Advantages of Single Member LLC Quarterly Taxes
Now that millions of people are becoming more comfortable with being their boss, the gig work economy is booming. Along with the benefits of flexible schedules and doing what you enjoy coming to the responsibilities, one of these requirements is filing taxes for your self-employed income, such as single-member LLC quarterly taxes.
Registering your business will have much to do with how you file your income taxes. For example, some self-employed workers go the independent contracting route, while others prefer to register as single-member limited liability companies (SMLLCs). As long as it works for your business and you’re paying your taxes on time, there’s no wrong way to register. But there are a few advantages that single-member LLC entities have, especially if they file their taxes quarterly.
What’s a Single-Member LLC, Anyway?
Getting into the realm of dealing with the Internal Revenue Service (IRS) means becoming familiar with dozens of acronyms. The second one (after IRS) to learn is an SMLLC. Short for single-member limited liability corporation, the term refers to a small business structure that, as it sounds, is owned by one person.
However, if this sounds like you, you have two choices: a sole proprietorship or an LLC. So, to make an informed decision, you need to understand the pros and cons. Then, integral factors like who can own and control the business, what assets are protected, and your tax deductions differ for each.
Starting With a Sole Proprietorship
Let’s start with the simplest structure that separates your personal and business assets (unlike an unstructured freelance or gig work business). The designation of a sole proprietorship says that you are a legitimate company and the only owner. Therefore, you control all the choices and are responsible for all the finances. In return, the “sole proprietor” label ensures that only one section of your life is liable if your personal or business assets are in trouble.
In other words, if your business goes bankrupt, your debtors can’t come after your assets. So there’s a pretty strong case to register as a sole proprietor. Another perk is that there are extra tax deductions you can take. But you also have the choice of writing as a single-member LLC. So your assets are still separated, and you get more tax deductions. The benefits go beyond those two, though.
Advantages of Being a Single-Member LLC
You might be surprised to learn that most of the small businesses you see are SMLLCs. As a business owner registered in the state where the company does business, an SMLLC can only have one person controlling the interests. In a general LLC, the business can have multiple owners and controllers. The requirements for the company’s formation vary by state.
To get the advantages of an LLC without having a partner, many owners take the SMLLC route. Remember that you can form an SMLLC in one state and do business in another, although the non-founding states would be considered foreign. To work in a foreign state, you must fill out an application and gain authority as a registered company there.
Why become an SMLLC if there’s all this hassle to it? The corporate tax and credibility perks make dealing with the filing requirements worth it for millions of entrepreneurs. Here’s a short list of some of the main benefits:
- Your assets have liability protection from business debt (as long as you’re careful not to “pierce the corporate veil” by mixing business and personal support, which can cost you your LLC label)
- You can choose how you’re designated for income tax purposes (as a sole owner, a C-corp, or an S-corp)
- Having an SMLLC designation makes you seem more credible when you’re trying to establish your business’s finances
- You gain extra protection from tax liability in businesses that are medium or high-risk or if you already have substantial personal assets to protect
- The LLC is held accountable for business obligations; you are not.
One more advantage that an SMLLC holds over an LLC or sole proprietorship is longevity.
In an LLC, if the only member passes away or cannot conduct business legally, the LLC must be dissolved. In a sole proprietorship, there is no other owner.
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How to Become a Single-Member LLC
An SMLLC has the tax deductions for business expenses you’re looking for, so now it’s time to register as one. When you’re ready, the first step is to file an article of organization. Don’t let the name intimidate you, though. It’s a template you complete stating you agree with all the initial statements required to form an LLC.
You can buy a blank, editable template and fill it in with your information.
Design Your Business Plan
Next, you get to design your business plan. If you weren’t planning on doing this anyway, consider this your chance to create a solid foundation for your SMLLC. Another reason a business plan is essential is that many lenders require one before funding your company. You could be eligible for federal or corporate grants, but without a business plan, you won’t qualify.
Your business plan is an overview, operating agreement, and action plan covering each stage, from startup to management and beyond. You should follow it as you build and grow your company. Consider it a tool that reminds you to refocus on all the essential parts that make a business successful.
To help you design your business plan, the U.S. Small Business Administration (SBA, another acronym to remember) has an entire department at your disposal. Access to counselors is free, although they don’t deal with the detailed tax law side of the business.
