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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 9467
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Should estimated taxes be paid for LLC with S-Corp status in

This answer was rated:

Should estimated taxes be paid for LLC with S-Corp status in NY?

My wife found a job in June of this year as a consultant, and per company's request had to form her own company (let's say ABC Consulting LLC) which receives monthly payments. She deposits checks in her business bank account, pays business related expenses out of this account, and transfers the rest of the money to our joint personal checking account.

Does she have to pay estimated taxes? When are those due? How to calculate them? Can you recommend a software? Should the amount she transfers to our checking account be treated as our family personal income (we file jointly)?

Although we did do some reading on the subject, it creates more confusion. Looking for a detailed but straightforward answers regarding out tax situation.

NPVAdvisor :

Hi, as long as she forms an S-Corp, a sole proprietorship, a partnership, or an LLC (as you mention) these are all "pass-through" entities ... meaning that the PROFIT from the business will pass through to the personal taxes (via the schedule C for a sole proproetorship or through a k-1 if you elect S-corp treatment)

NPVAdvisor :

... neither the LLC nor the S-Corp are actually TAXED at the business level (although with the S-Corp you'll have to do a corporate 1120-S from in order to know how much to carry to the k-1, which then flows to the personal 1040)

NPVAdvisor :

SO, the answer to the estimates tax question is probably yes.... HOWEVER, if you think that the expenses will offset the income such that there qill be no (or negligible PROFITS) the first year, it may not add enough income to your personal return to warrant estimated payments

NPVAdvisor :

Generally speaking: taxpayers should consider prepaying tax through estimated tax payments so as to avoid the penalty for the underpayment of estimated taxes, whenever there IS gong to be income (again this means PROFIT for a business) that will not automatically have withholding against it, as with wages and a W-2.

NPVAdvisor :

Given that, again, what you're looking at there is how much Additional income this will add to your personal return ... I would start with a calculator that estimates in a fairly general fashion, so you can simply put in a gross income number (estimating, again how much extra income her business profits will add to your gross income), then add the withholding, itemized or standard deductions and then any personal exemptions and dependency exemptions to come to an additional tax owed, then divide that by four to get a quarterly estimated amount .... here's an excellent calculator for that : http://www.calcxml.com/calculators/federal-income-tax-calculator

NPVAdvisor :

If you'd like me to run through the numbers with you let me know ....

NPVAdvisor :

Also let me know if you have questions, at all

NPVAdvisor :

Lane

Customer: replied 3 years ago.

Lane, Thank you for such detailed answers! It seems that in my case the LLC itself does not make any profit because whatever income it receives, it all gets spent on expenses and the payment to its members - and that's how I will fill 1120-S form. As far as personal income tax, I understand that whatever K-1 indicates will flow to my wife's income and should be treated as her individual income, and therefore included into her 1040, and individual estimated taxes should be calculated respectfully. So, in regard to LLC, it seems there will be no profit as I explained above, so there is no need to pay estimated taxes. Am I right?


 


A side question: I heard that some of the LLC's gross income may stay within LLC as acquired capital (I may use an incorrect term), thus effectively reducing the pass-through portion. Am I right on this one?


 


Thanks,


Igor


Yes, you have it! - no profit, no incremental income for the family to report.

(Although remember that one person LLC simply files a schedule C along with the 1040 - Any income or loss flows to line 12 of the 1040, "business income or loss")


And, don't shoot the messenger here :0) but, while the pass-throughs have the ability to immediately take losses and take advantage of the lower capital gains rates, all profits are taxed, whether distributed or not. ... Only C-Corps (which are NOT pass-throughs, and pay taxes themselves, at corporate rates) can choose NOT to pay a dividend, thereby keeping some of the income in the corporation.

The "price for this is the "double taxation" you hear about with C-Corps. Once the C-Corp is taxed, then if you DO distribute dividends, you pay taxes again at the personal level.

With the pass-throughs, you only pay the tax once (BUT if you make a profit it's taxed)


Hope this helps

Lane
Lane and other Finance Specialists are ready to help you

Thanks so much for the rating and bonus Igor!

If you'd like to work with me, specifically, again just come back to this thread OR say "FOR LANE ONLY," at the beginning of your next question.

Thanks again,

Lane