Freelancer’s Checklist for New LLCs and S-Corps

You’ve done it! Your company is official, which means you’re a boss and you’ve completed yet another step towards realizing your dreams. But, now what? Well, there are a still a few things left to do now that you’ve filed your articles with the Secretary of State to launch your business.

To help you sort through the details, we’ve created a handy little checklist, which you can find below. Use this tool to keep your information updated and your business recognized as the official company that it is.

Please bear in mind that, while we’ve made every effort to ensure the following information is accurate and up-to-date, it doesn’t constitute legal or tax advice, nor should it be considered a substitute for legal or tax advice. Seek the guidance of experienced attorneys or tax professionals if you have any questions about your unique organization.

Update your W-9 forms

First up, you should update all W-9 forms that you’ve previously completed for clients. We’re talking about IRS Form W-9, Request for Taxpayer Identification Number and Certification, which verifies your company’s identity for tax purposes.

If you own an LLC and you don’t complete a W-9, your client is required to withhold 24% of your pay and then send that money to the IRS. This is a process known as back-up withholding, and it’s generally not required for corporations.

What if you have an S corporation? In that case, you need to fill in box 4 of the form. All you have to do is list your exempt payee code, which will be “5.”

If you form an S corporation or you elect to have your LLC taxed as an S corporation, you’ll also need to obtain an employer identification number (EIN) from the IRS. And, if that’s the case, include the EIN on the form. Otherwise, you can use your Social Security Number.

No matter what, you need to provide your business’s name and address on this form. You should list the name on your LLC’s articles of organization or your corporation’s articles of incorporation.

Side note: The W-9 isn’t filed with the IRS. Your client just keeps it in their files.

Want to learn more about EINs for further clarification? We’ve got you covered. Just check out our Freelancer’s Guide to Federal Tax ID (EIN).

Update your invoices

The next step involves changing your invoices, and this is really simple, yet easy to forget.

It should be obvious that you need to update your business name on all of your invoices so that you’re sending out the right information to your clients. After all, your clients will now be paying your business, rather than you personally.

Imagine how embarrassing it would be to have the wrong name on your invoice! Change that invoice template in advance to avoid any awkward moments.

Open a business bank account

Okay, so far it’s been pretty easy, straightforward stuff, right? Now is something a bit bigger: opening up a business bank account.

Whether you have an LLC or an S corporation, the business should have its own bank account. Why, you ask? Well, all of the money your business earns should be deposited into this bank account, and all of the money that your business spends should be withdrawn from this account, too. This includes your own compensation. You shouldn’t use your personal bank account for business, so you need this separate account to keep things organized and ensure that your company will be viewed as a legit business entity by the courts.

Let’s say you really don’t want to bother with opening a business bank account. What’s the worst that could happen? Basically, it could result in the loss of your limited liability protection, which you ordinarily get when you form an LLC or a corporation. Essentially, the benefits of doing business as an LLC or a corporation will be lost. So it really is best to keep a separate bank account for your business income and expenses.

Thankfully, opening up an account isn’t hard. Your bank will ask you to provide a copy of your filed articles of organization or incorporation, along with your EIN if you’ve formed a corporation.

More information on this topic can be found in A Comprehensive Guide to Banking for New Business Owners.

Update your payment processing information

So far, so good? Great! The next step on your freelancer’s checklist is letting any payment processors know about your new business bank account.

As an example, if your clients pay you via PayPal, you need to update your PayPal payment information. If you’ve been using a personal PayPal account, or similar account, you’ll need to obtain a new account in your business name. Not hard to do!

Capitalize your LLC or corporation

When we say “capitalize,” we’re talking about funding your business.

To be recognized as a legitimate entity that’s separate from you personally, your LLC or corporation can’t be an empty shell, so you need to make an initial investment in your business — technically called a capital contribution.

You can contribute more than just money. For example, you can contribute loans, property, or services as well. Typically, a one-owner LLC or S corp will be capitalized with the owner providing cash and perhaps some equipment to get the business going. To do this, just write a check to your LLC or corporation, and deposit the funds in your business bank account. Easy peasy!

Wait, how much should you contribute? The amount of your initial capital contribution depends on the nature of your business; it just needs to be enough to meet your initial expenses. Going forward, it’s important to always keep enough capital in your business to meet your reasonable, ongoing expenses. So, if you’re running a one-person operation and you don’t have many expenses, you may not need to contribute much at all.

Keep in mind that, if you form a corporation, you need to have it issue stock to you in return for the money or other property you contribute, and you can issue as many shares of stock as you want. So, for example, you could contribute $1,000 in return for 1,000 shares of stock.

What if you form an LLC? In that case, you won’t have stock. Rather, you’ll have a membership interest in the LLC, but LLCs don’t issue membership certificates. Instead, your LLC operating agreement should show the amount of your membership interest. For example, if you have a single member LLC, your interest would be 100%.

Update any contracts with existing clients

Do you have ongoing contracts with clients that you started while you were a sole proprietor? Then you should definitely update them.

All of your contracts should be between your client and your LLC or corporation, not between your client and you personally. It’s confusing to have some client contracts in your own name, while having other contracts in your business’s name. Keep them organized and clear by only using your company name from now on.

