How To Pay Yourself (And Taxes) in a Single Member LLC

hey everyone chad pavel cpa here the big question i often get from first-time entrepreneurs very very very very often is how do i pay myself and how do i pay taxes on a single member llc [Music] all right so this is your first time opening a business if you've never run an llc before you've never had a tax return and you're just thinking about how do i actually pay myself and how do i make sure that i'm keeping track of all the profit and loss how do i pay taxes i don't want to have penalties and interest how do i stay on top of all this stuff so you're definitely asking yourself the right question so what i've done is i've created a quick little whiteboard presentation where i'm going to show you what it really takes to first track your profit and losses within an llc and then second how your income actually carries over to your tax return and then number three how to actually pay taxes on your llc profits all right so as you can see we've got a blank slate right here and what we're going to do is we're just going to assume that you are an owner a 100 owner of a single member llc and then you live here in the united states if you've got multiple members if you have you know if you live outside of the us if you own multiple llc's this will certainly get more complex but just to make things very very simple again we have one us individual and you own 100 of an llc all right so that's really just what we need to start with so i'm just going to create the llc entity basically and that's going to be called your co your co llc and obviously we need to put you up here so let's just put you as the single owner so you own 100 percent and you're happy because you own a very awesome profitable business so you own 100 again of this llc so let's again assume that you've been in business this is going to be the business that's been going for let's say a year let's say you started in february or march and now it's december and you have concluded the business operation so let's just talk about how to make some money uh so we're going to actually show you making money let's say you did 200 000 in revenues or sales same thing all right so you got two hundred thousand dollars going into the business and let's say that you have uh spent one hundred thousand dollars to run the business so you've got a hundred thousand in business deductions expenses whatever you want to call them so obviously the big simple math here is 200 minus 100 you've got a hundred thousand dollars in taxable profits put that in green so you made 100 000 on this business this year first of all it's a pretty darn good number especially for your first year in business and so you've got a hundred thousand dollars in profit so the first thing to note is how do i pay myself well as a single member llc owner there's really only one way to pay yourself and that is you take money out of the business bank account and you write yourself a check you send yourself an ach or a venmo or really anything to get the money out of the llc's business bank account that's it that is how you pay yourself there's no additional tax on you taking money out of a single member llc it's actually taxed the same way as a sole proprietorship in the sense that again all you really are doing is taking money out of the business bank account and writing yourself a check now there are some things to consider here obviously you got to make sure there's enough money in the bank account and so the question really then is well whether i take twenty thousand out or maybe i take all hundred thousand of my profits out what am i gonna pay taxes on so that's the second thing but again number one is you simply you simply write a check and that's how you pay yourself and you call that a draw so there's really no payroll you're not taking a paid check you're not writing yourself a 10.99 there's no guaranteed payments as we call them in partnership or multi-member llc land but if you're a single member llc owner you simply write yourself a check for how much money you need and you'll get an idea of how much you need to live on after you get the business really rocking and rolling but that's as simple as it can be the second thing is how you pay taxes well you're gonna pay taxes on the businesses profits all right so it's as simple as that you're gonna pay taxes on your business profits and here's the other caveat regardless of how much money you take out of your single member llc in the form of salary or draw we'll call it a draw regardless of how much you take out you're still going to pay tax on the profits and the profits of the business we just calculated are 100 000 so here's how that works let's move over to the right a little bit on your individual tax return or your married filing jointly tax return which is your form 10 40. if you take a look at it right now you're going to see a couple of different things you're going to see wages you're going to see other income you'll see all sorts of different inputs basically you're going to have a separate schedule it's called a schedule c and you're going to have a schedule c for every single member llc or sole proprietorship enterprise that you have going on in your life so a different schedule c so in this schedule scene this is a schedule c you're going to have a profit and loss statement it's going to show various details of your 200 000 in income and you have various details of your 100 000 in expenses but in the end it's going to show a 100 000 profit all right now here is how you pay taxes on that hundred thousand dollar profit on your individual tax return you're gonna have this schedule c but basically you're gonna have all this carry forward over and it's gonna have a line item for one hundred thousand dollars for income from your business basically and so that is going to be part of your taxable income your 100 000 now let's say that you are married and you also have a day job let's say this was just a side hustle well you're going to have income from your job you're going to have wages and salaries so let's say that you have a hundred thousand dollars also from your day job let's say your spouse has makes 125 000 so you're gonna have 100 plus 125 which is 225 in wages on your tax return you have a hundred thousand dollars in you know business income we'll call it schedule c income and on this income you're probably not going to have taxes withheld uh you the way you actually need to make sure you pay enough tax is that you account for the income you're going to have and you make some estimated tax payments so basically in a nutshell as simply as possible your inputs or the money in your income is going to be the combination of you and your spouses if you're married wages from day jobs and then all of your earnings from your various llc ownerships and again in this case it's really simple it's a single member llc that you own you and your spouse make 225 in wages the business made it a hundred thousand in income so on its simplest simplest level you're gonna pay tax not just on the 225 and hopefully you've taken out enough on your salaries but you're gonna have also the one hundred thousand dollars so your income tax return is gonna show oops total income of three hundred and twenty five thousand dollars now of course there's all sorts of deductions and credits and other things that you're going to have that will very likely reduce your taxable income but in the end that is how you pay tax on a single member llc you do you make money in your business it carries over to your tax return and on your individual tax return you will pay taxes there is no tax federal tax you do not pay federal income tax from the llc the llc does not own it because this income is called pass through income the income and the losses you make on a schedule c which is a single member llc tax form carries over to your individual tax return it passes through and you pay any additional tax that you owe on that income now obviously what you want to do is make estimated tax payments throughout the year on your estimated profits and there's a couple different ways that you can get that very very accurate otherwise you'll pay penalties and interest at the end of the year if you had income that you did not pay tax on so hopefully this was helpful this is how you are taxed on a single member llc and this is also how you pay yourself you simply write checks to yourself for a couple thousand bucks a month five ten thousand dollars a month once a year doesn't really matter that is how you pay yourself all right everyone hopefully that was helpful if you're thinking about forming a new business just know that llc taxation in the us as an individual 100 owner is actually quite simple you simply pay taxes on the profits of your llc on your form schedule c which is a part of your form 1040 or individual tax return whether it's you as a single person or married filing jointly or with your kids as dependents also it's the same exact thing it's just an extra schedule that shows how much income your business made so obviously it's important to keep track of your profit and loss throughout the year make estimated tax payments if you want to avoid penalties and interest and most importantly to plan for the additional income so that you can reduce that income you can maximize your tax deductions and pay the least amount of tax legally available to you again i'm chad pavel check us out at our website below subscribe to the channel here look forward to helping you in the next

Channel: Chad Pavel

Views: 158,427

Keywords: Taxes, IRS, Open LLC, LLC Tax, QBO, Quickbooks, Tax Returns, Business Taxes

Id: unRnRaUKKEE

Length: 9min 58sec (598 seconds)

Published: Mon Aug 17 2020