Estimated taxes

[Coltrane]

Hey everyone!

I have a question about estimated (quarterly) taxes. (I own a single-member LLC) I know I need to use form 1040-ES, but am wondering if I need to pay estimated taxes for just the business or both for the business and for myself. I have not paid myself a salary this year, soI am wondering for now and for the future.

Thanks in advance!

Dave

[Freelancier]

For you. All single-person LLCs are just a Schedule C on your personal tax return... so you're paying personal estimated tax payments.

Just remember to pay 110% of previous year's taxes with your estimates and that'll help you avoid penalties.

And talk with an accountant to make sure I'm not just some guy on the internet making stuff up.

[Coltrane]

Sorry I'm a bit confused- I AM paying "personal" estimated tax payments? If so, is that just the salary I pay myself?

[Freelancier]

1040-ES is personal estimated taxes. The LLC is a disregarded entity because it's a single-person LLC, so all tax liability for any profits flows to your personal return. So you pay the estimates on profits less any taxes you pay on the profits.

[turboguy]

Freelancer is advising you correctly. With a single person llc any profit from the business is treated just like a sole proprietorship. You make your estimates for any income from the business not just what you took in salary.

[Coltrane]

So if my brain is finally working correctly, I use for 1040-ES quarterly for estimated taxes for business profits, and file Schedule C with my personal return for any salary I pay myself, correct? Sorry for the dumb questions

[Freelancier]

The "salary" you pay yourself is only really a salary if you're also paying taxes on it and filing quarterly state/fed reports. Otherwise, it's an owner's draw.

That said, think of the profits the business is making (including your pre-tax "salary" as you're calling it) as part of your total income. You will have to pay taxes on all of that. What the 1040-ES provides is a way for you to keep up with paying those taxes so that at the end of the year you've paid nearly all the taxes you owe OR you have paid 110% of last year's tax liability (here's where an accountant is needed to make sure you don't violate the rules and have to pay a penalty for paying insufficient taxes during the year).

[Coltrane]

Oh ok- I guess I should have used the term owner's draw instead of salary. I think I got it now, haha. Thanks again for the quick responses!

[turboguy]

Actually what you have to pay in estimated taxes to not get a penalty is the lesser of 90% of the tax you will owe or 100% of the tax you paid last year. The following is from the IRS guidelines on the IRS site.

If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will 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.