Death, Taxes, and my LLC
December 30, 2010 10:17 AM Subscribe
My LLC is going legit January 1st in Michigan. I'm a brand new business owner in an economically depressed state and I'm starting to turn a profit which means dealing with taxes and the IRS. I'm young, I don't know anything about business taxes, and I'm somewhat frustrated at how painful this is for a new business owner who just wants to pay his fair share. I have an accountant who I know is really good, but I need to know kind of the general picture of what is happening so I can stay on top of things. I don't want to throw it all on the accountant and I want to be proactive.
I am thinking I need to handle payroll, but I have no idea how to do that. I was looking at Intuit's Payroll, what do you think? Seemed more expensive than I would like (after all I only have 2 employees, one is part-time high schooler) and I was shocked by the lack of small web startups in this space to serve my needs.
I have my EIN, I set up a bank account for the LLC.
I signed up for EFTPS to pay my Fed taxes online quarterly. I logged in and have no idea what I'm doing. Should I have my accountant do this for me?
How do state taxes work? Have my accountant take care of this for me?
I am getting workers comp / business liability insurance the start of the year, so I will be set with that.
How do you pay yourself? I think with the single-member LLC it is pass through taxation so my understanding is I can take whatever I want out of the business, but I'll just be taxed on it. And I don't have to worry about withholding taxes for myself right? That's only for my employees? Also, can I pay myself over $10,000 by check without issue? I have not been paying myself at all and just letting money build up in the company bank account. Not sure if that is good or bad.
I have been keeping receipts in a giant box now, and have been keeping track of expenditures and income just on a spreadsheet.
In conclusion, I'm looking for the general picture of what the small business owner needs to do in a nutshell, all the different things involved in paying taxes. How to make it easy on the accountant, so they can focus on the important stuff. Please do not send me to the IRS general page for small businesses, I've been there many times, just want the general picture. I can fill in the details or research more.
I also want to know about any tech that makes it easier on me. After all, I really want to concentrate on the business, not this tax junk.
I am thinking I need to handle payroll, but I have no idea how to do that. I was looking at Intuit's Payroll, what do you think? Seemed more expensive than I would like (after all I only have 2 employees, one is part-time high schooler) and I was shocked by the lack of small web startups in this space to serve my needs.
I have my EIN, I set up a bank account for the LLC.
I signed up for EFTPS to pay my Fed taxes online quarterly. I logged in and have no idea what I'm doing. Should I have my accountant do this for me?
How do state taxes work? Have my accountant take care of this for me?
I am getting workers comp / business liability insurance the start of the year, so I will be set with that.
How do you pay yourself? I think with the single-member LLC it is pass through taxation so my understanding is I can take whatever I want out of the business, but I'll just be taxed on it. And I don't have to worry about withholding taxes for myself right? That's only for my employees? Also, can I pay myself over $10,000 by check without issue? I have not been paying myself at all and just letting money build up in the company bank account. Not sure if that is good or bad.
I have been keeping receipts in a giant box now, and have been keeping track of expenditures and income just on a spreadsheet.
In conclusion, I'm looking for the general picture of what the small business owner needs to do in a nutshell, all the different things involved in paying taxes. How to make it easy on the accountant, so they can focus on the important stuff. Please do not send me to the IRS general page for small businesses, I've been there many times, just want the general picture. I can fill in the details or research more.
I also want to know about any tech that makes it easier on me. After all, I really want to concentrate on the business, not this tax junk.
Single member LLC here.
You generally don't "pay" yourself in a single member LLC. I have a business account and a personal checking account. I "pay" myself a sum from my business account, into my personal account each month but the only real benefit is that I keep my bookkeeping neater since my business account will track all my business expenses.
My business doesn't have a lot of cash flow transactions (I get large chunks every so often) so I track my expenses in a spreadsheet. I'd start there and then later on look at something like QuickBooks if that becomes difficult.
For reciepts a shoebox is technically fine (I also have all transactions tracked via my business account). For something a bit nicer check out the receipt scanners from Neat Co.
I don't do payroll, can't help much there.
The rest have your accountant help out. You do want to pay taxes quarterly but they will have to help determine how much you should be paying based on anticipated income your first year. Later years will be based on how much you make the previous year.
posted by bitdamaged at 10:45 AM on December 30, 2010
You generally don't "pay" yourself in a single member LLC. I have a business account and a personal checking account. I "pay" myself a sum from my business account, into my personal account each month but the only real benefit is that I keep my bookkeeping neater since my business account will track all my business expenses.
My business doesn't have a lot of cash flow transactions (I get large chunks every so often) so I track my expenses in a spreadsheet. I'd start there and then later on look at something like QuickBooks if that becomes difficult.
