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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22779
Experience:  Taxes, Immigration, Labor Relations
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I own my own business and are the only employee of my business.

Resolved Question:

I own my own business and are the only employee of my business. My question is,

If I fired myself and basically did not run a Payroll anymore, As the employer now, Am I only obligated to pay the taxes on a Potential Profit for my business for the year? Or is there more to it?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

How is your business organized?

Is that LLC? S-corporation? C-corporation?

Is the business profitable?

Customer: replied 5 years ago.
It's an LLC

and Yes it turns a profit.
Expert:  Lev replied 5 years ago.

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

 

Customer: replied 5 years ago.
Ok, So just so that we are clear and on the same page..

As the EMPLOYER ( LLC ) ... My only Duty ( tax wise ) is the Estimated Business Income and Tax Liabilty that can be paid Quaterly.

Can that be done yearly? when I file the taxes for my business or is that only done Quarterly?

And as of Tomorrow I could terminate my Employment with myself and not owe any FEDERAL OR STATE EMPLOYEE Taxes after termination from the EMPLOYER ( LLC ) standpoint?
Expert:  Lev replied 5 years ago.

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.

 

Customer: replied 5 years ago.
wow... 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.

Is there any way to get a reinburstment from the state if this is the case. Or do I just have to sit and bite my thumb, Cause JESUS that was a good sum of money sent out.

Thanks a lot.
Expert:  Lev replied 5 years ago.

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...

 

Customer: replied 5 years ago.
Sorry for the Late Reply LEV...

So once I get confirmation that my LLC was infact not set up to be an S-Corporation I could just go ahead and cancel the Payroll Services I'm currently enlisted in.

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?

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?

Sorry for the questions after questions, It's just never really clear for me the way the TAX system works and I want to make sure that I don't get any surprise notices with BALANCE OWED next to my Name.

Expert:  Lev replied 5 years ago.

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.

 

Customer: replied 5 years ago.
ok .. so

LLC not set up as S-Corp = No need for Payroll services but as the Owner of the LLC will need to file 1040ES for estimated taxes quaterly or yearly by april 15th, 2010.

LLC set up as S-Corp = Should run Payroll

I guess my main concern is the following..

Business isn't too good right now and I simply can't afford to pay myself but I still have to pay all these taxes for myself as the employer to the employee ( also myself )..

So because i haven't been able to even cash a check I've written for myself in quite sometime, I guess i'd much rather treat my business as a LLC that was not set up as an S-Corp and just deal w/the estimated taxes for the yr, rather then all the other ones that I pay now because i have an employee

Fed
State
Medicare
Social Security
and so forth..

You have been most helpful Lev and you can be sure that your guidence will be accepted and you will be awarded with an acceptance and payment.
Customer: replied 5 years ago.
I only pay myself 400.00/week but have my Payroll set up to pay me Monthly, so yearly about 15,600.00 a yr after taxes are deducted..... so is it even worth it?

Like i said I i don't even get to cash the checks i write to myself, but still have to pay the taxes owed as the employer on it.

Customer: replied 5 years ago.
I only pay myself 400.00/week but have my Payroll set up to pay me Monthly, so yearly about 15,600.00 a yr after taxes are deducted..... so is it even worth it?

Like i said I i don't even get to cash the checks i write to myself, but still have to pay the taxes owed as the employer on it.







Expert:  Lev replied 5 years ago.

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.

 

Customer: replied 5 years ago.
Sweet and all this done only if I wasn't set up as a S-Corp?

But if it was I can change it so that I'm not and just do as mentioned above?
Expert:  Lev replied 5 years ago.

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.

 

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22779
Experience: Taxes, Immigration, Labor Relations
Lev and 7 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
You have been nothing short of EXCELLENT. I will be sure to refer anyone in my lifetime with Tax questions to you.

Thanks a million Lev

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