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cindy44
New Member

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

 
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Accepted Solutions
Opus 17
Level 15

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

If you are a sole proprietor reporting your income on schedule C, then there is no real difference between "you" and "the business."  While it is very helpful for many reasons to have separate bank accounts, the ultimate truth is that all the money is yours.  You pay tax on your business income (profit) regardless of whether you leave it in the business account or move it to a personal account to spend it.

 

(This situation may be different if you are a multi-member LLC or S-corp filing a corporate tax return, but I am not an expert on those situations.)

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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7 Replies
Critter-3
Level 15

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

No ... only income is reported as income.  You will pay the tax on the Sch C profit earned each and every year  even if you never take the profits out of the business bank account.  

cindy44
New Member

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

Sorry to be confused. So,  I will pay taxes regardless?  If I take the money out and put in personal account that is income but if I leave it I will be taxed on profit? I want to use the money next year for a purchase but not sure how to handle - which will be better?  I thought if I put in personal account I could earn interest and then buy the building next year. 

Critter-3
Level 15

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

You are very confused ... on the Sch C you will enter all your income for the entire year and all the expenses and you will pay federal & state income taxes on the profits and SE taxes ( SS & Medicare) no matter what you do with the money.  Leave it in the business account, move it to your personal account, spend it or give it away ... it doesn't matter.  There is no way around it.  

 

 

 

If you are new to being self employed, are not incorporated or in a partnership  and  are acting as your own bookkeeper and tax preparer you need to get educated ....  

If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-Misc for some of your income but you need to report all your income.  So you need to keep your own good records. Here is some reading material……

IRS information on Self Employment….
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center 

Publication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf 

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf 

 

Publication 463 Travel, Gift, and Car Expenses

Https://www.irs.gov/pub/irs-pdf/p463.pdf  

 

Home Office Expenses … Business Use of the Home

https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

https://www.irs.gov/pub/irs-pdf/p587.pdf

Publication 946 … Depreciation

https://www.irs.gov/pub/irs-pdf/p946.pdf

                                              

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
http://quickbooks.intuit.com/self-employed


Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C.  You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.
 


PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits. 
 
- 2. You expect your withholding and credits to be less than the smaller of: 
    90% of the tax to be shown on your current year’s tax return, or 
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

cindy44
New Member

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

Thank you!  I have been paying quarterly taxes but had a large increase this last quarter.    I have not been in this situation before - usually my cash flow is consistent.   I will get in touch with an accountant.  

 

 

Opus 17
Level 15

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

If you are a sole proprietor reporting your income on schedule C, then there is no real difference between "you" and "the business."  While it is very helpful for many reasons to have separate bank accounts, the ultimate truth is that all the money is yours.  You pay tax on your business income (profit) regardless of whether you leave it in the business account or move it to a personal account to spend it.

 

(This situation may be different if you are a multi-member LLC or S-corp filing a corporate tax return, but I am not an expert on those situations.)

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

cindy44
New Member

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

Thank you!  That was the answer I was looking for - that it is all the same regardless of where the funds sit.

 

 

Critter-3
Level 15

Does money in your bank business account on 12/31 count as income if you leave it in there? The business is a single member llc

Yeah ... an instructor once said that when you are a sole proprietor you wear  one pair of pants and it really doesn't matter which pocket the money is sitting in it is all still yours.  

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