LLC Taxes

[rodsteph777]

Hi. My husband and I are first time business owners in the process of launching our own online businesses. We have one LLC and are going to do two DBAs under the same LLC for both our separate websites. So it will be multi member LLC. At the end of the year we plan to file Married filing jointly as we always have. But it would be our first time filing our personal taxes with business taxes. We would like to know if we need to start paying taxes to irs right away or just at the end of the year for the income tax. Someone mentioned we may have to pay quarterly taxes. Is this true? We want to do the right thing to avoid any penalties. We are located in NYC.

[tagteam]

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@rodsteph777 wrote:

....So it will be a two member LLC. At the end of the year we plan to file Married filing jointly....

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Unless your LLC will be wholly owned by you and your husband as community property in a community property state (Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, Wisconsin), you will have to file a Form 1065 for the LLC (or Form 1120 or 1120-S if you make an election for the LLC to be treated as a corporation for federal income tax purposes).

See https://www.irs.gov/pub/irs-drop/rp-02-69.pdf

The link below (an IRS web site) has information regarding estimated (quarterly) tax payments.

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

[Mike9241]

you should discuss your intentions with a professional. there can be legal and tax reasons that two separate LLCs - one for each of you - is better than operating both websites through one LLC. 

[tagteam]

https://www.avvo.com

[Carl]

You really need to seek professional help; especially if your state taxes personal income, and even more so if you live in a community property state.

You don't see if the LLC is a single member LLC or multi-member LLC. I am assuming it's a multi-member LLC since "we" can't own a single member LLC.

Additionally, a multi-member LLC files it's own tax return on IRS Form 1065-Partnership/Mulit-Member LLC Tax Return. But if you live in a community property state then you have the option of splitting all business income/expenses 50/50 and each individual filing their own SCH C as a part of their personal 1040 tax return. Of course, you can only do that provided you are legally married and file a joint tax return. If you would be doing two separate "DBA"s, then it doesn't matter what the earnings are of each DBA if you live in a community property state. The income/expenses of the LLC are split 50/50 regardless.

Additionally, the 1065 Partnership return is due by March 15th each year, and the late filing penalties are $205 per month, per member.

If you elect to treat the LLC as a corporation (be it S-Corp or C-Corp) the filing and other paperwork requirements are even more stringent.

Additionally, if doing an online business then you may have to deal with paying sales taxes to every state and other jurisdiction where you make an online sale.

If you're head isn't spinning yet, then it should be. Please seek professional help in your locale before you do things in a way that will cost you. I've seen in the past where folks jump in feet first without a clue, only to have all the fines, penalties, back taxes and late fees bankrupt their business before it even gets off the ground. Makes the cost of professional help seem like a pittance in comparison.

Seek professional help for at least your first year, and if feasible do so before you do one more thing towards establishing the business.

[tagteam]

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@rodsteph777 wrote:

We are located in NYC.

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Considering this particular bit of added information, you absolutely must have in-person consultations with legal and tax professionals.

[Opus 17]

As you describe the situation, you have a multi-member LLC in a non-community property state.  That means the LLC must file a form 1065 partnership return.  The income and deductions flow though the partnership return to a K-1 statement for each partner, which is included on your personal tax return with your other income and deductions.  You can both file your K-1s on the same MFJ personal return, but it's the 1065 you have to prepare and file first, and it does have a different deadline and substantial late fees. 

Then, since the income is actually reported on your personal MFJ form 1040, you will have to make quarterly estimated tax payments if you expect to owe more than $1000 of income and self-employment tax. You can make that at www.irs.gov/payments. Select "2021 estimated taxes" from the drop down menu.  The LLC does not make separate tax payments unless it has employees.

It would be much easier for you to file your taxes if the business was unincorporated and not organized as an LLC.  But maybe there are benefits of the LLC you think you want.

Professional advice is suggested.  

[tagteam]

@rodsteph777 

You only have to make quarterly estimated tax payments to the IRS if both of the following apply:

1. You expect to owe at least $1,000 in tax for 2021 after subtracting your withholding and tax credits.

2. You expect your withholding and tax credits to be less than the smaller of:

   1. 90% of the tax to be shown on your 2021 tax return, or

   2. 100% of the tax shown on your 2020 tax return. Your 2020 tax return must cover all 12 months.

See https://www.irs.gov/publications/p505#en_US_2019_publink1000194564

[Note the special rule for higher income taxpayers - substituting 110% for 100% in 2(b) above]