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View Full Version : Paying yourself if you are an LLC/Partnership--Please advise.


bilchak
03-05-2001, 07:35 PM
New LLC here in Ohio. Me and my partner are 50/50 and
will be filing as a partnership with the feds and the state.

What is the best way to pay ourselves weekly with regards
to taxes?

Do we really have to pay 28% fed. income tax, plus 15.3% self-employment tax? That does not seem right.

Would really appreciate any info.

My CPA is busy at the moment, and I'm trying to figure
this out on my own.

Thanks in advance,
John

P.S. I'm worried here!!!!

joshua
03-05-2001, 08:15 PM
don't sweat it, talk to an accountent (spelling) mine has me paying i think $ 100 a month and then i pay whatever i owe at the end of the year, save every reciept you get and claim that as a loss, thats your besy bet, good luck.

bilchak
03-05-2001, 08:57 PM
How much are you paying yourself a week? Do you pay yourself year around?

Thanks,
John

1st impressions
03-05-2001, 09:29 PM
John

You can not do anything with regards to the 15.3% social security tax. That has to be paid. I'm not real familiar with partnership law but when I was a sole prop. I could deduct a portion of the 15.3% as a business expense.
Whether you need to pay the 28% income tax just depends
on your income, If you are married, have children and other writeoffs. My accountant sent me a sheet that shows the amount needed to be withheld from each paycheck depending
on the number of withholding allowances you claim.
According to this form, someone drawing $500 a week would pay only $44 in taxes with 3 allowances. The greater the allowances, the less the tax consequence. Get hold of your accountant.

bilchak
03-05-2001, 11:05 PM
Thanks, I'm trying to get ahold of my acct. He is very busy right now (April 15th).

Any more insight from the others? I know there a lots of LLC's on this list.

John

bilchak
03-06-2001, 02:42 PM
Come on you LLC guys...........no info on paying yourself / partners and KEEPING TAXES AS LOW AS POSSIBLE.

Would really appreciate the help.

John

Green Finger
03-06-2001, 02:59 PM
We run our payroll through APS (automated payroll services company)

We have a separate payroll bank account. Two days before payroll we deposit the money into the account. They cut the checks. They take care of filing payroll, Fica, Social security, and workmans comp. They mail out the W2s at the end of the year. They take care of everything.

It only cost something like a 1.50 per employee per pay. They assume all the responsibility interms of filing with the feds. Every month they provide me and my accountant with reports and updates.

You can check in the yellow pages under payroll services. Just call and inquire about their services.

If you wanted to go that route. It works good for us. Less problems with irs and it keeps us clean.

ChrisYanik
03-06-2001, 05:30 PM
In a sole proprietorship or a partnership you should be able to withdrawl as much money as you and your partner have agreed upon. Since your the owner of the business is doesn't really make any sence for you to be making payroll deductions from your own pay. You and your partner should agree upon a weekly pay based on both of your personal needs as well as your business's needs and then withdrawl the money straight out of your business account. Just write a check to yourself and record the entry in your check registar as OWNER WITHDRAWL.

Payroll deductions are only ment to withhold your employee's taxes from their paychecks. You should be filling estimated tax and then an annual return so payroll deductions do not apply to you.

I'm not quite sure if that is the question your asking. Hope that this is helpful.

Check with your accountant for a full proof answer.

Mid Rivers
03-06-2001, 07:08 PM
I believe this to be true - if not do not hold me responsible. My wife will tell you that I am not the responsible type. :)


I had a partnership a while back. What we did was basically payout what ever the job paid. We built decks part time. So when we got paid we would deposit that check and split it in half. Usually we would leave a little bit for running the business. Since we were only part time we didn't make much and our mileage and other exspenses were enough that we didn't owe much at the end of the year. So basically you can pay yourself however much you have in the account as long as your partner is paid the same amount assuming you have a 50/50 partnership.

