S Corp Savings If you own a business as a garden variety single-member LLC (one owner or shareholder), your business income will be reported on your personal tax return under Schedule C and is subject to self-employment tax (currently 15.3%) and ordinary income tax.
The same is true for a business that has not formed a corporation such as a sole proprietor and partnerships. So, you could easily pay an average of 40% (15.3% in SE taxes + 25% in income taxes) on all your net business. These saving are available if you follow some basic rules when running your business. Owner reasonable salary is required to fulling enjoy the S-Corp benefits. McVay has payroll services for S-Corp owners as low as 99.00 per month - Full Payroll Service and Features.
Your S-Corp income is only taxed at your personal Federal rate. Wow! However, when your partnership, LLC or corporation is taxed as an S-Corp you are both an employee and a shareholder (think investor). As an employee, your income is subjected to all the usual taxes that you would see on a paystub- federal taxes, state taxes, Social Security taxes, Medicare taxes, unemployment and disability. However, as a shareholder or investor, you are simply getting a return on your investment much like a dividend which is not subjected to self-employment taxes. Net savings is about 8-10% of your net business income after expenses
Mike McVay - Tax Accountant * S-Corp & LLC Expert - 850-725-5696
What Are Quarterly Taxes?Quarterly taxes are estimated tax payments to the IRS made throughout the year (instead of all at once on Tax Day in April). These payments are based on an estimation of your income for the current year. Most people use their previous year’s taxes as a guide.
Everyone is required to pay taxes. If you’re self-employed or work for the man, your taxes are paid in one of two ways:
Traditional (W-2) employees usually don't owe quarterly taxes because taxes are withheld from their pay. However, if you are self-employed (ie: real estate agents, Uber drivers, or any freelancers or contractors), taxes are not withheld from your pay. That's right--you are responsible for paying taxes on your own!
How Do I Know If I Owe Quarterly Taxes?If you are self-employed and turning a profit, you probably owe quarterly taxes.
However, it’s possible that you’re already paying enough in taxes during the year. For example, if you have a W-2 full-time or part-time job where your taxes are already being withheld for you and you typically get a tax refund, you may not need to pay quarterly taxes.
Alternatively, you do not need to pay quarterly if you have already paid at least:
In this case, your tax liability is already almost completely covered. Keep in mind, this is most common for people who have received a refund for the previous year’s tax and use that to pay their upcoming year’s taxes. For example, if you received a refund on your 2017 taxes in April and elected to pay it toward your 2018 taxes, you may be covered for estimated taxes, but only if that refund equals 90% of your expected 2018 taxes or was equal to 100% of your 2017 taxes owed.
What If I Didn't Earn That Much?Even if you only earned a little, you may still need to pay quarterly taxes. If you expect to owe $1,000 or more in taxes for the year (after deduction and credits), the IRS expects you to make quarterly tax payments on your business profit for that tax year. As a reminder, you are making a profit if your self-employment income is higher than your business deductions.
Put simply: if you have income that didn't have taxes withheld and you expect to owe $1,000 or more in taxes on all of that combined income in April, then you should consider paying quarterly taxes. Mike McVay, Tax Services in Pensacola Fl 850-725-5696
It is not a major disaster if you owed some money when you filed your return-after all, you would rather have the use of the funds for as long as possible. What you want to avoid is having to pay the IRS a penalty for underpaying your taxes during the year. If you owe the estimated tax underpayment penalty, which is nondeductible, you are, in effect, paying the IRS interest for part of the money you should have prepaid during the year for taxes but did not.
On the other hand, if you received a large refund on last year's return, you made an interest-free loan to the government which is something you may want to avoid this year. If that happened, you should consider reducing the amount of withholding taken from your salary and/or the amount of estimated tax payments you make.
Here are some pointers to keep you on even keel when it comes to estimated taxes.
Basic rules. There is no estimated tax underpayment penalty for the 2018 tax year if the total tax on your return reduced by withholding (but not by estimated tax payments) is less than $1,000. If the amount owed on an individual income tax return comes to $1,000 or more after subtracting withheld tax, the estimated tax underpayment penalty generally will not apply if your "required annual payment" (i.e., the amount that must be prepaid during the year in the form of withheld tax and estimated tax payments) equals at least the smaller of two amounts:
A tougher rule applies if your adjusted gross income for 2017 exceeded $150,000 ($75,000 for married persons filing a separate return). During 2018, to avoid the underpayment penalty, you must prepay the smaller of 90% of the tax for 2018, or110% of the tax for 2017.
The IRS can waive an underpayment penalty if you did not make the payment because of a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty. The penalty also can be waived for reasonable cause during the first two years after you retire (after reaching age 62) or become disabled.
It is a pay-as-you-go system. In general, one-quarter of your required annual payment must be paid by April 15, 2019, June 15, 2019, September 15, 2019, and January 15, 2020. Tax withheld from your salary is treated as an estimated tax payment, and an equal part of withheld tax generally is treated as paid on each installment date.
You may be able to make smaller payments under the annualized income method, which is useful to people whose income flow is not uniform over the year, perhaps because of a seasonal business. You may also want to use the annualized income method if a significant portion of your income comes from capital gains on the sale of securities which you sell at various times during the year.
Time for a checkup. Although you now know what your 2018 tax bill came to, you probably do not quite know what your 2019 tax will be. While it cannot be predicted with absolute certainty, your accountant can project what your 2019 tax will be based on your financial picture thus far, as well as on events you anticipate will occur and transactions you anticipate finalizing in the balance of this year. It would be a good idea for you and your accountant to get together well in advance of the next estimated tax installment to see how your payments are tracking and make any necessary adjustments to your wage withholding and/or estimated tax payments. It is possible a review of your situation could determine you are withholding too much rather than too little.
You and your accountant should also review whether changes in your personal or financial situation require a change in estimated tax payments or withholding. Mike McVay, Tax Accountant offers quarterly check-up so you don't have year end surprises.
Mike McVay, Accountant - 850-725-5696 Mike@MikeMcVay.com
Mike McVay, Tax Accountant Blog
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