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So this is my first time dealing with this and I'm trying to figure out my complete tax obligations for a self-employed person working in the state of South Florida - Miramar - Broward County. Things are still young (not many months since start) so corrections at this point are manageable if any. I just want to get them done now before things get out of control (if need be).
So far I found out that I'd owe Federal Income Tax on whatever my business makes, in which I'd put on my personal income tax statement (Single Member LLC's are treated as a disregarded entity which is "like" a sole proprietorship...apparently). However, I'm not sure if I need to start doing this quarterly, or wait till around April 15th? I hear that I'd be susceptible to fees if I don't make quarterly payments instead?
Second I found out that Florida does not impose a state tax on personal income so I wouldn't owe anything to the state (as an LLC). That only leaves my city tax obligations and self employment tax obligations to cover medicare and social security...I think...
The business does online sales so I'm already collecting sales and use tax and have a tax receipt for the city. However I'm not sure if that would cover, or is part of my tax obligation for the city? Self employment tax is another issue I think. Am I already considering this tax with my federal income, or is there another step to consider that I'm missing here?
Any leads to figuring out the specifics would be helpful. I think I'm headed in the right direction though.
So this is my first time dealing with this and I'm trying to figure out my complete tax obligations for a self-employed person working in the state of South Florida - Miramar - Broward County. Things are still young (not many months since start) so corrections at this point are manageable if any. I just want to get them done now before things get out of control (if need be).
So far I found out that I'd owe Federal Income Tax on whatever my business makes, in which I'd put on my personal income tax statement (Single Member LLC's are treated as a disregarded entity which is "like" a sole proprietorship...apparently). However, I'm not sure if I need to start doing this quarterly, or wait till around April 15th? I hear that I'd be susceptible to fees if I don't make quarterly payments instead?
Second I found out that Florida does not impose a state tax on personal income so I wouldn't owe anything to the state (as an LLC). That only leaves my city tax obligations and self employment tax obligations to cover medicare and social security...I think...
The business does online sales so I'm already collecting sales and use tax and have a tax receipt for the city. However I'm not sure if that would cover, or is part of my tax obligation for the city? Self employment tax is another issue I think. Am I already considering this tax with my federal income, or is there another step to consider that I'm missing here?
Any leads to figuring out the specifics would be helpful. I think I'm headed in the right direction though.
As for federal tax, yes, you should estimate your tax obligation quarterly and pay on the basis of that estimate, if anything.
At the end of the year, you must file, I believe, a Schedule C for the business income/loss and the self-employment tax form (can't remember the form number), and attach them to your general 1040.
If this is your first year, chances are, after all deductions, exemptions and credits, you will pay no or little income tax. However, you certainly must pay what amounts to around 13% of your business income in FICA taxes (half of which you can deduct from your income taxes).
Even if you estimate that you will owe little or no federal income/FICA tax, it is probably a good idea to pay at least something quarterly anyway to establish a good compliance record. If you overpay, you can always request a refund or roll over a tax credit. If you underpay, with a good compliance record, you may pay only interest and no penalties.
If you cannot wade through all the publications yourself, hire an accountant/qualified tax preparer.
As for federal tax, yes, you should estimate your tax obligation quarterly and pay on the basis of that estimate, if anything.
At the end of the year, you must file, I believe, a Schedule C for the business income/loss and the self-employment tax form (can't remember the form number), and attach them to your general 1040.
If this is your first year, chances are, after all deductions, exemptions and credits, you will pay no or little income tax. However, you certainly must pay what amounts to around 13% of your business income in FICA taxes (half of which you can deduct from your income taxes).
Even if you estimate that you will owe little or no federal income/FICA tax, it is probably a good idea to pay at least something quarterly anyway to establish a good compliance record. If you overpay, you can always request a refund or roll over a tax credit. If you underpay, with a good compliance record, you may pay only interest and no penalties.
If you cannot wade through all the publications yourself, hire an accountant/qualified tax preparer.
Incorporate under subchapter S, pay the $300/yr. fee for the annual report, pass-through the income, and get a good CPA.
This isn't 1980.