For reciepts a shoebox is technically fine (I also have all transactions tracked via my business account). For something a bit nicer check out the receipt scanners from Neat Co.
I don't do payroll, can't help much there.
The rest have your accountant help out. You do want to pay taxes quarterly but they will have to help determine how much you should be paying based on anticipated income your first year. Later years will be based on how much you make the previous year.
posted by bitdamaged at 10:45 AM on December 30, 2010
After all, I really want to concentrate on the business, not this tax junk.
Then let your accountant concentrate on your accounting, especially taxes.
I owned a business for 13 years. If you're worried about what major areas of taxation there are for a small business, my list would be:
- payroll. THIS TAKES DOWN MORE BUSINESSES THAN ANYTHING ELSE. It's not hard to grasp, and probably your CPA can help you set up payroll and then you can do it yourself, but many business owners rather stupidly see this as an area where ignorance is bliss. Trust me, it isn't. We did it right; an amazing number of small business owners I have known didn't. A leading mistake is to not set aside the money EACH PAY PERIOD. Treat it like it doesn't belong to you, because really, it doesn't. Set up a separate checking account and keep the reserves for the quarterly payments
- sales tax. Assuming you sell a taxable item, you must report and pay sales taxes to the appropriate authorities. This is also a LARGE area for enforcement, as governments get a lot of their revenue out of this, especially cities. If you sell everything over a counter locally, it's pretty easy - your local State, county, and city. Any other scenario (shipping packages out, having sales reps in other areas), ask your CPA.
- business licenses. Make sure you've got all those you need; some are affected by revenue so you will need to keep good records so that you can, for example, plug in a good gross sale number to pay your fees based on. Not precisely in the tax category, but this is where you need to make sure you either have industry gurus to talk to, like a trade association, or a CPA who knows your industry. Make sure you have all permits and licenses you need to legally ply your trade. This too is a major enforcement area.
- income tax. Too complex for words, but the good news(?) is this category tends to catch any other forms of taxes that aren't in the buckets above. Get with your accountant NOW because there are all types of records you must be keeping all year long to get your deductions, and especially for a business, you will get killed if you don't. It's not like an individual 1040 where you can be sloppy and just take the "standard deduction."
I can't think of any other areas to worry about (but I'll be happy to stand corrected by the hive mind, and remember - IANACPA), but there is one area of sales tax that you need to make sure of as a consumer of equipment, goods, etc. - a resale permit, if needed (to buy goods at wholesale and not pay tax on them since you're reselling), and to ensure that you have paid any applicable USE tax on major equipment purchases. A friend of mine got hung on this latter one to the tune of about $20K because she purchased capitol equipment out of state, they did not charge sales tax, and she failed to report and pay USE tax to her state. A few years later, they caught it, and she had to pay interest and possibly penalties.
You indicate that you've done business in some form in the past. Did you do it all as a sole proprietorship/Schedule C with no employees? Just be very honest with your CPA about your history to ensure that you don't have any problems stemming from your past - probably not, but it's a good time for a checkup.
posted by randomkeystrike at 10:50 AM on December 30, 2010 [3 favorites]
Then let your accountant concentrate on your accounting, especially taxes.
I owned a business for 13 years. If you're worried about what major areas of taxation there are for a small business, my list would be:
- payroll. THIS TAKES DOWN MORE BUSINESSES THAN ANYTHING ELSE. It's not hard to grasp, and probably your CPA can help you set up payroll and then you can do it yourself, but many business owners rather stupidly see this as an area where ignorance is bliss. Trust me, it isn't. We did it right; an amazing number of small business owners I have known didn't. A leading mistake is to not set aside the money EACH PAY PERIOD. Treat it like it doesn't belong to you, because really, it doesn't. Set up a separate checking account and keep the reserves for the quarterly payments
- sales tax. Assuming you sell a taxable item, you must report and pay sales taxes to the appropriate authorities. This is also a LARGE area for enforcement, as governments get a lot of their revenue out of this, especially cities. If you sell everything over a counter locally, it's pretty easy - your local State, county, and city. Any other scenario (shipping packages out, having sales reps in other areas), ask your CPA.
- business licenses. Make sure you've got all those you need; some are affected by revenue so you will need to keep good records so that you can, for example, plug in a good gross sale number to pay your fees based on. Not precisely in the tax category, but this is where you need to make sure you either have industry gurus to talk to, like a trade association, or a CPA who knows your industry. Make sure you have all permits and licenses you need to legally ply your trade. This too is a major enforcement area.
- income tax. Too complex for words, but the good news(?) is this category tends to catch any other forms of taxes that aren't in the buckets above. Get with your accountant NOW because there are all types of records you must be keeping all year long to get your deductions, and especially for a business, you will get killed if you don't. It's not like an individual 1040 where you can be sloppy and just take the "standard deduction."