I would not do the partnership thing again! To me it is a good way to loose a friend. Just my $.02 worth. Good luck

bilchak
03-06-2001, 09:54 PM
Chris,

Lets say we each draw 400 dollars a week. We pay
ourselves 400 dollars total, then pay the taxes
quarterly and, if there are more at the end of
the year?

Any idea what sort of taxes there would be on 1600 dollars
withdrawn per month?

Here's my thing with this LLC: The LLC is never taxed, all the taxes are passed onto the partners. So, what good
will deductions such as fuel, supplies, depreciation, etc. do for the LLC? I wonder if we take all the write offs and apply them towards the partners? Say we spent 20,000 this year, 10,000 worth of write offs for each partner?

I'm having second thoughts about this LLC.

John

ECHOTURF
03-06-2001, 10:17 PM
I just started a Partnership with my wife. I will be paying the state sales tax of 5% + 15.3 Self employement tax. I use Quicken 2001 Home and Business which sets aside these funds for me. When It's time to pay Mr. Tax man, the money is in the accounts set aside. I of course also set money aside for equipment, fuel ect. and mean while the tax money sitting in these funds will draw us interest. The rest is ours to spend on whatever, just make sure you leave a good size buffer account somewhere for emergencies ect.

Hope this helps

bilchak
03-06-2001, 10:44 PM
IdealGreen,

So......you are only paying 15.3% self-employment tax on
wages you pay yourself? That is it? The other 5% is colleted on your services, correct?

You pay no federal income tax at all?

I get paying the 15.3 % self-employment tax.....I've
come to grips with that. But....my accountant tells
me I will still have to pay federal income tax, which
for me will be an additional 28%.

I'm completely lost.

John

GrazerZ
03-06-2001, 11:24 PM
Hers how we do it. My wife and I are both employees but I'm the CEO. I get money in my name in two ways its called a 60/40 disbursement. The IRS alows you to take up to 40% of an amount in an owner draw and the other 60% must be in the form of payroll check.(for us at least) We use a payroll service to file everything necessary on the payroll checks. You still have to pay taxes on the 40% though. The thing you have to learn is to estimate how much extra your company will have to pay in employer payroll liabilites. For example I recently called in a check for $500.00, the total cost with payroll fees and employer payroll liabilities was $680.68 But I only saw $490.46 after my individual taxes were taken out. But to get othe money without paying taxes then I cut a check of $200.00 (40%) in the form of an owners draw. And on that amount there are no employer payroll liabilities since it can be written out to yourself directly from the companys account. So you can see how it can take some dicipline to do this. as far as how this is effected by a partnership I don't know. I'm sure a salary bases that is agreed upon through a payroll service is a must though. Hope all this made some since. Its late...

bilchak
03-07-2001, 01:59 AM
Thanks for the help!!

I'm still trying to figure all this out, but with
your guys help I'm getting there!!

John

thefarmer4
03-07-2001, 10:51 AM
You have to clarify.
Are you Incorperating or are you just forming a partnership. They are 2 different entities and taxes are different for both.

The advantage of incorperation is protection for you against your partner and his personal finances. If he gets into trouble You will too. But you will have some protection if you incorperate.

As far as payroll goes if you just a partnership taxes are know different than a sole-proprieter. You just spit all income and expenses 50/50 if that is what you agreed upon.

You can pay your taxes at the end of the year just estimate as you go along and make sure you have the Money. Your going to pay taxes based on your profit for they year, Not what you pay yourself weekly. You have to remember Depreciation and othe tax deductions like health insurance and leasing equipment. Remember to keep a milage log and deduct what you legally can. Everyone has to pay taxes sooner or later.

If you incoperate Pay yourselves a regular payroll check because this is considered an expense to the business. Remember a corperation is its own entity it can do anything an individual can. You are stock holders that work for the company. at the end of the year you can distribute profits or reinvest it, but you will have to pay income taxes, but not Social Security on that $$.

Talk with your accountant, This is what I know. I'm not a expert.

ChrisYanik
03-07-2001, 01:11 PM
Bilchak

No offense here... but it sounds to me as if you need to do some reading on federal, and state taxes.
After you gain a solid understanding of your tax liabilities deductions, etc....then go out and hire an account.