We have Radtke and Spicer today. You can't just claim $0 income and take it all as dividends to avoid SE taxes. I'm not saying you can't do it at all, but it has to be reasonable. Just for example, John Edwards came under a lot of fire (completely wrongly) for using an S corp pass-through. In his case, it was completely baseless mudslinging. He paid himself something like $300,000/yr in salary and took dividends above that. Basically, the IRS is going to go sniffing if you claim an unreasonable amount as income and pass through the rest. They're going to require you to justify it. Say you're not materially involved in day-to-day operations of the business, for example, then it would be reasonable. But if it's your full-time job and you're saying you make $10,000/yr in a field that makes $100,000k+, it won't fly. Completely different than Edwards' who had several lawyers working under his firm and who took a very reasonable salary for a senior lawyer for a smalltown law partner.
Thanks all, that definitely cleared things up a bit.
I guess my last question is say if I (scenario) wanted to create a budget on the basis of 231,720/y with standard deductions and no dependents (not including any additional line deductions), disregarding city tax (and also since Florida has no state income tax), what would be a good way to estimate the taxes I'd owe on that budget for both federal and self-employment tax?
I tried using two calculators that will calculate both. For income, I used that gross amount. For self, I used that gross amount again and then took the gross x 0.075 since how I understand it, half of the 15% goes to the employer share and can count as a deduction. I'm not entirely sure if the numbers are right, but I was getting something like $55,958 for income, and $18,797 for self employment which comes out to around $74,755. Unless I did something wrong (I'm not sure if I have to take into account everything for income tax first, get the net, and then take the self employment tax out of the net from income tax, or if I take out both income and self employment on the gross).
You just take your $74,755 and subtract out half the SE tax before determining your income tax. If you look on a 1040, it's pretty clear. Deductible portion of SE Taxes is on line 27
Line 22 is total income ($74,755)
Then you add up lines 23 through 35 (deductions for various things) and put that on 36.
Then you take Line 22 - Line 36 and that's your AGI.
After AGI you take your itemized/standard deduction, personal exemptions, and other things.
It makes more sense if you look at a 1040 than trying to explain it as there's a ton of steps but everything basically goes down the form in a straightforward fashion.
Thanks all, that definitely cleared things up a bit.
I guess my last question is say if I (scenario) wanted to create a budget on the basis of 231,720/y with standard deductions and no dependents (not including any additional line deductions), disregarding city tax (and also since Florida has no state income tax), what would be a good way to estimate the taxes I'd owe on that budget for both federal and self-employment tax?
I tried using two calculators that will calculate both. For income, I used that gross amount. For self, I used that gross amount again and then took the gross x 0.075 since how I understand it, half of the 15% goes to the employer share and can count as a deduction. I'm not entirely sure if the numbers are right, but I was getting something like $55,958 for income, and $18,797 for self employment which comes out to around $74,755. Unless I did something wrong (I'm not sure if I have to take into account everything for income tax first, get the net, and then take the self employment tax out of the net from income tax, or if I take out both income and self employment on the gross).
I'm sure I can't rely on these to be pin point accurate, but if I can get to something close or reasonable, I can move on.
Thanks again everyone for the help!
Based on the amounts and filing status you describe, my suggestion is to set up a sole 401(k) and possibly also a health savings account (unless you have some other health care plan through some other channel), generating up to around $50,000 in tax-advantaged saving.
I have my own spreadsheet to calculate estimated tax: as mentioned, go through the 1040 line-by-line (including the tax bracket tables, even the Schedule A if you have to, as well as the calculation for sole 401(k) contributions if you set one up) and set up the spreadsheet according to IRS model. The same goes for the Schedule C: from the beginning, categorize your Schedule C expenses according to the Schedule C model, it helps tremendously at filing time.
But I also think a good rule of thumb is to set aside 20% of gross income to estimate the total federal tax bill, or maybe 17%: the effective federal tax rate is on average around 17% after all deductions, credits and exemptions, but you have to take advantage of all deductions, including retirement accounts.
By the way, you keep mentioning city tax, but I am not aware of any city income tax in Florida, unless you mean a county/municipal business license tax, any local usage taxes, the business inventory tax, and/or local sales taxes.
Good Luck!
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