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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 13978
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Hi, I own a bookkeeping practice in IL that I opened this year

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Hi, I own a bookkeeping practice in IL that I opened this year as an LLC where I am the sole owner. I have taken a few "owner's draws" in the last quarter as a salary for my work. The draws were untaxed. Do I owe taxes for this? Where should the money be reported? I think I should file something with the state?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question, and thanks for using JustAnswer.com. With your single member llc you are taxed on 100% of your profits. You will pay self employment taxes on the profits, and so that's essentially your payroll taxes.

You will not separately account for the owner draws. Instead, on schedule C you will include all of your income and expenses, calculate your self employment taxes on schedule SE, and then move the income to the front page of your 1040. You already paid tax on the owner draws, so you don't account for those separately.

You will also file a state income tax return, just like you always do. You will include your self employment income on that as well.

The LLC doesn't exist for tax purposes - it's like you're working for yourself.

Please let me know if you need any additional clarifications. Thanks for using JustAnswer.com and have a happy, and safe, holiday season.

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You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Customer: replied 1 year ago.

If I wait until the end of the year to pay any taxes because my owners draw are untaxed income then won't I owe a penalty because I have not been paying into the IRS all year long? My end of year tax bill may be over the allowable amount because they didn't collect on it quarterly?


 


This year my net profit is only $5k without subtracting some of my work from home expenses like a portion of the electric bill, mortgage, and mileage. However, next year when I am in business all year I expect that I will have a large net profit with not much to lower my expenses since I work from home and my large expenses have been incurred with the set up. Shouldn't I be making estimated tax payments based upon my expected profit rather than my salary since I am not taxed on my owner's draw. Is that what you are saying? Sorry that I am confused and thank you for your prompt response.

Expert:  Megan C replied 1 year ago.
If your income is $5000 your tax isn't going to be much and you wouldn't have a penalty. You won't have a penalty if you pay at least last years tax liability or have a balance due of $1,000 or less.

In the future pay estimated taxes based on your profit, not your owner draws.

Hope this makes sense. Thanks again for using JustAnswer.com and have a great day.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site*
You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 13978
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 6 other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
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