I have a small business I opened around July and have net around $30,000. I am trying to get a financial advisor but everyone seems to be on thanksgiving break since last friday. As I understand it the IRS see’s Single member LLC’s as a disregarded entity and everything is taxed as personal income. So do you pay your personal income tax bracket rate, in addition to a small business tax rate?
I have a separate business bank account and have not taken any wages to date, however I am about to. My wife and I will fall in the 12% tax bracket as our joint income will be below $89,000 for the year. I am about to transfer $14k to my personal bank account as wages, but am trying to
I vaguely remember seeing that there is a small business tax of 18% on profits for sole member LLC’s. Does this mean I am taxed at 18%, and then an additional 12% on my wages that I transfer to my personal bank account?
I am making the assumption that you are a sole proprietorship that did not take the S Corp election.
An LLC is a legal entity that is disregarded for the purposes of taxation in the eyes of the IRS. You are a pass-through entity. This means that any income earned in the process of business is taxed at the self employment level. You pay both halves of the employer/employee FICA tax as well as your personal income federal and state withholding rate.
All of your business income is treated this way. Income earned this way is taxed regardless if you put it in your personal bank account or leave it in the business bank account. You do not have “wages”, you have draws. Your taxable business income is reduced by ordinary and necessary expenses incurred in the operation of your business. Accounting software is useful for this purpose.
Happy to answer any other questions.