LLC taxes

[Pureshine]

Thought I would post this for people with sole proprietorship LLC.
This is of the IRS website and my accountant.

For tax purposes, a single-member LLC is a 'disregarded entity' for federal tax purposes. You report the income and the expenses of the business using Schedule C and carry that information over to your personal Form 1040.


A sole proprietorship is not a taxable entity. All of the business's assets and liabilities are treated as belonging directly to you, the business owner. In the same way, all the business income and expenses are considered to be your income and your expenses

Hi Todd,

Thanks for the info. For tax purposes, we will treat your business income and expenses as a sole proprietorship on Schedule of your 1040. Also, I did receive your pdf of your credit card expenses.

Also, attached is the spreadsheet we discussed. Only use it if you find it useful.

If I don’t see you before, I’ll see you in the spring to have you detail my bike.

Best,

Dave



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[Pureshine]

Hope this helps everyone under stand how this works.

 

[davisautodetail]

FWIW, I switched my web company over to an SCORP many years ago. I can take a salary that's comparable to others in my state, and that's all I pay self employment tax on, rather than the net income (that, I just pay corporate taxes on of course.)

That structure can save you 15.3% on some income, depending on salaries in the area.

For example, if the s-corp makes $50k, but the average wage for automotive guys is $25k, that means you save 15.3% by paying yourself $25k as the wage, and paying corporate on the $50k.

This was given to me by my accountant, and it's saved us a lot of money, especially in the good years.

 

[rlloyd]

You can also give yourself a bonus on top of the regular salary on those good years.
Also make sure you deduct everything. You guys are deducting internet access right? How else are you going to learn, order and promote your business? So many things to deduct before you pay taxes vs buying something with after-tax dollars.
One of the great things about being a business owner!
I stayed an LLC but changed my filing status so I keep my tax ID.

 

[wdmaccord]

FWIW, I switched my web company over to an SCORP many years ago. I can take a salary that's comparable to others in my state, and that's all I pay self employment tax on, rather than the net income (that, I just pay corporate taxes on of course.)

That structure can save you 15.3% on some income, depending on salaries in the area.

For example, if the s-corp makes $50k, but the average wage for automotive guys is $25k, that means you save 15.3% by paying yourself $25k as the wage, and paying corporate on the $50k.

This was given to me by my accountant, and it's saved us a lot of money, especially in the good years.

No income is taxed at corporate level in an S-Corp. In your example above, if you paid yourself a $25k wage, the other $25k would pass through to your personal return on a Schedule K-1.

You can also give yourself a bonus on top of the regular salary on those good years.
Also make sure you deduct everything. You guys are deducting internet access right? How else are you going to learn, order and promote your business? So many things to deduct before you pay taxes vs buying something with after-tax dollars.
One of the great things about being a business owner!
I stayed an LLC but changed my filing status so I keep my tax ID.

Don't pay yourself a W-2 bonus. That defeats the purpose of the S Corp. Pay it out as a "distribution". Maybe that is what you mean though?

 

[civdiv99]

Self-employed taxpayers must make estimated payments 4/15, 6/15, 9/15, and then 1/15 based on safe harbor criteria I won't go into here in order to avoid underpayment penalty. The timing also matters.

S-corp owners have the advantage that withholding from wages is treated as being "as if" they were made evenly through the year, regardless of when actually withheld. That factor means an s-corp owner can make adjustments at year end. There's no hard and fast method to apply, it's all a matter of circumstances and the impact of your various options.

While an LLC is subject to SE tax, keep in mind that the s-corp owner is making the employer and employee portion of the payroll taxes as well. The SE tax advantage only starts to pull away if the business does well enough to allow a reasonable wage and additional operating cash flow for distributions.

The advantages of an LLC (whether multi-member partnership or disregarded and effectively a proprietorship) are, for a new or fairly small business - no payroll, which means no payroll tax withholding and filing, no state (generally), and federal unemployment wages, etc. You want to have a really bad day/month/year? Screw up your payroll deposits. The trust penalties will choke a horse, as will the professional fees to have yer CPA unscrew it! Other advantage (situation depending) of a proprietorship is usually no issues with basis. Depending on how the business is capitalized, whereas the LLC/proprietor will usually be able to deduct losses as non-passive trade or business income or loss, off-setting spousal earned income, for example, the s-corp shareholder has to be cognizant of the fact he or she has no basis in 3rd party debt (so if s-corp has an operating line, shareholder has no basis in that debt, even if recourse to he shareholder unless and until the shareholder has to pay). LLC can have same situation, but the member usually can have basis in the obligation of the LLC if the owner is vested in member-manager rights (which will be the case).

Yes this what I do for a living.
Yes I have alphabet soup after my name "in the real world."
No I won't give anyone situation specific advice on a forum. Ever.
Yes I will answer generic "broad brush" questions, if and when I notice them, and I have he time, etc.
No I'd prefer not to get PM'd, though.
No I don't say the above to be difficult; but folks answer my detaily stuff, so fair is fair, but I am a busy dude as well.
Yes, the latest uproar the IRS has it's hands full with is highly amusing (if yer a tax pro), and probably has significant pucker-factor effects across the realm.