Get an EIN
The final step of your SMLLC journey is getting your employee identification number (EIN). Your EIN is your federal tax identification number the IRS uses to differentiate you from everyone else.
After you’ve prepared your articles of organization and business plan, you can apply for the EIN. It’s a free online service, but it must be done in one session. Otherwise, you’ll lose your progress and have to start over again. With your EIN, you can start conducting business (and paying taxes)!
How Single-Member LLCs Are Taxed
As a single-member LLC, you fall under the category of a disregarded entity if you choose to be taxed outside of a corporation (see above). Confused?
We understand. It’s a confusing topic. Let’s put it in perspective with an example. Say you own your business and decide to register as a sole proprietorship. That means you and your business are the same entity.
If you make a bad judgment call in your business’s name and get sued, you and your company are liable. Meanwhile, the plaintiff can’t go after your bank account and assets as a sole proprietorship. Had you chosen to register as an SMLLC taxed as a business entity, the plaintiff could only sue the business.
As a person, your name would not be included in the lawsuit. As a result, you became a “disregarded entity.”
To qualify for this category for federal tax purposes, your business has to include three factors:
- First, you choose to have your business and personal assets taxed together.
- You must be the sole owner.
- Third, your business can’t be a corporation (including an S or C corporation tax rate).
Everything ultimately boils down to whether you file a Schedule C for your LLC tax.
Filing as a Schedule C
A Schedule C is a tax form used by sole proprietors and SMLLCs. The title of the document says “Profit or Loss From Business.” On the Schedule C form, you’ll report your income and losses. The IRS will use these numbers to analyze how much you should pay in taxes. Because this form is complex, especially if you wait and complete it annually, most SMLLCs elect to pay income taxes quarterly.
Filing Single-Member LLC Quarterly Taxes and Payments
Typical tax filing alternatives for self-employed taxpayers differ when you’re an SMLLC. Individual income taxes are completed once a year on the net income. However, filing as a single- or multi-member LLC is a little more complicated. Instead of paying taxes on your gross taxable income annually, you must pay your self-employment taxes quarterly.
This includes your social security, payroll, and Medicare taxes. If you choose to be taxed as a sole proprietorship rather than a company (disregarded entity), the IRS requires you to estimate your tax payments four times a year. The exceptions are those businesses that estimate withholdings and tax credits that total the prior year’s taxes. Then, you don’t have anything to pay. But that may change when you file your annual tax.
When and How to File Quarterly Taxes
Estimated taxes for quarterly filings are due on April, June, September, and January 15th. You’ll get an estimated payment voucher at the end of the tax year. Use those vouchers to determine how much single-member LLC quarterly taxes you should pay each quarter.
- To pay your taxes, you’ll file Form 1040-ES (also called a Schedule SE). This form is different from Schedule C. It’s used solely to help you figure out how much your estimated taxes will be and then break them down into affordable chunks.
- By filing your single-member LLC quarterly taxes, you aren’t surprised by a substantial hit on your tax return at the end of the year.
Resources to Help You
There are many advantages to filing your business taxes quarterly, but that doesn’t make the process simple if you’ve never done it before.
- Filing the IRS forms for LLCs isn’t the same as filing a personal income tax return.
- When you need assistance, it’s good to have reliable sources instead of random Google results.
Depending on what you need, turn to these experts for guidance:
- The IRS is helpful when you want information about what records to keep and which file forms to use for tax purposes.
- The SBA is a wealth of resources for creating business plans and finding funding solutions for your SMLLC.
- Nationwide is more than insurance; their tax department can pinpoint any business income deductions you might have missed.
- Are you looking for a program to help you file your taxes? TurboTax Self-Employed is a user-friendly and comprehensive tool for state and federal income tax-related.
These sites and programs are overflowing with knowledge.
Whichever resources you choose to help you, the important part is that you know you’re not alone. Millions of other small business owners in the United States and thousands of resources are available to guide you as you form and grow your SMLLC.
That’s why Selfgood was created in the first place. The founders recognized a need for gig workers to be able to find reputable resources without going to a dozen different websites.
At Selfgood, everything you require to build a successful business is at your fingertips. Start learning about your legal and tax responsibilities, then check out what else the company offers for a growing business!