Everything You Need to Know About Tax for SMLLCs

Learn all about the tax implications of SMLLC, S corps, C corps, and partnership entities.

A single-member limited liability company (SMLLC) pays taxes just like every other individual taxpayer according to the individual income tax rates published by the Internal Revenue Service. The current tax rates range from 10% to 37%. Here are the tax rates that will apply when filing your 2021 tax return by the April 2022 tax deadline:

EXAMPLE: You’re a single taxpayer who has a taxable income of $75,000 that you’ll report on your 2021 individual tax return. Here’s how to calculate the income tax you’ll owe:

  1. Locate the appropriate tax table for single taxpayers.
  2. Your income of $75,000 falls on the third line of the table, which states to multiply the amount of your income that exceeds $40,525 by 22%, then add $4,664.00.
  • Step one: ($75,000-$40,525) = $34,475 x 22% = $7,584.50
  • Step two: $7,584.50 + $4,664.00 = $12,248.50

Your total tax income tax liability is $12,248.50.

But wait, there’s more…

Self-employment taxes

The previous section explained how an SMLLC pays INCOME TAXES. An SMLLC also has to pay SELF-EMPLOYMENT TAXES (SE Taxes). So how is SE taxes different than income taxes? SE taxes are specifically earmarked to pay for Social Security and Medicare, so you’ll sometimes hear “SE taxes” also referred to as Social Security taxes or Medicare taxes.

For SMLLC’s, the SE tax rate is between 14% and 15%. (If you’d really like to know why we said “approximate,” we’d be happy to elaborate!). Let’s continue our example from above. Of the $75,000 in the taxable income you reported on your tax return, $15,000 was from your spouse’s paycheck, while the remaining $60,000 was the net profit from your business.

After going through the SE tax calculation from the IRS, your total SE tax liability is $8,477.

Total tax liability for you as an SMLLC

Your grand total tax liability in this example is the combination of the $12,248.50 in income taxes plus the $8,477 in self-employment taxes, or $20,725.50.

Does a single-member LLC need to pay quarterly taxes?

A single-member LLC (SMLLC) is generally required to make estimated tax payments, as taxes must be paid as you earn or receive income throughout the year, either through withholding or estimated tax payments. Estimated tax payments are used to pay not only income tax but also other taxes such as self-employment tax and alternative minimum tax.

Deadline to pay your estimated taxes

For estimated tax purposes, your tax year is divided into four payments periods:

  • 1st Payment Deadline: April 15th – Covers income earned from January 1 to March 31
  • 2nd Payment Deadline: June 15th – Covers income earned from April 1 to May 31
  • 3rd Payment Deadline: September 15th – Covers income earned from June 1 to August 31
  • 4th Payment Deadline: January 15th – Covers income earned from September 1 to December 31

NOTE: If the payment deadline falls on a weekend or legal holiday (i.e. Martin Luther King, Jr. Day in January and Washington D.C.’s Emancipation Day in April), you may wait until the following business day to mail or submit your payment.

How to calculate your estimated taxes

Here are some suggestions for figuring out how much your estimated tax should be.

  • A good starting point is to use your income, deductions, and credits on your prior-year tax return.
  • Next, estimate your expected adjusted gross income, taxable income, taxes, deductions, and credit for the entire tax year.
  • Use the worksheet provided by the IRS in the instructions to Form 1040-ES or call our office for assistance.
 

If you subsequently discover that your estimate was too high, simply complete another Form 1040-ES worksheet to recalculate your estimated tax when it comes time for your next payment. If your estimate was too low, complete another Form 1040-ES worksheet to adjust your next payment.

How to pay your estimated taxes

You can send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone, or from your mobile device using the IRS2Go app. You can pay your estimated taxes weekly, bi-weekly, monthly, etc. as long as you’ve paid enough in by the end of the quarter.

Avoid paying a penalty!

If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty and/or interest. You may also be charged with a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.

SMLLC tax return

An SMLLC owned by an individual (i.e., not owned by a corporation or a partnership) files its tax return on Form 1040, Schedule C. An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self-employment in the same manner as a sole proprietorship.

If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner’s federal tax return as a division of the corporation or partnership.

Also read: C Corporations, S Corporations, and Single-Member LLCs at a Glance

This article will discuss an SMLLC filing a tax return as an individual on Form 1040, Schedule C. If you have an SMLLC owned by a corporation or partnership, please contact our office with any questions about how to file the SMLLC’s tax return.

How to fill out a Schedule C for your SMLLC

    • Keep accurate books. Completing a Schedule C starts with great year-round bookkeeping from your business. An accurate balance sheet and income statement helps to make preparing your tax return extremely easy every year. Another benefit of always having up-to-date books when tax time comes is you don’t run the risk of reporting too much (or too little!) income. Please call if you need help with setting up an accounting system for your SMLLC, or for ongoing assistance to keep your bookkeeping up-to-date.
    • Record your income. The first section of Schedule C is where your business’s income is recorded. On Page 2 of Schedule C is a worksheet if you have the cost of goods sold. Calculate your cost of goods sold using this worksheet, then enter the total amount in the income section on Page 1.
    • Record your expenses. The second section of Schedule C is where your business’s expenses are recorded. If you have a home office, you can report your associated expenses (i.e. utilities, property taxes, internet, etc.) using one of two different methods. On Page 2 of Schedule C is where you enter the details for vehicle expenses and miscellaneous expenses that don’t have a home on Page 1.
    • Calculate your net profit or loss. Subtract your total expenses from your gross income to compute your net profit or loss.
    • Calculate your income and self-employment tax. Take your net profit or loss and enter it on Page 1 of your Form 1040 where you will calculate your income tax. Also enter your net profit or loss on Schedule SE, which is where you’ll calculate your self-employment tax. See the previous section on calculating both income and self-employment taxes.

For Most SMLLCs     Schedule C Expenses Example Document or Real Estate and AirBnB Schedule E Expenses Example Document

Find out more about how other business entities are taxed:

Everything You Need to Know About Tax for S Corps

Everything You Need to Know About How Partnerships Are Taxed

Everything You Need to Know About C Corp Taxes

C Corporations, S Corporations, and Single-Member LLCs at a Glance

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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