There are two ways that you can go about doing this. First option: you and the client can terminate the old contract and sign a new one in your business’s name. The great thing about this approach is that your client knows what’s going on. As an alternative: you might be able to assign the contract to your LLC or corporation — meaning, your business legally agrees to take over the work required by the contract. Unless a contract forbids it, it ordinarily can be assigned without a client’s consent. If you want to do this, you simply draft and sign an assignment agreement.

Update your insurance

Already have insurance coverage for your business? Then you need to have it transferred to your business name.

Don’t have insurance for your business? You should think about getting some! What type of insurance you’ll need, as well as how much coverage you’ll need, will depend on your business and your income.

Pay annual LLC/corporation taxes

Depending on your state, you might have to pay special annual LLC or corporation taxes.

Take California as an example. There, LLCs must pay a minimum annual $800 tax to the California Franchise Tax Board, and you must pay more if your LLC’s income is over $250,000. The tax is due April 15. Also, if you form a corporation, you’ll have to pay an $800 minimum tax to the Franchise Tax Board, and S corporations in Cali must pay a 1.5% tax on all of their net income if this amount exceeds the $800 minimum tax.

More information can be found in How to Maintain an LLC in California, and you can also check ftb.ca.gov for additional details.

Pro tip: Paying all of these annual taxes for your business can certainly be a chore, and it can be easy to forget when the fees are due. To help ensure you always pay on time and you always pay the correct amount, you can enlist the help of the experts at Hyke and let them handle the important details while you focus on running your day-to-day operations.

File a fictitious business name statement

You aren’t required to operate your LLC or corporation under the legal name listed in your articles of organization or incorporation, so you can use a completely different name if you want. Many businesses do this because they don’t think that their legal name is good for marketing or other business purposes. Really!

If you want to use a made-up business name — which is referred to as an assumed name, fictitious name, or dba (doing business as) — you must file a document in the county where your business’s main office is located. In California and many other states, this form is called a fictitious business name application. Doing so will allow you to operate under a name other than your LLC’s or corporation’s legal name.

Check your county’s fictitious name records first to be absolutely sure that the name you want to use isn’t already taken by another business. Then, file the right form and pay the required fee. If you need additional information in this area, check your county’s website, and you can also read through this article.

Set up your S corporation employee payroll

If you form an S corporation or you elect to have your LLC taxed as an S corp, you’ll ordinarily work as its employee. This means you need to set up employee payroll for yourself.

It’s up to you to decide how much of a salary you’ll pay yourself. Keep in mind that, if you pay yourself too little, you might end up facing problems with the IRS, so really take your time to determine the appropriate amount of compensation that you deserve to receive for the work that you do. To learn more, see our Freelancer’s Guide to Paying Yourself a Salary From an S Corporation.

Also remember that your S corporation must treat you much like any other employee, which means it’ll need to withhold income taxes and employee payroll taxes (Social Security and Medicare) from your salary and then pay that money to the IRS. And, as your employer, your S corp must pay half of your payroll tax itself.

Depending on your state, your S corporation might have to pay unemployment taxes, federal and state disability taxes, and workers’ compensation insurance premiums. In many states, a one-owner S corp can opt out of most of these requirements (phew!), but your corporation will have to pay federal unemployment tax of up to $420 per year.

Here’s the thing: employee payroll is complicated. You need to be sure that the proper amount of tax is being paid to the IRS throughout the year. Plus, depending on how much you’re paid, your corporation might have to make quarterly payroll tax and income tax deposits, and file quarterly employment tax returns. And an annual federal unemployment tax return must also be filed. We’re not gonna lie; it’s a lot!

So it’s no wonder that most small business owners hire payroll tax services or accountants to handle employee payroll for them. These days, you don’t have to restrict yourself to using local services either, as you can opt for online based payroll tax services, such as Gusto — and when you sign up with Hyke, your account will include payroll via Gusto, so it’s one less major thing you have to worry about!

Hyke can help you knock everything off your to-do list

After you form an LLC or S corporation, there’s quite a bit that needs to get done, and it’s really easy to quickly become overwhelmed by your to-do list. With assistance from the experts at Hyke, though, you can remain calm and in control.

We’ll help you officially form your LLC or S corporation, and we’ll also be there to walk you through everything from setting up your business bank account, to filing any taxes that you owe throughout the year. Bottom line: with our support and guidance, you won’t skip a beat.

Take in the benefits of being your own boss!

Sure, there’s a lot to take care of, from the get-go, when you run your own business, but it’s totally worth it. After all, what could be better than being your own boss, taking complete control over your career? With the right strategy, and the right support from experienced and knowledgeable pros, you can quickly take your new business to the next level.

About the authors

Ugur Kaner is the co-founder and CEO of Hyke, the online platform that helps freelancers save $15,000 or more in taxes.

Stephen Fishman writes for Hyke and is an attorney and author who writes useful and recognized guides on taxes and business law for freelancers. He is the author of over 20 books and hundreds of articles.

Originally published at www.hyke.me on March 16, 2019.