Hi All - I'm a new Virginia LLC start up and have a few questions as I work to understand how I'll be taxed.
Scenario :
Our year end profit is $100,000.
A : As a single member LLC is the total $100,000 taxed as income for the owner?
B : Federal income tax rate schedule tax is $17,891.25 + 28% of the amount over 87850. Does this mean that I'm left with $78707 after deducting 21293 (17871+3406)?
C : 15.3% FICA tax includes SS and Medicare Employee and Employer Contributions. Do I deduct another $15,300 for this leaving me with $63,407 in net income?
D : Do I also pay PUTA and SUTA?
E : What about state taxes?
F : Is there anything that can be done to reduce tax liability?
G : What's the difference between start-up expenses and write offs once you're already in business?
Answer :
Our year end profit is $100,000.
A : Yes; as you can see, as an SMLLC owner, just like a sole proprietor, you need to report your net profit on Shc C/SCh SE and on line 12 of 1040. Your entity is an SMLLC, NOT a MMLLC. If your SMLLC does not elect to be treated as a cop , either an S Corp or a C Corp, then, the LLC is a “disregarded entity,” and the LLC’s activities should be reflected on its owner’s federal tax return.
B : Federal income tax rate schedule tax is $17,891.25 + 28% of the amount over 87850. Does this mean that I'm left with $78707 after deducting 21293 (17871+3406)?”=No.As a SMLLC , owner, as long as the amount on Sch SE in 2/ 3 is $400 or exceeds $400, then you need to pay SECA tax to the IRS. You usually file your tax as a self employer as long as the amount on Sch S line 29/ 31 is also $400 or exceeds $400. You can deduct 50% of your SECA tax that you pay to the IRS on your 1040.ALSO, as you are filing as a sole proprietor and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1K or more when you file your return; however, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year ; you were a U.S. Citizen or resident for the whole year ; your prior tax year covered a 12 month period.
C : No, NOT $15,300.You, as a self employed, need to pay SECA tax as mentioned previously; Seca tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.. For self-employment income earned in 2013, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% of social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). you need to follow instructions on Sch SE for sure.
D : .UNLESS you have an EE, no
E : Yes; you may have to pay quarterly estimated taxes to your state as well as long as you do not have to pay estimated tax for the current year if you had no tax liability for the prior year ; you were a U.S. Citizen or resident for the whole year ; your prior tax year covered a 12 month period.
F : basically, being self employed, you can lower your self-employment, federal and state tax by claiming expenses. Any expenses that you list must have supporting documentation such as cancelled checks, cash receipts, invoices and credit card receipts. The expenses must be for the business that you run, not personal. Such expenses could be office supplies, licenses, taxes and car expenses if they pertain to the business. as mentioned above, you need to take advantage of the self-employment deduction. You can claim 50% of your self-employment tax as a federal income tax deduction. While this does not actually reduce your self-employment taxes, it does reduce your overall tax burden.also you, as a self-employed individual, can also reduce tax liability through the details of a health insurance plan. Obviously you would not be receiving benefits from your employer and so you will be responsible for insuring your health needs. Health insurance premiums are legal deductibles. However, health insurance deductibles must not cost more than the income your business makes. Taking advantage of a retirement plan can also help you prevent high tax dues. This is quite complicated and so professional help must be consulted. You may also apply Sec 179 expensing/ bonus depre to accelerate your dapper exp so that you can reduce tax liability, too.
G: start up costs can be also write-off; There a number of small business tax write-offs offered by the IRS for startups. If you have a start-up business and want to save some money on your taxes, you should be familiar with these small business tax write-offs. Some of the most common small business tax write-offs that you can use when filing tax returns for your business are; Based on the rules and regulations set by the IRS, you are allowed to deduct up to $5k in start-up costs during your first year. If you fail to deduct the aforementioned costs, you may amortize the said amounts over a period of not more than 180 months beginning from the time when you started your business. Under the IRS rules, you can amortize expenses related to market research, business advertisements, legal matters, human resource training and other items directly associated with business development. The IRS is strict when it comes to the kind of expenses that you write off, so make sure that you follow the rules and regulations set for business-related expenses to avoid getting into trouble.
