LLC and taxes question

[MichaelD]

I realize free advice is worth what you pay for it, but I know there are a few small business owners on AT. Maybe you can point me in the right direction.

I am considering forming a sole-owner LLC. I understand about filing the papers in my state, getting an EIN# etc.

My questions are:

Is there a "minimum tax" that I'd be expected to pay? IOW, say my first year in business I only make $1,000 or I make nothing; is it possible that b/c I'm a business, I'd owe taxes anyway, even though I made nothing?

Let's say I spent $5K on equipment for the business, but my first year I made less than $5K. Would I still be able to deduct the $5K (or some percentage?) I spent on the equipment?

Thanks for any useful advice you can offer.

 

[phucheneh]

I am also curious about this. Same with just having a non-incorporated licensed business.

I am extremely paranoid about the gubberment (seriously). I've been wanting to either throw up a website, or (god, it pains me to think of this) start a facebook page for customer feedback and such. But I'm secretly afraid some IRS troll is going to look at different comments for different work and say 'YOU HAD TO HAVE MADE AT LEAST x AMOUNT OF MONEY, YOU FILTHY TAX-CHEATING LIAR!' (even if I was being honest).

 

[Stone Rain]

I'm curious too. I just file as self-employed, and do business as myself.

 

[MichaelD]

I am also curious about this. Same with just having a non-incorporated licensed business.

I am extremely paranoid about the gubberment (seriously). I've been wanting to either throw up a website, or (god, it pains me to think of this) start a facebook page for customer feedback and such. But I'm secretly afraid some IRS troll is going to look at different comments for different work and say 'YOU HAD TO HAVE MADE AT LEAST x AMOUNT OF MONEY, YOU FILTHY TAX-CHEATING LIAR!' (even if I was being honest).

And that is exactly why I'm researching this now, before plunking down money and filing for an EIN and creation of an LLC. I COULD easily do this thing off the books and under the table. Until something happens and then I'm done. So if I'm going to do it, it's going to be above-board, all the way.

 

[MichaelD]

I'm curious too. I just file as self-employed, and do business as myself.

This thing I'm looking to do would be a side-gig, not my primary method of income. I would do it on a "when I can " basis...unless I got real popular, I guess. So many variables...

 

[vi edit]

Google "3 of 5 test" and do some reading.

 

[BrunoPuntzJones]

Single member LLC and filing a schedule C just lumps your profit/loss against whatever is on page 1 of your 1040. You have W-2 wages of $50,000 and Sch C loss of $10,000, you only pay on $40,000.

If you have $50,000 in W-2 wages, and $10,000 in Sch C profit, you'd have $60,000 to pay on, and self-employment tax on the $10,000 (like 15.3% right now).

On the equipment, you'd have to have enough earnings to expense it all in one year. If you have a loss, you can take 50% bonus depreciation to create a bigger loss and eat up some tax liability you may have.

As noted above, make sure you don't run afoul of hobby losses or are sheltering income by making up losses on other schedules to reduce income.

 

[highland145]

Calling EK and CPA.

If you don't make any $$, you don't pay taxes but you may still have to file the paperwork saying you didn't make any $$ if you're a LLC.

Depreciation may/could/should offset your meager earnings.




For one of the places that I pay the bills and do payroll (Corp-sub s): The IRS stopped mailing the form 941 every quarter, forgot to file it for the 1st quarter....BAM....~$300 penalty. Paid the payroll tax/taxes withheld on time and the right amount but didn't file the form. Nice, IRS.

 

[Genx87]

I realize free advice is worth what you pay for it, but I know there are a few small business owners on AT. Maybe you can point me in the right direction.

I am considering forming a sole-owner LLC. I understand about filing the papers in my state, getting an EIN# etc.

My questions are:

Is there a "minimum tax" that I'd be expected to pay? IOW, say my first year in business I only make $1,000 or I make nothing; is it possible that b/c I'm a business, I'd owe taxes anyway, even though I made nothing?

Let's say I spent $5K on equipment for the business, but my first year I made less than $5K. Would I still be able to deduct the $5K (or some percentage?) I spent on the equipment?

Thanks for any useful advice you can offer.

