After my prior company was forced to cease operations, I formed an LLC as I plan to do some independent consulting. I have three main questions:
1. Do i need to pay taxes quarterly? What are my options?
2. Do i need to file taxes completely separate from my personal taxes?
3. How do I ensure that I am fully compliant from a finance and accounting perspective?
Thank you!
Our tax system is “as you go” so you will want to estimate your profit quarterly and pay based on that estimate. You’re responsible for all of your FICA – Social Security and Medicare – along with income tax on your profit. Determining what to pay and when is crucial to avoid penalties and interest on underpayment of tax. Here is a great resource on how to pay estimated taxes.
An LLC is a separate legal entity, but the IRS doesn’t consider it a separate tax entity. From the IRS viewpoint a single member LLC is called a disregarded entity and is still taxed the same as a sole proprietor, unless you make an election to be taxed as a corporation using form 8832. When you file your 1040 tax return at the end of the year, if you didn’t make the entity election to be taxed as a corporation, you will file a Schedule C along with your 1040. TurboTax will guide you through the entries required to generate this form. If you made the entity declaration, then your LLC will file a separate tax form, either 1120 or 1120-S, based on the election you made.
To ensure the LLC is fully compliant will take some research, especially on the state level, as an LLC is a state entity. Your state department of revenue will have resources for LLCs.
I'm working under the assumption that your LLC is a single member LLC that will be classified as a sole proprietorship. Here are some great resources to assist you going forward. When you land on this site, please scroll down to the tools:
https://turbotax.intuit.com/personal-taxes/self-employment-taxes/
Hope this helps!
Cindy