USA New business owner with Tax questions


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I started a single person LLC in SC in June 2018. As I understand it, I am regarded as a "pass-through entity" meaning whatever profit the business makes passes through to my individual return and I do not file a return for the business, per se. Correct?

1. As a single person LLC, does this mean I can just file taxes on an annual basis in April (i.e. as opposed to filing quarterly taxes)?

I made this assumption and applied for and was approved for a tax extension - thus, I am planning to file 2018 taxes before 10/15/19.
I have been using QuickBooks self-employed since day 1 to keep records.

I should have been asking these questions a year ago, yet here I am. If anyone might be able to assist me with these questions I greatly appreciate it.
 
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kirby

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First -yes, you do not file a return for the business.

1. No. Tax law requires you to pay tax as you earn income. You saw that if you were ever an employee because some tax was required to be withheld. So you need to calculate how much you need to pay quarterly for the flow thru income. And do so for Fed and state taxes.
 
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As a single member LLC you are automatically considered a disregarded entity by the IRS and will file your taxes on a schedule c with your 1040, that is correct. However, you can request with the IRS to be treated as an S corp using form 2552. If you were to do this you would then file an 1120S s corp return instead of using the schedule c. As always, there are advantages and disadvantages to both.

Filing on a schedule c with the 1040 avoids having to pay for and prepare an additional tax return. However, as with any schedule c you will pay basically 15% self employment tax on the net income from the schedule c. This is in addition to any income tax.

Filing on an 1120S means you do have to pay or prepare another return, however the pass through income (reported through a K-1 from the 1120S and onto the 1040) is not subject to the self employment tax. Many people do this simply to avoid the 15% self employment tax.

You have to be aware that simply taking distributions as compensation from the s corp could lead the IRS to declare that all distributions are actually salary and require you to pay self employment tax anyway, plus penalty and interest. To avoid this you should pay yourself, as an employee, a reasonable salary in accordance with IRS requirements, should you decide to go the s corp route. A reasonable salary is defined by the IRS as what you would pay someone else to perform the same service.
 

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