Single member LLC - Owner's Pay

[Pink1222]

If you 1099 NEC yourself instead of Owner's draw is there a difference on tax implications? If treated as 1099 it will reduce the expenses. But the 1099 NEC will be have to be added as part of your Income. If this is the route chosen will there be a difference on tax rate?

[VolvoGirl · Accepted solution]

No.  You don’t give yourself a 1099NEC.   Did you set up your Single Member LLC as an S Corp?  If not a S corp it is a disregarded entity and you file it on Schedule C in your personal tax return.

You cannot deduct your own salary or any personal withdrawals you make from your business. As a sole proprietor, you are not an employee of the business.

Sole proprietors cannot take a withdrawal or salary and include it as an expense on their tax return. As a sole proprietor, you are not an employee of the business. You don't pay yourself or enter a salary or withdrawal for yourself. All the business income and expenses are your personal income and expenses in the first place. You just fill out a Schedule C. The net profit or loss is your income.  If you have a net profit of $400 or more on schedule C you will pay SE self employment tax on it in addition to your regular income tax. It's all included on your personal 1040 form.  

(And if you paid yourself and deducted it as an expense then you would have to include it as income on the same tax return so it would be a wash.)

See Schedule C instructions page C-10 for line 26,  right above line 30, Do not include….amounts paid to yourself

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

[rjs · Accepted solution]

A single-member LLC (that has not filed an election to be treated as a corporation) is disregarded for income tax purposes. As far as your income tax is concerned, the LLC does not exist. There is no distinction between you and the LLC. It's the same as being a sole proprietor. The LLC's income is your income. The LLC's expenses are your expenses. The LLC's money is your money.

There is no owner's draw. You cannot pay yourself, and you do not give yourself a 1099-NEC, a W-2, or any other tax form. Paying yourself would be like taking money out of one pocket and putting it back in the same pocket.