Tax questions for newbie to single member LLC

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Topic Author
uwbadgers
Posts: 86
Joined: Mon Aug 25, 2014 3:36 pm

Tax questions for newbie to single member LLC

Post by uwbadgers »

[Update/Question in my latest post 2/5/19]

Hi all,

Here's my basic question: IS there anything I should be aware of/doing right now with an expected ~25k additional income from my single member LLC in 2018?

My business has taken off quickly after starting in last October 2017 and right now I'm on pace to do at least 24k extra with the business.

INFO:
HHI = ~170k (not including LLC)
LLC = ~25k in 2018

TOTAL: ~200k

MAX 401k (only 1 available) and both ROTH IRAs

LLC INFO:
I run an online based nutrition coaching business. I coach people through a year of nutrition habit change, entirely through an online system I created.

I have very few expenses and run the business entirely from my home office. Internet, cell phone and things like that I deduct and I have a small monthly fee to run my business ($150).

Question
I've tried to undestand the tax aspect here as right now I'm getting all this income but not paying any taxes. Am I correct to assume that this all "Balances" out when I do my taxes year end as single member LLC is just part of our household income? As in, I'll just "owe" more taxes at that time?

Can I simple "save" up my last few months of income to pay my owed taxes? This way I'm "using" my money most of the year?

Is it better/can I? pay estimated taxes?

Am I doing something totally wrong? :)
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I've done our taxes through turbotax for a while now and feel solid about handling it. We have a rental property, 2 kids, and things like that that I put in and can figure out, but don't want to miss anything with this new business venture.

Happy to provide more relevant info if needed.

Thanks for any insights or advice for this budding businessman :)
Last edited by uwbadgers on Tue Feb 05, 2019 5:50 pm, edited 1 time in total.
pshonore
Posts: 7176
Joined: Sun Jun 28, 2009 2:21 pm

Re: Tax questions for newbie to single member LLC

Post by pshonore »

uwbadgers wrote: Sun Jul 01, 2018 11:59 am Hi all,

Here's my basic question: IS there anything I should be aware of/doing right now with an expected ~25k additional income from my single member LLC in 2018?

My business has taken off quickly after starting in last October 2017 and right now I'm on pace to do at least 24k extra with the business.

INFO:
HHI = ~170k (not including LLC)
LLC = ~25k in 2018

TOTAL: ~200k

MAX 401k (only 1 available) and both ROTH IRAs

LLC INFO:
I run an online based nutrition coaching business. I coach people through a year of nutrition habit change, entirely through an online system I created.

I have very few expenses and run the business entirely from my home office. Internet, cell phone and things like that I deduct and I have a small monthly fee to run my business ($150).

Question
I've tried to undestand the tax aspect here as right now I'm getting all this income but not paying any taxes. Am I correct to assume that this all "Balances" out when I do my taxes year end as single member LLC is just part of our household income? As in, I'll just "owe" more taxes at that time?

Can I simple "save" up my last few months of income to pay my owed taxes? This way I'm "using" my money most of the year?

Is it better/can I? pay estimated taxes?

Am I doing something totally wrong? :)
-
-
-
I've done our taxes through turbotax for a while now and feel solid about handling it. We have a rental property, 2 kids, and things like that that I put in and can figure out, but don't want to miss anything with this new business venture.

Happy to provide more relevant info if needed.

Thanks for any insights or advice for this budding businessman :)
Unless you meet one of the "safe harbor" plans, you are supposed to make estimated tax payments (including SE tax if applicable) as you earn the income. You may want to consider establishing an S401K to reduce taxes. You can also increase withholding by your regular employers if that's more convenient
ralph124cf
Posts: 2684
Joined: Tue Apr 01, 2014 11:41 am

Re: Tax questions for newbie to single member LLC

Post by ralph124cf »

The easiest way to pay taxes on this "extra" income is to have more tax withheld at your W-2 job. Submit a new W-4 to your employer. There are a number of ways to get the withholding increased. The most straightforward is to enter an amount on line 6 with the additional amount you want withheld from each paycheck to get to the "correct" amount of total taxes you want to pay for the year.

The Feds want you to pay estimated taxes throughout the so that you pay taxes as you earn the money. Having taxes withheld AT ANY TIME during the year makes the Feds assume that these taxes were spread out evenly throughout the year, even if you only had the taxes withheld once in December.

You can change your W-4 as often as you like during the year, but your employer may have a one or two paycheck time lag for completing the paperwork, and you will have to monitor for errors.