You only pay on profits made by the LLC. If you have more expenses than revenue you dont pay taxes at all.

 

[MichaelD]

/head goes boom

I think I understand part of it. I have to pay income tax on what I earn at my primary job, and I have to pay income tax on what I earn through my LLC. Got that. I don't understand a Schedule C from a Bus Schedule, however.

And on the equipment deduction vs. earnings: Are you saying that (for sake of argument) I spend $5K on equipment, but only earn $5K, I can deduct the whole $5K in eqpmt and pay no taxes? Thanks for your help.

Single member LLC and filing a schedule C just lumps your profit/loss against whatever is on page 1 of your 1040. You have W-2 wages of $50,000 and Sch C loss of $10,000, you only pay on $40,000.

If you have $50,000 in W-2 wages, and $10,000 in Sch C profit, you'd have $60,000 to pay on, and self-employment tax on the $10,000 (like 15.3% right now).

On the equipment, you'd have to have enough earnings to expense it all in one year. If you have a loss, you can take 50% bonus depreciation to create a bigger loss and eat up some tax liability you may have.

As noted above, make sure you don't run afoul of hobby losses or are sheltering income by making up losses on other schedules to reduce income.

 

[Genx87]

/head goes boom

I think I understand part of it. I have to pay income tax on what I earn at my primary job, and I have to pay income tax on what I earn through my LLC. Got that. I don't understand a Schedule C from a Bus Schedule, however.

And on the equipment deduction vs. earnings: Are you saying that (for sake of argument) I spend $5K on equipment, but only earn $5K, I can deduct the whole $5K in eqpmt and pay no taxes? Thanks for your help.

Yes you can do that so the LLC will have an effective profit of 0 dollars. You will report profits from the LLC on your personal taxes. But the only thing that goes on the 1040 is the profit from the LLC. If you show an operating loss. I believe they will only let you show so much of that. Maybe 3K? Not sure. Maybe nothing at all. Keep all reciepts in case of an audit.

 

[phucheneh]

What I don't understand: What stops you from just paying the profits to yourself?

'Hey, I made 10k this year! I think I deserve a 10k bonus!'

I guess the more important question is, do you pay more taxes on the company coffers or on your personal wages? Assuming a standard 'independent proprieter' level of income (let's say under 100k).

 

[Ns1]

If CA then min tax = 800

if other states then no idea

https://www.ftb.ca.gov/businesses/bus_structures/LLCompany.shtml

 

[MichaelD]

It would stink to have to pay any tax if you made no profit.

 

[Ns1]

It would stink to have to pay any tax if you made no profit.

Yes, which is why LLC is not the end all be all for CA peeps. So are you in CA?

 

[MichaelD]

Yes, which is why LLC is not the end all be all for CA peeps. So are you in CA?

Nope, I'm in TX, where the filing fee for an LLC is $300. :thumbsdown: I'm looking at getting business liability insurance, the whole 9 yards.

 

[Ns1]

Nope, I'm in TX, where the filing fee for an LLC is $300. :thumbsdown: I'm looking at getting business liability insurance, the whole 9 yards.

meh, the first of many fees you'll face.

 

[highland145]

What I don't understand: What stops you from just paying the profits to yourself?

'Hey, I made 10k this year! I think I deserve a 10k bonus!'

I guess the more important question is, do you pay more taxes on the company coffers or on your personal wages? Assuming a standard 'independent proprieter' level of income (let's say under 100k).

The company doesn't pay taxes. You do. If it's $10K you earned on a w-2 from your employer, you pay s.s./medicare. The employer pays a like amount. 6.2%/1.45% each. If you earned it on a schedule C, self employed, you get to pay both halves, 12.4%/2.9% each.

 

[highland145]

Nope, I'm in TX, where the filing fee for an LLC is $300. :thumbsdown: I'm looking at getting business liability insurance, the whole 9 yards.

meh, the first of many fees you'll face.

This.

Do you really need to form a LLC?

Call your local SCORE.

 

[MichaelD]

The company doesn't pay taxes. You do. If it's $10K you earned on a w-2 from your employer, you pay s.s./medicare. The employer pays a like amount. 6.2%/1.45% each. If you earned it on a schedule C, self employed, you get to pay both halves, 12.4%/2.9% each.

