When to make quarterly payments for new single member LLC business

[ConfusedByTaxes1983]

My wife started a new single member LLC business in September of 2021.  If her business has been going all year, we would be making the 4th quarter estimated tax payment by January 18, 2022.  Because we didn't start the business until September, do we still make the payment for the last quarter of 2021 by January 18, 2022?

And we have been holding back 15.3% of all gross revenue that comes into the business so we can make the quarterly payment.  

[DanielV01]

It depends, but is probably not necessary this year.  It will not be necessary to make a payment if your current tax payments (withholdings from other jobs or other estimated payments) will total 100% of your tax liability from last year (2020).  If you are a "high income earner"  (over $150,000 if married filing joint), then your threshold increases to 110%.  As long as you reach that amount, you will not need an estimated payment (although you may still owe because of increased taxes).  You also would not be penalized if what you owe at the end of the year is less than $1000.  

If you find that you are under the amount you paid in last year, you can make an estimated payment by January 18th to reach that threshold.  And going forward, TurboTax can help you calculate what you will need for estimated payments in the future.

I like that you hold back 15.3% of gross income.   You pay self-employment, federal, state and local taxes (if you have state and local taxes) based on net income.  If your wife has reasonable business expenses, this should be a good number, because when these deductions are applied to gross income, the net income is reduced.  But you still have to account for federal income tax and state tax.  (If you are in a higher tax bracket, you may want to hold back even more, like 20, 25, or even 30%).

[ConfusedByTaxes1983]

Well, I'm learning something! I thought she needed to pay the FICA taxes based off gross income.  I didn't realize that she pays it off net income.  Just to be clear, you mean net income after we account for business expenses, correct? Such as supplies, rent, insurance, licensing fees, etc....?

[Critter-3]

Fed/state/SE taxes are calculated on the NET SE income not the gross ... read up on how the Sch C works ...

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-NEC 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 

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 463 Travel, Gift, and Car Expenses

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

[rjs]

The quarterly estimated tax payments have to cover the income tax on the net business income as well as the self-employment tax. The quarterly payments are not just for the self-employment tax. Reread DanielV01's post about how to determine whether you have to pay estimated tax. He is talking about your total tax liability for both income tax and self-employment tax.

Also note that 15.3% is the nominal rate for self-employment tax, but you never actually pay that much. First of all, the 15.3% rate is applied to 92.35% of net self-employment income, not the total net income. In addition, you get an adjustment (sometimes called an above-the-line deduction) for half of the self-employment tax. The adjustment reduces the amount of income tax that you pay. The effect of the adjustment depends on what tax bracket you are in. The overall effective rate of the self-employment tax will vary from about 14.13% to about 11.52%, depending on your tax bracket.