Finance Questions? Ask a Financial Expert for Answers ASAP
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)
... 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)
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
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.
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
If you'd like me to run through the numbers with you let me know ....
Also let me know if you have questions, at all
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?