New business starting in 2025 and self employment tax

[smduran22]

As far as self employment goes, my sales will be collected through Square. After deducting my monthly expenses from sales per month. I would determine how much of self employment tax to be sent directly to IRS? I'm new to this so I am trying to seek advice on what would happen if SE tax is not sent quarterly. Does that get taxed when filing during tax season?

I'm trying to gather all information needed before starting a business. Making sure I know what needs to be allocated to self employment tax.

[Lucia-B-EA]

When starting a new business there are two steps which will determine how you will pay self employment tax.

1. What kind of business entity will I have?
2. How will I file my taxes?

Let's look at each independently - 

TYPE OF BUSINESS ENTITY - Your company can be one of 4 types - Sole Proprietor, Single Member LLC,  Partnership or S-Corp.  Since you did not mention a "partner" we will presume you are a single person and will not talk about partnerships here.

• Sole Proprietor - This is your basic company.  You own it, it does or does not require a business license to operate, but you do not intend to have a state legal license for liability protection. This kind of compnay operates on a CASH basis, usually.
• Single Member LLC - (SMLLC, also called a Disregarded Entity by the IRS) this company is registered with the State as an LLC (limited liability company).  It requires documentation filed with the state annually or bi-annually. Some states call this a corporation, others do not. 
• S-Corp. - this can be SMLLC which has elected to be taxed as a Small Corporation by the IRS.  (it can also have up to 100 members). It must be registered by a US state, have its own EIN (Employee Identification Number), have no foreign owners, and other rules.

The difference in Self-Employment (S/E) tax treatment for each entity is determined by the filing of its tax return:

1. Sole Proprietors file a Schedule C, attached to an Individual's 1040 Form.  They calculate their S/E based on the Net Income earned over the year and pay 15.3% of a portion of these earnings.  This is added to any other taxes due on other income of the taxpayer. ESTIMATED payments may be paid into the IRS through EFTPS quarterly based on what is anticipated Net Income for the Quarter.
2. SMLLC also files a Schedule C attached to an Individual's 1040 Form. Thier S/E is calculated the same as a sole proprietor's.  The Schedule C utilizes the EIN number for identification.
3. S-Corp. file taxes in March (3 months after close of books) on a 1120-S for.  The single person can be Officer, Owner and Employee.  Their reasonable compensation is paid through W2 wages.  They DO NOT pay S/E taxes on their personal tax returns because they pay FICA taxes through payroll and the Corporation pays equal FICA taxes quarterly.  Gross Wages (net pay + taxes) and Corporate FICA Taxes are deductible on the Corporate P&L.  The Net Income is passed through to the Owner on a Schedule K-1.  This Income(Loss) is added to the W2 income on the 1040 and is taxed as Ordinary Income by the taxpayer/owner.  UNLESS the owner feels the pass through will increase the tax burden, no additional estimate taxes are required above what is withheld on wages.

We hope this helps explain the Self Employent estimated tax payment options for the types of single member companies.