What is the right way to do this?

Why don't you put all that information into MFP when you set your goals, decide on how fast you want to lose (1 pound a week is recommended) and let it do the work?

Set yourself at sedentary and add in your exercise. You get calories added in for that and you should eat them.

The exercise will not help you lose weight but it will help you look much better and feel better at whatever weight you're at.

Your calculated TDEE is a little over 2500 calories. To lose weight, you should eat at a deficit of 20% below TDEE which would be 2000 calories a day. For maximum muscle preservation during your weight loss you should eat 150g of protein a day, and for hormone production, you should eat at least 76g of fat per day. That puts calories from fat and protein at 1284, leaving 716 calories for carbs which comes to 176g from carbs. If you have any questions on where I got these numbers just ask

AGericke, thanks for the numbers. Would you please explain how you got those numbers so I understand how the process works?

The Katch McArdle equation is the most accurate equation out there for estimating BMR, and subsequent TDEE. The equation is this BMR = (21.6*LBM in Kg) + 370. Since your LBM is your weight times your LBM percentage. In your case, it's 197*0.6975=137lbs. After converting 137 lbs to kg you get about 62kg. Plug that into the equation and you get a BMR of 1709 calories. Now you have to multiply your BMR by an activity multiplier to get your TDEE. Here's the list of activity multipliers:

1.2 =Sedentary (Desk job, and Little Formal Exercise)
1.3-1.4 = Lightly Active (Light daily activity AND light exercise 1-3 days a week)
1.5-1.6 = Moderately Active (Moderately daily Activity & Moderate exercise 3-5 days a week)
1.7-1.8 = Very Active (Physically demanding lifestyle & Hard exercise 6-7 days a week)
1.9-2.2 = Extremely Active (Athlete in ENDURANCE training or VERY HARD physical job)

For you I used 1.5 which is probably a slight underestimate, but I like to be low rather than high. That puts you at just over 2500 calories for your TDEE.

As for the macros, I used numbers based on scientific studies into nutrition . For the fat minimum, to maintain proper hormone production, everyone should consume, at a minimum, 0.4g/lb of body weight of fat a day. Eating a low fat diet for a prolonged amount of time can have serious and dangerous effects on the body. For the protein minimum, it has been scientifically proven that any protein consumed above 0.82g/lb of body weight will not give any further advantage for muscle protein synthesis, therefore to achieve maximum muscle building potential, and maximum muscle retention during weight loss, consume a minimum of 0.82g/lb of body weight of protein a day. The numbers I listed for fat and protein are minimums, and it is completely fine to go over them as long as you don't go over your caloric goal for the day. There is no minimum for carbs as they don't perform any essential bodily functions like fats or protein, but carbs are the body's preferred fuel source for energy and if you are active they are very helpful. Hope that explains most of the questions you had.