What process is necessary for an individual who has been self-employed for the past 10 years but would like to become a single member llc in order to reduce liability?
– Steve, New York
I assume by your question that by “self-employed” you mean that you have been operating your business as a sole proprietorship for the past 10 years.
The simple answer is that you form an LLC and begin operating your business through your LLC. Here is an overview of the steps:
1. Form your LLC by filing Articles of Organization with your state.
2. File form SS-4 with the IRS so you can get your EIN (Employer Identification Number; also called an FEIN for Federal EIN). Even if you don’t have employees, your EIN is analogous to a social security number for your LLC, and you’ll need it to open a business bank account, among other things.
3. Open a business bank account in the name of your LLC, using your EIN.
4. All of your future business related expenses should come out of your business checking account, and all of your business income should be deposited there.
5. As your LLC earns a profit, you can write a check from your LLC’s business checking account to yourself. You do not need to do withholding taxes (but don’t get too excited, you still have to pay self-employment tax at the end of the year).
6. As a single member LLC, you are treated by the IRS as a disregarded entity, meaning that you don’t have to file a separate informational return for the LLC. Instead, all of your revenues and expenses are recorded on your Schedule C. Which, from your question, is something you are familiar with.
Steps 1 and 2 can be performed for you at a reasonable charge by a company like LegalZoom.