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Editorial 10 MIN READ

How to budget for the first year of an LLC, 2019

The filing fee is a rounding error; the rest of the line items have moved since 2017, and one of them came from the tax code itself

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 5 sections
  1. What the state takes, state by state
  2. The registered-agent market in 2019
  3. Books, software, and tax prep after 199A
  4. Putting it together for 2019
  5. Sources

first-year LLC budget in October 2019 looks different from the one we published in May 2017. The filing fees have barely moved. Almost everything else has.

This is a walkthrough of the twelve months after you sign the Certificate of Formation, refreshed for current prices and for a tax code that did not have Section 199A in it the last time we wrote this. It assumes a real set of books, a tax return filed by a human, and no administrative dissolution notice in the mail next spring. Our 2017 budget piece still holds as a structural model; the numbers below are the 2019 update.

What the state takes, state by state

Delaware is still $90 to file the Certificate of Formation and $300 a year in annual LLC tax, due every June 1 regardless of activity. The $300 figure is set by 6 Del. C. § 18-1107(b), and the penalty for missing the deadline is still $200 plus 1.5% monthly interest on the unpaid balance. None of that has changed since the 2017 piece. What has changed is how many founders discover the bill exists, which is still most of them, because the Division's reminder notice still looks like junk mail.

Wyoming is $100 to file Articles of Organization and a minimum $60 annual report license tax, computed as the greater of $60 or $0.0002 per dollar of assets located and employed in Wyoming. For an LLC whose only Wyoming footprint is a registered-agent address, it sits at $60. That bracket has not moved.

Nevada is where a founder writing a check in 2019 notices the gap widen. The Secretary of State takes $75 for the Articles of Organization, $150 for the Initial List of Managers or Members, and $200 for a State Business License, for a total of $425 at formation. Each year after that, the LLC pays $150 for the Annual List and $200 for the Business License renewal, which is $350 a year to keep a Nevada LLC in good standing before any tax on income. For a sole-member holding entity, that is a real number, and it is one of the reasons the Nevada pitch has quietly lost ground to Wyoming and to home-state formation for everyone who is not actively using Nevada specifically.

Texas is still $300 for a Certificate of Formation (Form 205). The franchise-tax side has drifted in the founder's favor: the 2019 report year uses a no-tax-due threshold of $1,130,000 in annualized total revenue, up from $1,110,000 in 2017. A first-year Texas LLC that clears the $300 filing and the annual Public Information Report (Form 05-102) will almost always owe nothing, and it will still owe paperwork due May 15.

California remains the budget outlier. The Articles of Organization (Form LLC-1) are still $70, and the Statement of Information (Form LLC-12) is still $20. The $800 minimum annual franchise tax under R&TC § 17941 is also still $800, and it is still due by the 15th day of the 4th month after formation. An LLC organized in October 2019 owes the first $800 by February 15, 2020, and a second $800 by April 15, 2020 for tax year 2020. The tiered LLC fee under R&TC § 17942 still kicks in on top of that at $250,000 of California-sourced gross receipts, starting at $900 and scaling to $11,790 above $5 million. First-year LLCs rarely hit the tiers, but every first-year California LLC budgets $800 as a line item.

The California answer will feel more unstable in 2020 than it does in 2019. Governor Newsom signed AB 5 on September 18 to codify the Dynamex ABC test, and LLCs that have been doing business with California operators as independent contractors will be reworking those relationships in the first quarter. That is not a formation-cost line, but it is in the neighborhood.

New York is still $200 to file the Articles of Organization with the Department of State and still governed by LLC Law § 206, which requires publication in two newspapers (one daily, one weekly) for six consecutive weeks within 120 days of formation, followed by a Certificate of Publication with a $50 filing fee. Upstate counties still run a few hundred dollars all-in. New York County, Kings, Queens, and the Bronx still run between $1,000 and $2,000, driven by the Manhattan daily papers and the New York Law Journal. Missing the window still suspends the LLC's authority to transact business until publication is completed. The legislature has not repealed the requirement, the Department of State has not softened it, and every fall there are still Reddit threads from Manhattan founders who discover it on day 119.

The registered-agent market in 2019

The 2017 piece described a price band of roughly $50 to $300. The commodity floor has held; the middle has compressed. Two years of price competition among the national names has pulled the mid-market price into a narrower range, with more bundled services at each tier.

Northwest Registered Agent is $125 a year. The pitch is a flat price, same-day scanning, and a habit of not upselling you every six weeks. For a single-state formation, it is usually the answer.

LegalZoom's registered agent product sits at $299 a year, unbundled. The price reflects the brand-recognition tax; the service is serviceable. Most of LegalZoom's registered-agent customers are there because they already bought something else from LegalZoom and let the registered agent get added to the cart.

LegalNature, CSC, CT Corporation, and the other full-service national providers cluster between $150 and $300 depending on what you bundle. CSC and CT sit at the high end because they also handle foreign-qualification work, UCC searches, and multi-state portfolios for law firms; unless you need that, you are overpaying.

