I am self employed. I am setup via QB to pay myself a regular paycheck. Earlier this year I did not pay myself a few times.How to know my tax liability for backpay?

[dchatfield]

later this year business picked up and I've been paid for it. I can't back pay the full amount but can pay quite a bit of it. I will be putting this money right back into the company.

[TomYoung]

How is your business organized?  The only time it's really necessary to "pay yourself a regular paycheck" is if the business is organized as a corporation or elected to be treated as one.  

Also it's not really clear what you're referring to as "my tax liability for payback."  It sounds like you were taking money out of your business, not as a paycheck but as some sort of "advance" or "loan" and there's no "tax liability" associated with that.  You say "I've been paid for it."  Paid for what?  And then you say "I can't back pay the full amount but can pay quite a bit of it."  What do you have to "pay back"?

You need to add considerable detail and explanation here.

[Lisa995]

Self employed people pay taxes on "net profit" from the business, not the draws that the owner takes from the business.

[dchatfield]

I am an LLC. I pay myself a Bi-weekly paycheck as I do my employee. Therefore I pay payroll taxes (me personally) and of course my company pays taxes equal to the employees. For a few months this year, I did not "pay myself". As in, I did not get a check.. the reason: I didn't have the money. Since then, business has picked up.

[dchatfield]

If I don't pay myself the missed checks, my "profit" for the year is going to look great.. and therefore I will have to pay taxes on that "profit". But it really isn't profit, I didn't get paid for a few months..

[SweetieJean]

An LLC is a legal entity, not a tax one. Did you elect S Corp tax status?

[dchatfield]

Hopefully this clears things up. If not, I don't think you can answer the question.. thank you for your time!

[SweetieJean]

<a rel="nofollow" target="_blank" href="http://smallbusiness.chron.com/pay-myself-llc-3658.html">http://smallbusiness.chron.com/pay-myself-l...>

[TomYoung]

Let's try this: How do you report your business' profit?  Do you prepare a Form 1120?  Do you prepare a Form 1120-S (and receive a Schedule K-1)?  Or do you report this on Schedule C?

Read the link provided by SweetiJean.  If you're reporting on Schedule C you're simply creating more work for yourself by even dealing with "payroll" and "W-2" for yourself because it's ALL YOUR INCOME in any case.  If you are issuing yourself a paycheck then you're simply pushing numbers around on your own Form 1040.  

If you use a Form 1120-S (and Schedule K-1), then you do need to deal with payroll and W-2 for yourself, but it's advantages to make that W-2 income smaller - and your profit larger - because you don't pay self employment taxes on the income passed through to you from the S-Corp.  So maybe you're better off leaving things as is if the amount you have paid yourself can be considered "reasonable" by the IRS.

You still have not provided enough information here, even though it's been asked for, to really make an informed judgement by people that don't understand your complete situation.

[dchatfield]

It sounds like I may need a new CPA! He files my taxes using 1040 and schedule C.

[dchatfield]

I appreciate all of the help! Please let me know if more info is needed..

[TomYoung]

Then as I said, it's pointless to go through the process of paying yourself a paycheck, issuing a W-2, etc.  ALL the income of the business is "your" income and all the money in the business bank account is "your" money.  There is no distinction between "you" and the "business", beyond having to report the business' activity on Schedule C.  Of course you need a payroll system if you have employees, but you are not an "employee" and the business is not your "employer."

[VolvoGirl]

Boy you have been doing it wrong.

You can not expense amounts you pay yourself.  See Schedule C instructions for line 26.  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i1040sc.pdf">https://www.irs.gov/pub/irs-pdf/i1040sc.pdf</a>

And see Publication 334 page 34
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p334.pdf">https://www.irs.gov/pub/irs-pdf/p334.pdf</a>

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.

You do not report or expense any amounts you paid to yourself or withdrew.  And you don't report it as income to you.  The net profit or loss IS your personal income in the first place.  It is part of your personal 1040 return.  And it doesn't matter which bank  account you use to pay the expenses or deposit the income.  It is all personally yours.  You and the business are the same thing.

[Lisa995]

"It sounds like I may need a new CPA! He files my taxes using 1040 and schedule C"

I think you should be asking your CPA all these questions, that's what you pay him for.

[dchatfield]

I have done a little research.. I am an LLC with an "S" corp filing status.

I use QB to keep me straight on my taxes. It is easier for me than to have to evaluate quarterly my profits and make random payments to the IRS. QB tells me how much to pay the IRS every X number of weeks for "payroll taxes" and I pay them.

Now then, for some pay periods this year (beginning of this year), I did not pay myself several times (think of it like this: I laid my worker off for a few pay periods but he still worked and then hired him back.). Due to the fact that I did not "pay myself", I also did not have to pay any "payroll taxes" for myself. This includes my company's part of the "payroll taxes", that it would have paid had I received my normal paychecks. My other employee did receive her paycheck and my company had to pay its "payroll taxes" for that employee. All paid up..

Fast forward to now: Some payments for some work I did later this year came in this month. As it turns out, it is enough to cover the pay that I missed earlier this year. I am faced with a few options (as I see it, this is why I am here asking this and wasting y'all's time 🙂 :(

1. Pay myself the "back pay" that I am owed. I will do this via QB. QB will (hopefully) calculate properly the amount of "payroll taxes" that must be paid and then I will pay them.

or

2. Pay myself a "bonus" to equal the amount of "back pay" that I am owed. I will do this via QB. QB will calculate how much tax must be paid and then I will pay them.

or

3. Don't pay myself the "back pay" that I am owed. This option will basically take a huge "cost"(part of my salary) out of the company's books. Of course this will make the company look like it was very profitable and I will have to pay the taxes on that profit.

My questions:

Which option is going allow me to pay less taxes overall?

IF I go with option 1: Is the IRS going to penalize me for making a large payment at the end of the year? (they like to get their money on the regular, you know)

Is it even realistic to be asking such a question? I mean, would one need to basically do all of my taxes, fill out all of the forms, perform the 3 different "options" before one could provide such an answer?