I can't think of any other areas to worry about (but I'll be happy to stand corrected by the hive mind, and remember - IANACPA), but there is one area of sales tax that you need to make sure of as a consumer of equipment, goods, etc. - a resale permit, if needed (to buy goods at wholesale and not pay tax on them since you're reselling), and to ensure that you have paid any applicable USE tax on major equipment purchases. A friend of mine got hung on this latter one to the tune of about $20K because she purchased capitol equipment out of state, they did not charge sales tax, and she failed to report and pay USE tax to her state. A few years later, they caught it, and she had to pay interest and possibly penalties.
You indicate that you've done business in some form in the past. Did you do it all as a sole proprietorship/Schedule C with no employees? Just be very honest with your CPA about your history to ensure that you don't have any problems stemming from your past - probably not, but it's a good time for a checkup.
posted by randomkeystrike at 10:50 AM on December 30, 2010 [3 favorites]
In an effort to save on fees you might want to sit down with your accountant and ask him/her if there is things you can do that might help save him/her time. Alot of times they can set up spreadsheets the way they want them and you can fill in.
posted by Busmick at 11:09 AM on December 30, 2010
posted by Busmick at 11:09 AM on December 30, 2010
Also while payroll is theoretically easy there are alot of small components and details to look out for. They may be able to walk you through a couple of months of payroll (again with some templates they have) and then you can take over after that.
posted by Busmick at 11:11 AM on December 30, 2010
posted by Busmick at 11:11 AM on December 30, 2010
I think a major misconception is that the typical CPA WANTS to do all your bookkeeping work. Most of them realize that the average business does as much in-house as possible; they want to get paid for consulting and advice. Most CPAs are very supportive about helping you set up your business bookkeeping so you can do it in-house using Quickbooks or Peachtree or the like. If not, run.
posted by randomkeystrike at 11:13 AM on December 30, 2010
posted by randomkeystrike at 11:13 AM on December 30, 2010
Sorry as i read your post i think of more things...do you keep you own books ie. with quickbooks etc? This might be something you can do. The "tax stuff" is simply an extention of your normal accouting. You might be able to do all your bookkeeping and then give to your accountant at the end of the year for polishing up and tax return.
Also your accountant should sit down with you and tell you about how to take money out of the comany and probably go as far as doing a projection for you next year so you have a roadmap.
These thing all depend on your specific situation so a meeting with them in the beginning of the year will be enough to give you an idea of what you should be doing.
posted by Busmick at 11:18 AM on December 30, 2010
Also your accountant should sit down with you and tell you about how to take money out of the comany and probably go as far as doing a projection for you next year so you have a roadmap.
These thing all depend on your specific situation so a meeting with them in the beginning of the year will be enough to give you an idea of what you should be doing.
posted by Busmick at 11:18 AM on December 30, 2010
Sorry randomkeystrike covered everything in his posts...hire him!!
posted by Busmick at 11:20 AM on December 30, 2010
posted by Busmick at 11:20 AM on December 30, 2010
Wow - this post is timely because I just started an S corporation. Thanks for putting it up and thanks to megatherium for the link to SCORE.
posted by jet_silver at 11:51 AM on December 30, 2010
posted by jet_silver at 11:51 AM on December 30, 2010
You need to sit down with your accountant to discuss this. One of the most important decisions is whether you will be taxed as a sole proprietorship or as an S-corp.
If a sole proprietorship, things are much simpler. You can just move money in and out of the business as you see fit. You will be taxed on your net profits and this includes self-employment tax.
If an S-corp, then you have to pay yourself a salary as an employee and handle withholding just like one of your employees. An S-corp is quite a bit more complicated than a sole proprietorship so don't use it unless you really need to. You should discuss the pros and cons with your accountant. You might consider starting as a sole proprietorship, which is cheaper and simpler, with the possibility of converting to an S-corp in the future if need be.
posted by JackFlash at 2:35 PM on December 30, 2010
If a sole proprietorship, things are much simpler. You can just move money in and out of the business as you see fit. You will be taxed on your net profits and this includes self-employment tax.
If an S-corp, then you have to pay yourself a salary as an employee and handle withholding just like one of your employees. An S-corp is quite a bit more complicated than a sole proprietorship so don't use it unless you really need to. You should discuss the pros and cons with your accountant. You might consider starting as a sole proprietorship, which is cheaper and simpler, with the possibility of converting to an S-corp in the future if need be.
posted by JackFlash at 2:35 PM on December 30, 2010
I work in the tax department for a Payroll Processor that's part of a bank on the S&P 500. We're not particularly cheap, but we solve a lot of problems and have excellent service. Mefi-mail me and I'll give you my phone number at work.
posted by boghead at 4:27 PM on December 30, 2010
posted by boghead at 4:27 PM on December 30, 2010
Busmick, as a typical manager, I have some ideas about what you should be doing, but no idea how to do most of it. :-) Hire (or rent) a CPA!
