| Based on the questions I get from the readers of my | | | | want to maximize your legitimate business expenses |
| website, many people are confused about how their | | | | on your Schedule C. |
| single member limited liability company will be taxed. | | | | In terms of paying yourself out of LLC profits, the |
| Questions like: | | | | simplest way is to simply write yourself a check. No |
| I am trying to figure out how I will be taxed as a single | | | | payroll process, no withholdings. You are not receiving |
| member LLC, which forms do I need to use? | | | | a "salary", you are receiving your share of the limited |
| When I pay myself, how much to I need to withhold for | | | | liability company's profits. |
| income tax? | | | | Most people don't realize that everyone pays quarterly |
| I understand that an LLC can be taxed as a sole | | | | estimated taxes. For employees, your employer |
| proprietor but does that change if I give myself a | | | | withholds that tax from your paycheck and pays your |
| salary or commission? | | | | taxes for you. As a self-employed business owner, |
| Will I be taxed on both the profit from the llc and the | | | | you are now responsible for making quarterly |
| income that I pay myself? | | | | estimated payments. |
| So let's answer these questions by starting from the | | | | To figure out the right amount to withhold, it's helpful to |
| big picture overview. | | | | use software like Turbotax. |
| A limited liability company is not taxed separately as a | | | | In addition to income tax, you will also report |
| corporation at the entity level. The purpose of using a | | | | Self-Employment tax. You are required to pay this at |
| pass-through entity like an LLC or partnership instead | | | | the end of the year. It is calculated based on your |
| of a c corporation is to avoid this double-taxation of | | | | Schedule C and a separate Schedule for calculating |
| profit. | | | | the exact amount of your SE taxes. There are a few |
| Instead, tax is paid by you, personally, on your LLC's | | | | deductions on your Schedule C that are not permitted |
| net profits, and the LLC does not pay taxes | | | | on your Schedule SE--for example, your limited liability |
| separately. | | | | company can take a deduction on your Schedule C |
| As a single member LLC, you can choose to be taxed | | | | for health insurance premiums paid for you and your |
| as a disregarded entity. This means that you use a | | | | family, but cannot take that deduction on on your |
| Schedule C to report all your income and expenses | | | | Schedule SE for purposes of self-employment tax. |
| and arrive at a net profit or loss. | | | | Therefore, the forms needed to do your taxes for a |
| This net profit is what you pay taxes on. Hence, you | | | | single member LLC taxed as a disregarded entity (i.e. |