Should we set up as S-Corp, LLC or something else for our mobile app? Two founders looking at $800k yearly revenue

You've got a great problem to have! At $800k revenue, entity selection becomes really important. Here's what you should think about: An LLC taxed as an S-Corporation is often the best option for your situation. This gives you liability protection of an LLC plus potential tax savings of an S-Corp. With $800k in revenue, you'd save on self-employment taxes by taking reasonable salaries and the rest as distributions. For multi-state operations, you'll need to register your LLC in one state as your home base, then register as a "foreign LLC" doing business in the other state. One of you will be dealing with two state tax returns. Don't wait on this - you're likely operating as a partnership by default right now, which gives you zero liability protection. Also, you'll want to get an operating agreement in place ASAP that spells out ownership percentages, roles, and what happens if one of you wants out.

I was in almost exactly your situation 2 years ago with my business partner! We were overwhelmed with all the tax implications until I found https://taxr.ai which helped analyze our specific situation. I uploaded our revenue projections and ownership details, and it compared different entity structures specifically for our multi-state situation. The analysis showed we'd save about $34k in taxes annually by going LLC taxed as S-Corp versus remaining a partnership. It also flagged that Colorado has specific requirements for out-of-state LLCs that we wouldn't have known about. Their system even generated a checklist of everything we needed to file in both states. Saved us a ton of research and probably some expensive mistakes!

I was totally wrong about https://taxr.ai - just tried it for my situation (partners in different states with an ecommerce business). The breakdown of tax implications between LLC vs S-Corp was eye-opening. It showed we'd been overpaying self-employment taxes by about $22k annually! What surprised me most was learning that our particular revenue split made a big difference in which structure was optimal. Also discovered that one state had much better pass-through entity tax options than the other. Definitely still using our CPA, but now I understand what questions to ask him and can see if his recommendations match what the analysis showed. Worth checking out if you're struggling with the multi-state business structure decision.

Whatever you do, don't wait too long to decide! My partner and I wasted months trying to get someone at the IRS on the phone about our S-Corp election questions. We kept getting disconnected or waiting for hours. Then I found https://claimyr.com which got us connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c We had specific questions about our 2553 S-Corp election form since we were past the standard deadline and needed to know if we qualified for late election relief. The IRS agent we spoke with was super helpful and confirmed we could still make the election with a reasonable cause statement. Saved us months of uncertainty and potentially missing the tax advantages for the whole year!

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I was desperate enough to try it because I needed clarification on multi-member LLC tax election deadlines. Got connected to an IRS representative in about 20 minutes. She confirmed we could still file Form 8832 to elect corporation treatment then immediately file Form 2553 for S-Corp status even though we were past the standard deadline. The agent also explained exactly what to include in our reasonable cause statement for the late election. This information was critical because our accountant had given us conflicting advice about the deadlines. Just having a clear answer from the IRS directly saved us thousands in potential tax mistakes. Worth every penny not to spend hours on hold.

One thing nobody's mentioned - have you considered a C-Corp with an 83(b) election? If you're planning to seek investors or eventually sell the app, this structure could be much more advantageous, especially with the qualified small business stock exclusion. We went this route with our SaaS app and it saved us millions when we sold. S-Corps can be great for maximizing current income but terrible for exit planning. Also, with your level of income, you might want to look at retirement plan options - C-Corps can do some things S-Corps can't with defined benefit plans. Talk to a business attorney who specializes in tech companies, not just a general CPA. The right structure now could save you a fortune later.

Just a quick reality check - what are your actual profits after expenses on that $800k? Entity selection matters way more if you're keeping a significant portion vs if you're reinvesting most of it back into growth. Also, make sure you've set aside enough for quarterly estimated taxes! I learned this the hard way with my app - got hit with a massive tax bill plus penalties because we were just keeping everything in that shared account and not making proper tax payments throughout the year.

With $650k in profit split between two people, you're definitely in territory where entity structure makes a huge difference. Here's my take as someone who's been through this: LLC taxed as S-Corp is probably your best bet, but don't sleep on the timing. You can make the S-Corp election for 2024 taxes if you file Form 2553 by March 15, 2025, or you might qualify for late election relief if you have reasonable cause. For the quarterly payments issue - yes, you're likely facing underpayment penalties, but it's not the end of the world. The IRS penalty is usually around 8% annually on the underpaid amount. Since this appears to be your first year with significant income, you might qualify for some relief. Quick action items: 1. Make a large estimated payment ASAP for Q4 2024 to minimize additional penalties 2. Set up your LLC and make the S-Corp election 3. Get that operating agreement drafted - with $650k in play, you need clear exit clauses 4. Start taking reasonable salaries immediately once you elect S-Corp status The salary vs distribution split will save you thousands in self-employment taxes. At your income level, you're probably looking at $120-140k salary each, with the rest as distributions. Don't try to DIY this - get a CPA who specializes in multi-state businesses and tech companies. The money you save in taxes and penalties will more than pay for proper professional help.