I will post a clarification - by separate account on payroll taxes, I meant "separate payroll account." IOW, what we did was have a separate account from our general business expenses. Into this account every pay period we transferred enough money to meet payroll obligations, i.e. enough money to cut the paychecks AND to fund the taxes. This makes it easy because what you're doing is transferring an amount equivalent to the GROSS pay. Then gross pay - deductions = net paychecks and Robert's your mother's brother.
posted by randomkeystrike at 4:47 AM on December 31, 2010
I will post a clarification - by separate account on payroll taxes, I meant "separate payroll account." IOW, what we did was have a separate account from our general business expenses. Into this account every pay period we transferred enough money to meet payroll obligations, i.e. enough money to cut the paychecks AND to fund the taxes. This makes it easy because what you're doing is transferring an amount equivalent to the GROSS pay. Then gross pay - deductions = net paychecks and Robert's your mother's brother.
posted by randomkeystrike at 4:47 AM on December 31, 2010
Jackflash, I believe one of the main benefits of an LLC is that you enjoy the liability protection of a corporation, but generally handle taxes much like a sole proprietorship, i.e. avoid the double-taxation that comes with a corp.
posted by randomkeystrike at 4:50 AM on December 31, 2010
posted by randomkeystrike at 4:50 AM on December 31, 2010
I believe one of the main benefits of an LLC is that you enjoy the liability protection of a corporation, but generally handle taxes much like a sole proprietorship, i.e. avoid the double-taxation that comes with a corp.
This statement confuses a bunch of things. First off an LLC is a Limited Liability Company. It has nothing to do with a corporation. Second, an LLC is an entity created and recognized by state law for liability purposes. It is not recognized by the IRS. The IRS does not care whether a company is an LLC or not. It makes no difference. The LLC doesn't exist.
As far as the IRS is concerned, there are only four choices -- sole proprietorship, partnership, S-corp or C-corp. That's it. No LLC. So first you decide if you want to be an LLC for state purposes or not. Second you decide how you want to be taxed by the IRS. They are independent decisions.
As far as double taxation, only a C-corp has an independent level of taxation. A sole proprietorship, partnership and S-corp pass though all income to the owners for taxation at a single level.
posted by JackFlash at 7:46 AM on December 31, 2010 [1 favorite]
This statement confuses a bunch of things. First off an LLC is a Limited Liability Company. It has nothing to do with a corporation. Second, an LLC is an entity created and recognized by state law for liability purposes. It is not recognized by the IRS. The IRS does not care whether a company is an LLC or not. It makes no difference. The LLC doesn't exist.
As far as the IRS is concerned, there are only four choices -- sole proprietorship, partnership, S-corp or C-corp. That's it. No LLC. So first you decide if you want to be an LLC for state purposes or not. Second you decide how you want to be taxed by the IRS. They are independent decisions.
As far as double taxation, only a C-corp has an independent level of taxation. A sole proprietorship, partnership and S-corp pass though all income to the owners for taxation at a single level.
posted by JackFlash at 7:46 AM on December 31, 2010 [1 favorite]
Just to clarify what JackFlash said, there is no IRS taxation category for an LLC per se. However, if you want to be taxed by the IRS as a corporation, creating an LLC is one of a handful of ways to do it, probably the easiest.
More generally, you must study & learn to be able to navigate this stuff intelligently, or have enough income to hire somebody to do it for you. But the world belongs to people who do paperwork.
But don't take our word for it. Here's the IRS page on LLC's.
posted by diffengr at 1:43 PM on February 10, 2011
More generally, you must study & learn to be able to navigate this stuff intelligently, or have enough income to hire somebody to do it for you. But the world belongs to people who do paperwork.
But don't take our word for it. Here's the IRS page on LLC's.
posted by diffengr at 1:43 PM on February 10, 2011
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Seriously, a good accountant will be worth his fee in just having peace of mind.
When I started a business that was going to have a more complex payroll than I was used to dealing with, he took that over and charged me $25 a week to do it on top of his monthly fee (I see him monthly for all the businesses, I do the daily books, he deals with all the taxes, insurances, corporate stuff, licenses, etc.)
Ideally, find an accountant who specializes in the type of business that you're running. They will know all the ins and outs, and will advise you on things that you don't even know that you need to know.
Don't worry about making it easy on the accountant. It's his job to make all that tax stuff easy for you.
posted by newpotato at 10:29 AM on December 30, 2010