurs include other information in this document—like a succession plan or details about their authority as the single member. But don’t feel like you need to overcomplicate it. Simple gets the job done.
Step 4: Obtain an EIN
Do you need an employer identification number (EIN) for your LLC? Not necessarily. Some solopreneurs choose to use their social security number instead. However, getting an EIN is generally a good idea to distinguish your business as a separate tax entity from yourself.
The IRS has an online application you can fill out to get an EIN. Alternatively, it’s another thing that Lettuce can handle completely on your behalf.
Step 5: Open a Business Bank Account
A dedicated bank account for your business is another best practice when you’re self-employed—the IRS even directly recommends it. It keeps your personal and business finances separate, which is helpful for tax compliance, bookkeeping, and getting a better handle on your business’s numbers.
Think you’ll need to go to the bank to get this done? Nope. Lettuce will set up a business bank account (and a debit card) for you, so you can stay organized from day one.
Step 6: Understand Your State’s Compliance Requirements
Depending on your state, you might need additional licenses and permits to get your LLC fully up and running. Plus, you need to stay in the loop on your tax obligations and reporting requirements (like an annual report).
Don’t panic yet. Lettuce will support you as you move forward, so you don’t skip out on checking any important boxes.
How to Optimize Your LLC for Maximum Tax Savings
Establishing a formal business structure offers more protection and peace of mind. But if it’s tax savings you’re looking for, then you’ll want to consider electing S Corp status.
While it’s commonly called a “business entity,” that’s not technically accurate. An S Corp is a tax status that you can elect in addition to your existing business entity. So, for example, you’d be an LLC that’s taxed as an S Corp.
Why does that matter? When you’re an LLC, you pay self-employment tax (which currently stands at 15.3%) on your entire taxable income. However, as an S Corp, you get to split your income into two different buckets: a reasonable salary and your business profits. You only pay self-employment taxes on your salary, which is where the major tax savings come into play.
It’s a simple move that can translate into thousands in tax savings. Plus, Lettuce can handle both your LLC formation and your S Corp election in one swoop.
Curious if an S Corp is the right move for your solo business? Take our quick quiz and find out.
Set Up Your Solo Business (Without All the Stress)
Figuring out how to start an LLC might seem like an overwhelming task, but it doesn’t need to add a bunch more stress to your plate. Just follow the steps we’ve outlined here and you’ll get your LLC up and running (with as little pain and paperwork as possible).
Want to make the process even easier? Lettuce is here to help you with:
- LLC Formation: From completing all of the forms to obtaining an EIN, Lettuce will put in all of the elbow grease so you can form your LLC without breaking a sweat.
- Business Bank Account Setup: Lettuce will also set you up with a business bank account and debit card so you can separate your business transactions from your personal ones right away.
- S Corp Election: When you’re ready to make the switch to an S Corp, Lettuce can take care of that too. You’ll get all of the tax-saving benefits—without the burden of more admin tasks.
Plus, Lettuce will handle everything from automating your bookkeeping to setting aside (and paying) your taxes so you can spend less time staring at spreadsheets and more time on the work you actually care about.
Sound like something you need? Get started with Lettuce today and automate your accounting while maximizing your savings.