Ralph
Topic Author
uwbadgers
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Joined: Mon Aug 25, 2014 3:36 pm

Re: Tax questions for newbie to single member LLC

Post by uwbadgers »

Thanks for these responses!

I understand opening a solo 401k is an optiom and changing withholding and may be a direction to go now.

Currently, is there anything WRONG with just keeping the income?

Is there set “rules” for estimated taxes, or do they not apply to single member llc since it all goes on the same taxes?

For reference, most likely this additional income won’t go past 25k yearly for the foreseeable future, and, if anything, drops a bit.
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Meg77
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Location: Dallas, TX

Re: Tax questions for newbie to single member LLC

Post by Meg77 »

uwbadgers wrote: Tue Jul 03, 2018 3:12 pm Thanks for these responses!

I understand opening a solo 401k is an optiom and changing withholding and may be a direction to go now.

Currently, is there anything WRONG with just keeping the income?

Is there set “rules” for estimated taxes, or do they not apply to single member llc since it all goes on the same taxes?

For reference, most likely this additional income won’t go past 25k yearly for the foreseeable future, and, if anything, drops a bit.
Yes, there are set rules. And yes there is something "wrong" if you underpay your taxes. You can either make estimated tax payments or boost your withholding at your day job though - it doesn't matter which. But if you underpay by certain amounts, the IRS will penalize you.

https://www.irs.gov/taxtopics/tc306
The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you didn't 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 either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of 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. There are special rules for farmers and fishermen, certain household employers and certain higher income taxpayers. For more information, refer to Publication 505, Tax Withholding and Estimated Tax.
Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method. Use Form 2210.pdf, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you owe a penalty for underpaying your estimated tax.
The law allows the IRS to waive the penalty if:
You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.
As long as you pay 90% of the taxes you owe via withholding or estimated payments, you're fine. Alternately, as long as you pay 100% of the tax liability from the year before you are OK. So for this year just make sure you pay at least as much in tax via your withholding as you owed in full last year.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
uwbadgers
Posts: 86
Joined: Mon Aug 25, 2014 3:36 pm

Re: Tax questions for newbie to single member LLC

Post by uwbadgers »

Thanks for that latest reply.....I *think* I'm understanding......

Does this help?

2017 Taxes
AGI 155k
Tax Withheld 21k
Total Tax Due 17k

We had a $4,250 federal refund and $1,600 state refund

We both have slightly variable incomes with our W2 jobs, but assuming that AGI remains ~155k and I have my new 25k from single member LLC, is there an easy way, or any way, to calculate if I should pay estimated or not?

In my scenario is also sounds like if my wife/I were to adjust witholding so it takes a bit more that should take care of things?
Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Tax questions for newbie to single member LLC

Post by Spirit Rider »

The AGI will only directly be use to determine that your AGI > $150K. To meet the prior year safe harbor, your withholding + estimated taxes will need to be 110% of the "tax shown on your 2017 return". For most people this is Form 1040 line 63 total tax. See the Form 1040 line 79 instructions for what might adjust line 63.

It is very likely that your "Total Tax Due = $17K" was Line 63 + adjustments. This would mean that your prior year safe harbor would be $17K * 110% = $18,700. It is difficult for us to estimate your 2018 tax liability. You should use one of the calculators with your specific information. We don't know the distribution of you and your wife's W-2 wages. Have you exceeded the Social Security maximum wage base?

However, I don't see any way 110% of your 2017 tax liability could possibly be > 90% of your 2018 tax liability. So I would just go with former and adjust your withholding to reach that number (with a cushion) by the end of the year. For example, if $17K is the right number, instead of $18,700, I might shoot for $20K just to be safe. You are still going to have a several thousand$ tax due in April 2019.
Topic Author
uwbadgers
Posts: 86
Joined: Mon Aug 25, 2014 3:36 pm

Re: Tax questions for newbie to single member LLC

Post by uwbadgers »

Spirit Rider wrote: Fri Jul 06, 2018 3:24 pm The AGI will only directly be use to determine that your AGI > $150K. To meet the prior year safe harbor, your withholding + estimated taxes will need to be 110% of the "tax shown on your 2017 return". For most people this is Form 1040 line 63 total tax. See the Form 1040 line 79 instructions for what might adjust line 63.

It is very likely that your "Total Tax Due = $17K" was Line 63 + adjustments. This would mean that your prior year safe harbor would be $17K * 110% = $18,700. It is difficult for us to estimate your 2018 tax liability. You should use one of the calculators with your specific information. We don't know the distribution of you and your wife's W-2 wages. Have you exceeded the Social Security maximum wage base?

