OfflineHello everyone. I have read some great topics on here about LLC's & Inc's. (actually all the forum topics posted on this site are awesome!)
I wanted to give some friendly advice, from my experience of owning a business, on how to pay yourself once you start making money.
I think it is really important to understand the process, because a friend of mine who owns a business never "payed" himself. Instead he "lived off the business" and the IRS nailed him to the wall. He had to pay over 30K in penalties and back taxes.
Whether you want to pay yourself weekly,bi-weekly, or monthly you, the business owner, are actually considered an "employee" to where you will issue yourself a check from your business account.
First thing you have to do is keep a record of when you pay yourself on a payroll ledger. A payroll ledger has boxes where you enter from left to right the date, name , gross, FICA, FED, MED, State, Mis, and ends with net pay. There are also spaces to enter monthly totals, quartly totals, 1/2 year totals and end of the year totals. You need to keep good track of your totals, because every month you have to pay payroll taxes. (from what I remember, payroll taxes are due by the 15th of the month. I always payed them within the first week of the month I never messed around with my employees withholdings!)
Say you want to pay yourself for example $500 per week. This info is from the 2009, IRS employer's tax guide.
500 gross
FICA= gross pay 500 times 6.2%=$31
Fed tax =based on marital status determined from the table in the employers tax guide, for 500 dollars a week the withholding is $36, married with 0 exemptions and $59. single and 0 exemptions.
Medicare: gross times 1.45%=$7.25
state tax (for CT) is $9.82. The state book is the same as the FED book.
Subtract all witholdings from 500$ and you get:$415.93 net pay.
At the end of the month you add up all withholding totals, FICA, FED, MED , and STATE because you have to pay payroll tax . all registered business should receive 941 payment coupons from the IRS, that is what you use to pay your payroll taxes either on-line or deposited at the bank where your business account is.
(I always went to the bank never did it on-line)
When paying payroll taxes, there are some month where you will have 5 pay periods and some month you will have 4, you match the FICA & the MED. say for the month your FICA totals were: $124.00 you have to match that =$248+monlthy fed tax, example of:$144.00+MED times 2= $58. Add them all up and that is what you will pay in payroll taxes for that specific month:$450.00 to the IRS. Then you add up the state and mail them a seperate check, just in state withholding. $9.82 times 4=$39.28.
Or you can cut checks and then 1099 yourself at the end of the year. I personally would not do that because you will need to have some serious cash on hand @ the end of the year.
I advise you use a good accountant who can help you when you have questions but this is something anyone can do.
What doesn't kill me,,makes me stronger!
Thanks for the information!
Where in Ct are you? It's always nice to meet fellow ct folks
Raemarie
Hi Litchfield
What doesn't kill me,,makes me stronger!
I really appreciate this post and I always wondered how I would pay myself if I had an LLC. I definitely do not want to take my chances with the IRS and have them take away everything I have worked so hard for. I am saving this information and I will refer to it when my LLC is up and running!
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Thanks for helping them out and your information is correct because i had a couple of my own businesses. Everybody listen to what Andrew had to say and he knows what he is talking about ! Thanks again Andrew.
Warm regards,
Paul T. La Moy
Hello,
Andrewouellette your info was really good for me,Everytime i hear about taxes it gets me thinking about RE investing.In REI it is an numbers game and if you believe any other form of business is different...I say it is not!
Great post!
Invest in yourself!
Good info. Will save and use this information. Thanks, Andrew
After reading this I think we should all have an accountant help us with our LLC and not do it on our own. We need to be careful here, and it seems paying an accountant can save you a lot of $ in the long run, we don't want to end up paying 30k in penalties like your friend! Thanks again for sharing!
Jeremy
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This train, Faith will be rewarded
Big wheel roll through fields where sunlight streams
Meet me in the Land Of Hope And Dreams
Bruce Springsteen
Thank you so much for posting this information. I have bookmarked this to go back and re-read when needed. I work in one state and live in another that have a reciprocal agreement so already in my "everyday" work life I have to keep out my own state taxes and pay them to the state I live in - paying them quarterly. That seems so easy now compared to the monthly accounting that needs to be done with a business.
As always, the DG site members are wonderful at sharing important and useful information that helps others!
Nancy D.
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Thanks for the info....but how does this effect my unemployment benefits?
Thank you so much for this post. I have an LLC currently 2 years and I always felt something was off as far as how to report to the IRS regarding fed and state tax. Definitely needed to see this to know I need to make quick changes.
Thanks again!
I always wondered how I was going to get paid from the business, its a whole new arena for me. Thanks for your post its very informative.
Questions-
Are there any other monthly or qtrly reporting that has to be filed to the IRS from the LLC or S-corp? (ie, income statement, bank reconciliations, balance sheet)
Also is there a minimum of how much you can pay your self? My business is not generating any revenue right now and but I'm still going to need to pay my employees (me) so can I pay myself say $10/week and then pay a bonus when I generate revenue?
Thanks soo much....
Thank you for that post. Very good information.
could you talk about a C-corp. on how to pay my self and how a C-corp. works.Thank you.