For a first Delaware or Wyoming entity in 2019, pay between $100 and $150. Below that you are in mailbox territory; above $200 you are paying for a sales team. The reason to move up is a multi-state portfolio or a holding company with subsidiaries, not a sole-member LLC holding one consulting practice.

The EIN is still free. The IRS still issues it through the online SS-4 flow in a few minutes. Anyone charging for it in 2019 is still charging to retype your own data. This has not changed and will not change.

Books, software, and tax prep after 199A

Bookkeeping software prices have drifted. QuickBooks Self-Employed lists at $15 a month for the base plan in 2019. QuickBooks Online Simple Start is $25 a month. Xero's Early plan is around $9 a month with limited transactions, with Growing at $30 and Established at $60. Wave remains free for core bookkeeping and charges per transaction on payments. For an LLC running fewer than a hundred transactions a month, the entry tier of any of these is enough. Budget $180 to $300 for the year if you are paying month-to-month.

The expensive shift since 2017 is tax preparation, and the reason is not inflation. It is Section 199A. The TCJA introduced the 20% qualified business income deduction for pass-through entities at the end of 2017, and the proposed regulations landed in August 2018. The final regulations published in T.D. 9847 in early 2019 are long, and they are operationally demanding. A single-member LLC with a Schedule C now requires a 199A calculation that accounts for W-2 wages paid, unadjusted basis immediately after acquisition of qualified property, the specified-service-trade-or-business rules, and the phase-in between the threshold and the full limitation.

The National Society of Accountants' 2018-2019 Income and Fees Survey, the one most founders will see referenced if they ask their accountant where the pricing comes from, reports an average of $294 to prepare an itemized Form 1040 with a state return. That is the 1040 line, not the entity return. For the entity returns founders actually need, the post-TCJA averages tracked by Accounting Today and the NSA cluster around $400 for a Schedule C attached to a 1040, $682 for a Form 1065, and $721 for a Form 1120-S, with wide regional variation. Coastal-city CPAs with a 199A-heavy book will charge above those averages.

What the 2017 piece understated is that the 199A analysis itself is a separate workstream for a preparer. CPAs we have talked to in 2019 report a typical 199A surcharge in the $300 to $600 range for a small LLC, depending on whether the entity is in or out of a specified service trade, whether it crosses the single-filer threshold of $160,700 or the joint threshold of $321,400, and whether the preparer has to compute the wage-and-property limitation or can stop at the safe harbor. For an LLC solidly below the threshold that is not an SSTB, the surcharge is smaller. For one at the phase-in, it is real.

A reasonable first-year tax-prep budget for 2019, then, is $500 to $800 for a Schedule C situation with a straightforward 199A story, $900 to $1,800 for a Form 1065 partnership, and $1,200 to $2,500 for a Form 1120-S with an SSTB-question attached. Those ranges are higher than 2017 and they are higher for a reason.

Putting it together for 2019

The operating-agreement line has not moved in two years. A solo member using a well-reviewed template still pays $0. A two-member LLC with light customization on a form-bank pays in the low three figures. An attorney-drafted agreement with vesting, drag-along, and a distribution waterfall still runs $1,000 to $3,000 for a straightforward deal, more for anything with preferred units or institutional investors. The rule from 2017 still applies: if there is money or relationships at stake between members, pay a lawyer.

A lean single-member consulting LLC formed in Wyoming in October 2019 looks like this: $100 formation, $125 registered agent (Northwest), $0 EIN, $0 template operating agreement, $240 bookkeeping (Wave free plus $20 of payment fees, or $180 on QuickBooks Self-Employed partial year), $600 tax prep with a 199A calculation, $60 Wyoming annual report next October. Year-one cash out: roughly $1,100.

The same LLC formed in California in October 2019, still single-member: $70 formation, $125 registered agent, $800 California franchise tax due by February 15, 2020, a second $800 due April 15, 2020 for tax year 2020, $20 Statement of Information, $240 bookkeeping, $700 tax prep with 199A. Year-one cash out through April 2020: roughly $2,755, before any operating-agreement legal work and before the gross-receipts fee.

The same LLC formed in New York County with publication in the Manhattan dailies: $200 formation, $1,500 publication (mid-range Manhattan), $50 Certificate of Publication, $125 registered agent, $240 bookkeeping, $700 tax prep, plus the New York State filing fee on a partnership return if applicable. Year-one cash out: roughly $2,800 to $3,400.

The Nevada version is the one that has most visibly repriced: $75 Articles, $150 Initial List, $200 State Business License, $125 registered agent, $150 Annual List in year two, $200 License renewal in year two, plus $240 bookkeeping and $600 tax prep. The year-one cash out sits around $1,400, with a recurring $350 a year in state fees before any tax on income. That is why the Nevada vs. Wyoming question is now a Wyoming answer for most holding entities that do not need Nevada specifically.

Rule of thumb for 2019: budget $1,100 to $1,500 for a lean LLC in a low-cost state, $2,800 to $3,500 in California or New York City, add $500 to $2,500 more for any year in which a lawyer touches the operating agreement, and add another $300 to $600 on top of the tax- prep line the first year 199A is on the return.

Sources

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