It sounds to me that your tax situation is moderatly simple. If your weekly income is expected to be 1600 dollars than figure that amount time 12 weeks and file estimated tax with the federal government.

Remember...If your overall tax liability is over $1000 dollars than you have to make estimated tax payments, otherwise, you can file an annual return once at the end of the year if your tax liabilty is less than 1000 dollars. Remember that this is just your federal tax liability. Self employment tax is a seperate tax which should not be considered when making estimated tax payments. 15.3% self employment may sound high but remember that half of that amount will be deducted. Also, check and see if you can take a personal deduction as well as a standard business deduction.

In the state of Ohio, you'll need to make estimated tax payments if your total tax liablity is over 500 dollars. You'll need to be making aproximatly 30000 dollars a year before you need to worry about state estimated tax.

Also, the state of Ohio levis sales tax on all landscape and lawn care services. This tax should be charged to your customers on top of the rate your already charging and then remitted to the state at the end of every month. Sales tax should never be backed out of the price you charge for a service. Only in certain cases should backing out sales be done...otherwise, your customers should be paying you the money which you must pay to the state.

Its best to do some reading and understand your tax responsibilities and then hire an accountant.

Hope I didn't confuse you anymore. Don't get to frustrated....the whole tax system is a furstrating mess for most people.

bilchak
03-07-2001, 07:38 PM
Farmer,

I'm an Limitied Liability Company....LLC. I'm protected from lawsuits, etc. like a corporation, yet I file as a partnerhip with the Fed/State.

John

bilchak
03-07-2001, 07:50 PM
Chris,

I undertand most of the aspects dealing with the LLC and fed/state/sales tax, etc.

My accountant tells me I have to pay 28% fed income and
the 15.3% SE tax. That is 43% not including any state/local taxes on my drawings from the LLC.

I already file an estimated taxes with the feds, I'm
very familiar with this process.

I'm starting to think I should file as an S. Corp and
avoid the SE tax.

Either that......or just kill off the whole f-ing
thing.

John

lsylvain
03-08-2001, 09:52 AM
Home much you take for yourself doesn't matter. It's your profit that gets taxed. Say for instance I took about $15,000 out for personall expenses and such, it is possible for me to only have to pay taxes on 10,000 of that. Because of (Business use of home, Depretiation, and other happy litte deductions)

If you are not going to have to pay $1000 or more in taxes in the year you don't have to file a quarterly so keep that in mind. $999.99 given to the government early is $999.99 that isn't making you money (Bank intrest, etc.)

From a business prospective you want to keep as much $ in the partnership that you can because it increases your share in the business.(assuming you don't have a set split, 55/50 etc) So just use what you need for personell stuff. There is no sence in taking out more than you need and putting it in another account (getting 3% intrest) When you could leave it in the business and gain a higher profit off that money.

Definatly get a CPA. It makes it much easier and you don't have to worry about all that stuff.

bilchak
03-08-2001, 01:08 PM
Correct me if I'm wrong:

I pay myself 20,000 dollars a year in "draws" from the partnership. I pay 15.3 SE employment tax on all of
this.

I then deduct expenses from this 20,000 for federal
tax purposes? We are a partnership, so say we had 30,000
dollars in expenses this year, we split that 50/50 so
I would get 15,000 worth of deductions. That leaves
me only 5,000 dollars to pay federal income tax on. I then
pay my 28% on that 5000 for fed. income tax.

Any profits remaning in the LLC at the end of the year
are also subject to 15.3 SE tax.

John

Please advise if I'm wrong.

Greens Keeper
03-08-2001, 07:08 PM
I find the LLC discussion very informative. I myself went LLC this winter and finding it a bit of a learning proccess for I have been sole proprietor for 10 years. Lets all learn from this It will help us all to keep talking about it.

bilchak
03-08-2001, 08:51 PM
Greens Keeper,

How do you plan on paying youself????

John