LLC Estimated Tax Payments: Everything You Need to Know
LLC estimated tax payments should be paid throughout the year to help reduce the impact at tax time and this is a process that all business owners should know.3 min read
LLC estimated tax payments should be paid by your business throughout the year to help reduce the impact at tax time. There are some important aspects of this process that all business owners should know.
What Are Estimated Tax Payments?
If you are a new small business owner, making sure you meet all of your tax obligations can take some getting used to, especially when you have a history of working for another person who has held out your taxes for you each payday. When you own a business, you have to deal with taxes more often than once a year. You will need to make estimated payments all year long. You are required to pay all throughout the year rather than only at tax time.
If you worked for an employer, he or she would take out your taxes all year long for you. As a self-employed individual, you will be responsible for these tax payments yourself. You are responsible for making your payments; the IRS is not going to warn you about when they are due. It may not be evident to you until it is time to pay your taxes at the standard time.
Many people do not pay estimated personal income taxes because enough money has been withheld all year. If your business shows a profit, you might want to pay your business taxes using its checking account. This will leave less questions for the IRS. The type of account you use to pay your estimated business taxes will be determined by the type of business you own.
Sole proprietorships can typically use any checking account to pay taxes. However, you will not want the IRS to ask questions about the separation of your personal and business expenses. LLCs and partnerships should use a business checking account unless the estimated taxes are paid on your personal return. You will need to speak to your tax preparer before you write your check.
If you do not currently have a separate account for your business, it is advisable to get one.
Who Has to Pay Estimated Tax Payments?
- Sole proprietors, partnerships, S corps, shareholders and single-member LLCs that choose to be taxed as a sole proprietor or S corp, or a multi-member LLC that chooses to be taxed as a S corp or partnership: If you think you are going to owe $1000 or more in taxes, you should plan to make estimated payments to the federal and state government. The exception to this is if your withholdings and tax credits equal at least as much as your taxes the year prior, you do not need to make a federal estimated payment.
- C corporations and multi-member LLCs that choose to be taxed like a C corp: As the owner of a corporation, you will have to make estimated payments on your taxes if you think you will owe over $500.
- For partnerships, multi-member LLCs or S corps, your profit shares will be displayed on Schedule K-1 with your personal tax return.
Exceptions to Making Estimated Tax Payments
The following questions can help determine if you will need to pay estimated taxes:
- Do you think that you will owe $1000 or more in taxes when you subtract your income tax withholding and credits from your overall tax? If no, you will not need to pay an estimated tax. If so, answer the next question.
- Do you think your income tax and withholding credits will be at minimum 90-percent of your taxes owed? If no, you will not have to pay estimated taxes. If yes, move on to the next question.
- Do you think your income tax withholding and credits will be at minimum 100-percent of your taxes displayed on your last return? If no, you will not pay estimated tax. If yes, you will need to pay the estimated tax.
It is possible that you can use the withholding from another job or from the job held by your spouse to prevent owing estimated taxes or an estimated tax penalty. Payroll withholdings are designed to be made evenly all year long, no matter when it is actually withheld. If you plan to have enough tax withheld at the end of the year, you could avoid estimated taxes.
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