Have a Tax Question? Ask a Tax Expert
How is your business organized?
Is that LLC? S-corporation? C-corporation?
Is the business profitable?
Unless you selected to be treated as S-corporation - a single member LLC is disregard entity (considered a solo proprietorship) for tax purposes - you should not treat yourself as an employee and do not pay yourself wages.
Instead all income should be treated as self-employment income and taxed as such on your individual tax return.
If you business is profitable - that is very good in this time - you will pay self-employment and income tax on your net income - regardless if that income was distributed to you for personal purposes or left on your business account.
You do not need to run a payroll to pay yourself - that is not needed.
But as a person - you need to estimate your business income and tax liability - and pay estimated taxes quarterly using form 1040ES - http://www.irs.gov/pub/irs-pdf/f1040es.pdf
As an owner of LLC - if you did not select the LLC to be treated as S-corporation - you need to verify that with your tax person - you are not considered as an employer.
LLC should not pay wages to the owner and should not run payroll - if you do so - that is incorrect - and should be corrected as soon as possible.
As an owner of the LLC (not as an employer ) you are responsible to keep a business record and report LLC's business income and expenses on your personal income tax return.
You file your federal tax return annually - normally by April 15 following year.
Separate issue - when your tax should be paid - generally the IRS expect taxes to be paid as the income received - there are several ways to pay your tax liability;
-- you may ask the payer to withhold taxes - or if you have a regular job - you may increase withholding to cover your business tax obligations.
-- you may pay estimate tax quarterly - see form 1040ES - http://www.irs.gov/pub/irs-pdf/f1040es.pdf
-- you may pay taxes at the tax time - for 2009 tax year before Apr 15, 2010 - however - if you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will have paid enough tax to avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
So if so be the case that my LLC was not set up to be treated as a S-Corporation is it safe to say that I basically lost all that money paying employer and employee taxes through-out the time I running payroll which is now 2yrs and 5 months.
First of all - it would be incorrect to say that paying employer and employee taxes through payroll - is a loss of the money.
FICA tax are paid 7.65% by an employer and 7.65% by an employee (as withholding) - total 15.3%
self-employment tax is 15.3% paid by the LLC owner - so there is no difference.
As part of employment tax you might paid FUTA tax 6.2% of first $7000 of your annual wages - that is $434 - you may consider as overpayment, and
additional overhead for running unnecessary payroll - these you may consider as your loss - no need to bite the thumb...
So once I get confirmation that my LLC was in fact not set up to be an S-Corporation I could just go ahead and cancel the Payroll Services I'm currently enlisted in.yes - that is correct - you would not need payroll services as long as you do not have any employees besides yourself.And if by any chance my LLC was set up to be an S-Corporation, can this be changed? Or because I am the only member of the LLC does it have to remain that way? A single member LLC (SMLLC) can be either a corporation or a single member "disregarded entity". Again, to be treated by the IRS as a corporation, the SMLLC has to file a Form 8832, Entity Classification Election and elect to be classified as a corporation. An SMLLC that does not elect to be a corporation will be classified by the IRS as a Disregarded Entity which is taxed as a sole proprietor for income taxes. See more details here - http://www.irs.gov/businesses/small/article/0,,id=158625,00.html Also even as a S-Corporation, Do I still need to run a Payroll Service? Can I still Terminate my employment and just cover the Estimated Taxes due in that Quarterly breakdown mentioned in Form 1040ES? No for S-corporation - you should have payroll and pay yourself a reasonable wages - and the rest of the profit will be passed to you as an owner as dividends without self-employment tax - that would be an advantage of having S-corporation.
You are correct - if you are the only one working for the business - using payroll service is unnecessary overhead - and should be cut off. You would not need to file employment tax return either.
Another saving - would be FUTA tax that you should not pay for yourself.
Employment taxes would be equal to self-employment taxes - so there would not be any difference from that point.
You need a nice talk with your tax person and plan to eliminate your payroll. You would need to file a final employment tax return - not just stop payroll.
Yes - if previously you made S-corporation tax treatment election for your LLC - you may revoke that election.
Here is information about requirements and steps you should follow - http://www.1120saccountant.com/revoking-s-status.htm
and you would need to file a final tax return for S-corporation.