Single Member LLC Quarterly Taxes: What You Need to Know
Paying single member LLC quarterly taxes to the federal government is required since you are paying self-employment tax on income received through your LLC.4 min read
Updated May 4, 2022:
Paying single member LLC quarterly taxes to the federal government is required since you are paying self-employment tax on income received through your LLC. Self-employment tax is separate from taxes paid on gross income. See also LLC tax exemptions.
In simple terms, the rules for estimated tax payments vary by business type. For single-member LLCs electing to be taxed as sole proprietorships, if your anticipated taxes to be paid are $1,000 or more, you will need to make estimated taxes. An exception is if your withholdings and tax credits are equal to your prior year's tax. In this case, you do not need to make estimated tax payments to the federal government.
Estimated taxes are broken down into four payments made throughout the year.
- April 15
- June 15
- September 15
- January 15
Once in the system, estimated payment vouchers will be sent by the IRS at the end of the tax year. You are responsible for paying estimated taxes whether the IRS vouchers are sent or not.
As a single-member LLC, you will file Form 1040-ES. The IRS recommends using Form 1040-ES to calculate estimated tax payments. You can make payments using the quarterly vouchers, or you can use the Electronic Federal Tax Payment System (EFTPS).
Paying too little in taxes can lead to penalties for underpayment. Paying too much means a lost opportunity to use the money to invest in your business. Using the services of a tax specialist to advise you on tracking, recording, and calculating earnings and deductions is recommended.
Steps for Filing as a Single-Member LLC
- Use Schedule C to report business income and loss. This form is then attached to Form 1040.
- Pay the self-employment tax if the net gain from the company exceeded $400 or more in the tax year. Complete Schedule SE and attach to Form 1040.
- Report employment taxes if your LLC pays employees. File Form 941 quarterly if the withholding is less than $1,000. Otherwise, file Form 943 at the end of the year.
Limited Liability Companies and Taxes
A single member LLC (SMLLC) has a default classification as a disregarded entity. Because of this, the owner of the LLC is not considered an employee. Therefore, any income received from the company is not a salary.
Instead, the Internal Revenue Service (IRS) considers the single member to be self-employed. Any income received is considered earnings from self-employment.
An advantage of an LLC by someone who has a day job and starts a side business is that the losses from the LLC can offset the salaried income.
In general terms, profit and loss are calculated by deducting the business expenses of the LLC from its revenue. A business expense is one that is considered to be ordinary and necessary and one that a reasonable business would use. For example, a home-based courier business would not be allowed to deduct the payments for a leased Ferrari because it's not ordinary nor is it reasonable that you would drive a Ferrari to deliver items.
A necessary item is something the business needs to operate. It does not mean the item must be indispensable, but it does need to be helpful and appropriate for the enterprise.
The federal government taxes 92.35 percent of the net earnings from self-employment. Up to a specified threshold, self-employment income is taxed at a rate of 15.3 percent. This breaks down to 12.4 percent for Social Security and 2.9 percent for Medicare. For self-employment earnings above the annual ceiling amount, only the 2.9 percent Medicare tax is used.
Tax Filing Forms
When filing annual federal tax returns, along with the Form 1040, you'll need to file Schedule SE (self-employment tax). Information from the SE form includes information from Schedule C, so this form is also needed.
The IRS uses Schedule SE to compute and report the amount of the tax obligation for self-employment earnings. There is also a short form for Schedule SE if self-employment earnings are less than a specified amount along with additional conditions.
For the most part, a single member LLC cannot avoid paying self-employment taxes. It is possible, however, if the SMLLC is reclassified as a corporation.
Under certain conditions, an individual member of a multi-member limited liability company can avoid self-employment taxes without the need for reclassification. Converting an SMLLC to a multi-member LLC with either a non-member manager or with passive members can reduce or eliminate self-employment taxes.
If you need help with filing single member LLC quarterly taxes, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 15 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.