Whachu talkin'bout, Willis? I've got to pay ss/medicare on myself? Both halves? Can't I opt out of that, or something? I obviously know nothing about how this crap works.

I thought it went:

Legally form a company (LLC or INC) and pay fees associated w/that.
Get EIN#.
Work.
Make money.
Pay tax on earnings.
Everything else = profit

Apparently, I missed pretty much everything. Now I'm pissed off.

 

[Ns1]

Whachu talkin'bout, Willis? I've got to pay ss/medicare on myself? Both halves? Can't I opt out of that, or something? I obviously know nothing about how this crap works.

I thought it went:

Legally form a company (LLC or INC) and pay fees associated w/that.
Get EIN#.
Work.
Make money.
Pay tax on earnings.
Everything else = profit

Apparently, I missed pretty much everything. Now I'm pissed off.

You either need a "business taxes for dummies" book or an accountant.

Yes you pay both halves on any profit and the only way around it is to not make a profit. A crafty accountant can teach you how to accomplish this.

see: self employment tax

 

[BrunoPuntzJones]

Nope, I'm in TX, where the filing fee for an LLC is $300. :thumbsdown: I'm looking at getting business liability insurance, the whole 9 yards.

Then you've got it easy. Single-member LLC filing on schedule C. For your tax return you'll file as an individual and have all the protections of a corporation. Your filing fee will be a one time thing. Annual Texas Franchise tax doesn't kick in unless you have business income over a million bucks. Just cost of the stamp each year to send in the no tax due form.

And that paycheck you get that has medicare and social security taken out? Your employer is paying that same amount. So your employer basically pays a 7.65% tax just to keep you around.

Since you are self-employed, you now have to pick up what would have been the company's portion. So now you pay 15.3% off the top. However, you get to take half of that tax as a deduction.

 

[MichaelD]

Excellent explanation; thank you. I understand this. And yes, I need a "business taxes for dummies" book. :biggrin:

Then you've got it easy. Single-member LLC filing on schedule C. For your tax return you'll file as an individual and have all the protections of a corporation. Your filing fee will be a one time thing. Annual Texas Franchise tax doesn't kick in unless you have business income over a million bucks. Just cost of the stamp each year to send in the no tax due form.

And that paycheck you get that has medicare and social security taken out? Your employer is paying that same amount. So your employer basically pays a 7.65% tax just to keep you around.

Since you are self-employed, you now have to pick up what would have been the company's portion. So now you pay 15.3% off the top. However, you get to take half of that tax as a deduction.

 

[MichaelD]

Yeah, I've got a lot of reading to do...I need to see if this is a viable idea for me. It's something I really want to do, but it won't be my livlihood. It'll be doing something I enjoy doing while getting paid for it.

You either need a "business taxes for dummies" book or an accountant.

Yes you pay both halves on any profit and the only way around it is to not make a profit. A crafty accountant can teach you how to accomplish this.

see: self employment tax

 

[highland145]

Whachu talkin'bout, Willis? I've got to pay ss/medicare on myself? Both halves? Can't I opt out of that, or something? I obviously know nothing about how this crap works.

I thought it went:

Legally form a company (LLC or INC) and pay fees associated w/that.
Get EIN#.
Work.
Make money.
Pay tax on earnings.
Everything else = profit

Apparently, I missed pretty much everything. Now I'm pissed off.

Why yes. The Uncle is hungry. Someone gets to pay a total of 12.4% and 2.9% on w-2 income plus your income tax.

Call SCORE.

My situation:Corp sub-s.
Company makes $$
I get a salary.
Profits after expenses/depreciation roll onto my personal taxes via a K-1 as income. I do not pay ss/medicare on the K-1 but I must pay myself a reasonable salary for my position as an employee so the Uncle can get his fair share of the ss/medi.

You can do a schedule c yourself with turbotax and the like. I just paid a shit ton for a CPA to do my corporate tax. I provided them all the #s so they just have to plug them in.

Might be good to start as a sole prop and convert to a LLC or Corp later if the $$ is good.

Liability insurance is a good idea too.