Hello all. Rush Ventures had a good question and I would like to first address the difference between a S corp and a C corp.
The biggest difference between both types of corps is the taxation of capital gains. Now, a capital gain, no matter if it is short or long term, in a C Corp is taxed as ordinary income. that makes it less favorable to hold appreciating assets. A long term capital gain in an S corp passes through to the share holders and retains its character as a long term capital gain. that means it will qualify for lower capital gain rates as opposed to being taxed as ordinary income.
aslo the taxation of fringe benefits in a C corp vs a S corp. fringe benefits, health care plans and other "perks" that are offered are taxed as wages to the shareholder/employee. In a C corp these fringe benefits are deducted by the Corp as non taxable to the employee. ( I don't think that this will apply to most of us but you never know:)
Another difference is the number and type of share holders allowed in each Corp. An S Corp is only limited to 100 share holders to where husband and wife are treated as one, and certain types of entites can't be a shareholder(s) of a S Corp. In a C Corp, any individual or entity can be a share holder to where there is no limit to the number of share holders allowed.
Back to paying yourself. It dosent matter what type of entity you have for your business, the deductions ie fica, fed , med, state tax, are the same. they are set by the Dept of the Treasury, Internal Revenue Service and by the State of where ever your business is located and may change on a yearly basis, that is why all registered business receive publications from the IRS and the State every year.
Also there is no minimum amount you have to pay yourself every week you could pay yourself 10$ or 10,000$ but the more you make the more you pay in taxes and payroll taxes. when I say taxes I mean Fica, FED, Med and state.
F.Y.I., the IRS Doesn't mess around with people who don't pay payroll taxes!!
There are ways to shelter money through a corp. so you pay less in taxes..but I will not give advice on that. I suggest to see a good accountant and also have a good lawyer on your team.
Hope that helps.
What doesn't kill me,,makes me stronger!
Hello,
Your info is great and my arm hurts!
Invest in yourself!
Good information to know, thanks for the insight.
All the Best in Life!
Scott
Andrew,
Are you able to shed any light on the IRS Self Employment Tax?
I am a LLC acting as a single member.
Looking at the IRS site it appears the I am subject to a SE Tax of 15.3% for SS and Medicare, vs, 6.2% and 1.45%.
It seems crazy that the SE Tax is double the normal tax.
Thanks,
David
Thanks for the great information.
HI David that is an outstanding question. The last I knew, The IRS's SE Tax, only applies if you are a sole-propritor and if you have an LLC and you "treat it like a corp" the SE tax doesn't apply. There can possibly be a situation to where if you are the acting or sole member of your LLC,(no employees but you) than you qualify for the IRS's SE tax. See, Both my prior businesses were S corps, because of the industry I was in, I needed the best protection for any lawsuits, I aslo had a good accountant and lawyer. I would advise you to talk to an accountant, a cpa, not someone who does part-time book keeping out of their house.
What doesn't kill me,,makes me stronger!
Hello everybody,
The one thing i will never forget is,Team is stronger than anybody! You do what you want,And i will be with my team making great advances!
Invest in yourself!
Thank you.
Every employer pays double you take half out of the employee's wages and the business pays the other half when you are self employed you are the employee and the business. If you file your SE taxes quarterly it is less you have to come up with at end of year. Just be honest with what you are making all along the IRS is really ramping up audits since money is being spent faster than then it is being made or brought in.
KEEP RECORDS GOOD RECORDS AND RECEIPTS TO BACK THEM UP IF YOU FILE YOUR RECEIPTS WEEKLY OR EVEN DAILY YOUR STRESS LEVEL WILL GO WAY DOWN. I KEEP A FOLDER IN EVERY CAR AND EVEN MY PURSE.
HOPE THIS HELPS
DONNA
Keep up with the great information for our great team
Paul
The SE tax is 15.3%. It is broken down into two catagories. The first being Social Security (6.2%) and second being Medicare (1.45%). When you are self-employed you pay this full amount. When you work for someone as an employee you pay half of each amount (withheld out of your paycheck) and your employer pays the other half out of his pocket. Hope that helps you understand taxes better.
You know its funny, I have an S Corp and make the co payment on my employees. I guess seeing it written down is what it took to make it click. I guess I should get more sleep. Either way we end up paying the 15.3%. We either pay it up front or in a copay/matching amount.
Thanks for the info, much appreciated.
Your quite welcome. I have 18 yrs in income tax experience and would be glad to answer any questions that you all may have. I dont have alot of experience on Corps or LLC's however, mostly personal, rentals and small business returns.
I owned a cleaning business and I got nailed. I had to sell my first house to pay the IRS. I won't make that mistake again. Thank you!!
Sorry to hear about that! Must have been a whopper of a tax bill.
Thank you for that bit of information. We have our LLC set up, but have not yet purchased any properties. We have a CPA that we will be using for all of our legal mumbo jumbo (I mean that in the most professional way possible lol) but it is always nice to have an understanding ourselves first. Expecially if we are going to be having more than just our selves as our employees.
I will be revisiting this page again in the future I'm sure.
Thanks,
Eric
The Whild Companies LLC