When you file single-member LLC taxes, it’s not always obvious what your obligations are and how to fulfill them.
This post talks about what to do if you are a single-member LLC. If you don’t know the difference between a single-member LLC and a sole proprietorship, check out my earlier infographic post HERE.
Paying Federal Income Taxes as a Single-Member LLC
The first question you must ask is: When you file your taxes, will you become a corporation?
Most people in any given year choose to remain what’s called a ‘pass-through entity.’ All that means is that the profits of your LLC are reported as income on your personal tax return, no different than if you were a sole proprietor (at least for tax purposes).
So if the answer is no to changing to an S or C-Corporation, just file form 1040 and use schedule C to report your LLCs income on your personal income tax.
If you choose C corporation, you’ll need to file form 8832. If you choose an S Corporation structure, you’ll need to file a Form 2553. These will be addressed in future posts.
You will be paying two taxes, the self-employment tax and the income tax.
Filing as a pass-through entity will mean a 15.3% self employment tax (12.4% for social security and 2.9% for Medicare, added together).
The income tax will correspond to your income tax bracket. It tends to go up as your income does. For instance, if you earn $45,000, you’ll pay 15.3% self-employment tax and 11.48% income taxes ($11,600 at 10% and $33,400 at 12%, for an 11.48% average). Total taxes without claiming any deductions would be $12,053. If you want to claim as many deductions as possible, read my vehicle, home office, and interest deductions posts.
You will also pay a payroll tax if you have employees, so look out for that.
Paying Excise Tax?
Depending on your business’s products, you may pay an excise tax as well (If you sell guns, ammo, gambling, fuel, heavy trucks, marijuana, cigarettes, or alcohol, take note. Also tanning beds… I wonder why…) These quarterly obligations are due:
- April 30 (For January, February & March),
- July 31 (April, May, June),
- October 31 (July, August, September),
- and January 31 (October, November, December)
Finally State Requirements for LLCs
Most states require an annual filing, franchise taxes, state income taxes, and sales taxes. Aside from the annual filing, most of these are due every quarter, but check your state commerce website to make sure. These are the things that make companies decide to move somewhere else if they get too out of hand. Annual filings are usually pretty cheap. Alaska requires a biannual filing and it’s only $100. Texas has a franchise tax and use tax required to be paid quarterly. Idaho has state income taxes. Depending on where you live, the expenses will be different, but hopefully not too expensive or difficult to pay.
Of course, you can come to my home state of Alaska and enjoy no state sales tax, no franchise tax, and no state income tax. Become a resident and you can even get a taste of the second largest sovereign wealth fund in the world: the Alaska Permanent Fund and its famous annual dividend. Fingers crossed the new federal administration can set up a dividend for all Americans as well!
Of course, you don’t have to move to Alaska to benefit from my bookkeeping. I use bookkeeping software and research your state’s requirements to make sure you stay current on your local obligations, and when it’s time to pay federal taxes, your books will be ready for your tax preparer. Call me to schedule a strategy call where I can review your books and save you 80 hours per year doing your bookkeeping.
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