LLC Tax Witholding

[Kenyacramer]

Hello! I started a new line of work doing administrative and secretarial work earlier this year. I set up an LLC, and have been setting aside 16% of my total income to pay taxes at the end of the year. I feel some anxiety about not withholding enough/doing things wrong - do you have any pointers for me? Thanks!

[John-H2021]

Hello,

As an independent contractor you will be paying regular tax on your net profit plus Self employment tax (Social Security and Medicare 15.3%).  To get a more precise figure on what you should put away take your effective tax rate ( Total Tax Liability/Taxable Income) from last year and add 15% to it, this will give you  good idea of what you should be putting away for this year .  You are off to a good start by putting aside money but you can also make estimated payments each quarter. Here is an article on how to determine what to pay and when to pay it.

https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...

[Mike9241]

if you don't have withholding, you are supposed to make quarterly estimated tax payments if you will owe over $1,000. Failure can result in penalties for late payment of estimated taxes.

2021 due dates:  4/15, 6/15, 9/15, 1/18/22 

There will be no federal penalties for not paying in enough taxes during the year if withholding
1) and timely estimated tax payments equal or exceed 90% of your 2021 tax
or
2) and timely estimated tax payments equal or exceed 100% of your 2020 tax (110% if your 2020 adjusted gross income was more than $150K)
or
3) the balance due after subtracting taxes withheld from 90% of your 2021 tax is less than $1,000
or
4) your total taxes are less than $1,000

state laws differ

if you will be subject to penalties, probably the best thing to do is to make an estimated tax payment now to reduce the penalties. you can make payments using IRS Direct Pay - 

https://directpay.irs.gov/directpay/payment?execution=e3s1 

select Estimated Tax. make sure form 1040 and 2021 show.  then continue on to the next pages to enter identifying info and bank a/c info

Don't forget about the state if your state has an individual income tax. payments can usually be made through the state website