Hi! I am a new business owner with an LLC, and I am seeking advice on how to use the LLC to write off the expenses. I am starting from scratch with only an EIN, and LLC papers from WY (Living In Texas). It is not a Texas based business as it is online (I run an online marketing agency that does work all over).
I am trying to save as much money as possible from the self-employement tax as well as deduct as much as I can with money I spend on business purposes.
Two questions
1. Whats the best way to structure my taxes so I get the benefit of the deductions and lessen the self employment tax
2. How do I pay myself as a sole poprietor of the business (do I need to file a seperate return for myself and the business?) Whats the best why to go about paying myself?
Congratulations on your new business!
A single member LLC is defaulted to a sole proprietorship by the IRS for tax purposes. You will file a Schedule C attached to your 1040. All the net profit will be taxed for both self-employment tax and income tax. You can pay yourself by taking what’s termed “owner draws”. Whether you draw out the entire profit amount or not, you’re still taxed on the entire profit.
Some LLCs make an election to be taxed as a corporation. In this case, you pay yourself a salary and can use the remaining profits in the business or take them as distributions which may not be subject to self-employment tax.
Here is a great article that goes into detail: https://turbotax.intuit.com/tax-tips/self-employment-taxes/tips-to-reduce-self-employment-taxes/L9K72rXl1##
Hope this helps!
Cindy