However, I don't see any way 110% of your 2017 tax liability could possibly be > 90% of your 2018 tax liability. So I would just go with former and adjust your withholding to reach that number (with a cushion) by the end of the year. For example, if $17K is the right number, instead of $18,700, I might shoot for $20K just to be safe. You are still going to have a several thousand$ tax due in April 2019.
Just adjusted my wife's withholding from 5 to 3 which I think should take care of things.

And yes, that was my line 63.

I'm going to look into the solo 401k at well.

This part of my little LLC is not as fun :)
Topic Author
uwbadgers
Posts: 86
Joined: Mon Aug 25, 2014 3:36 pm

Re: Tax questions for newbie to single member LLC

Post by uwbadgers »

UPDATE: 2/5/19

I've just completed my taxes for 2018 using Turbotax. My questions originally were about estimated taxes and if I need to pay it.

Here is how the year played out:

Total Income: $151,142
Taxes Withheld: $14,756
Federal Deductions: $28,369
Federal Credits: $5,200

My single member LLC made 24k this year....which is included in that income.

When all is said and done, the Federal/State are:

Federal: OWE 585
State: REFUND 481

NET: Owe $104

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I did not pay any estimated taxes for my single member LLC in 2018. Of that total income, 24k was my LLC, the rest W2 income.

We adjusted withholding midway through the year.

Would turbotax understand my tax liability for LLC = not penalized? Did I calculate this out correctly with minimal owe/refund?


Reading the other posts about 90%/100% and such......I guess I'm just not understanding them and how to view my data against them......
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If useful, here is last year's data with only 3k of LLC income.

2017
Total Income: $155,804
Taxes Withheld: $21,421
Federal Deductions: $49,222
Federal Credits: $922
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Basically, I'm trying to understand for 2019 if we need to make any changes or if something looks way off for this year.

Happy to share more info if it's helpful.

Thanks!
Spirit Rider
Posts: 13977
Joined: Fri Mar 02, 2007 2:39 pm

Re: Tax questions for newbie to single member LLC

Post by Spirit Rider »

Have you been following any of the QBI threads. Did you double check that TurboTax calculated this correctly?

The Section 199A Final Regulations were released less than three weeks ago and they included significant changes to the QBI calculation and QBI deduction calculations. The 1040 Instructions and Publication 535 were only released 7 - 10 days ago. The tax software companies have been scrambling to catch-up.

I have been advising that people with pass-thru businesses not be guniea pigs and not be in a hurry to file. Depending on the readiness of the tax software and your personal circumstances, you could have understated your income and taxes due.
Topic Author
uwbadgers
Posts: 86
Joined: Mon Aug 25, 2014 3:36 pm

Re: Tax questions for newbie to single member LLC

Post by uwbadgers »

Spirit Rider wrote: Tue Feb 05, 2019 7:13 pm Have you been following any of the QBI threads. Did you double check that TurboTax calculated this correctly?

The Section 199A Final Regulations were released less than three weeks ago and they included significant changes to the QBI calculation and QBI deduction calculations. The 1040 Instructions and Publication 535 were only released 7 - 10 days ago. The tax software companies have been scrambling to catch-up.

I have been advising that people with pass-thru businesses not be guniea pigs and not be in a hurry to file. Depending on the readiness of the tax software and your personal circumstances, you could have understated your income and taxes due.
Somewhat. I reviewed the QBI thing for a while on turbotax. I believe I checked "no."

But, if I recall, turbotax later on in filing told me that "I qualify for QBI deduction."


I have NOT filed yet.....just entered in all data for our family.
velociraptor9
Posts: 13
Joined: Tue Feb 05, 2019 7:29 pm

Re: Tax questions for newbie to single member LLC

Post by velociraptor9 »

uwbadgers wrote: Tue Feb 05, 2019 7:17 pm
Somewhat. I reviewed the QBI thing for a while on turbotax. I believe I checked "no."

But, if I recall, turbotax later on in filing told me that "I qualify for QBI deduction."


I have NOT filed yet.....just entered in all data for our family.
Not sure why you wouldn't be eligible for the QBI. AGI appears to be below the threshold for the limitations. As for your original question, I just read through the thread - if you're deducting certain electronics expenses (cell phones, computers, etc.), those may be subject to specific disclosure and usage requirements. Just make sure you're meeting those.

As for other general tax issues, make sure you're looking at state tax issues, including potential sales tax complications.
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