Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I own a small single member LLC and for some reason despite my customers knowing my business name. They always right my real name instead of my assumed business entity name on the checks! I am unsure how to pay myself yet as this is my first year in business and I haven't been able to get any clear answers. So I've been doing it this way. When clients write my personal name. I just put it into my personal checking.
Is your LLC a C corp or an S corp? The rules are different for each.
Quote:
When they write my business name I put it into the business bank account and take 15.3% out into a separate account for Social Security And Medicare. I'm pretty sure this is illegal. But how would the IRS find out about those checks in my name going into my personal account? How would they prove it without just making outrageous claims against me without solid proof?
When the IRS audits you, they can peek into your bank accounts and wonder why you're getting all those deposits from nowhere. They can then subpoena the bank for the deposited checks (they scan the checks) and they can ask you where that money is coming from.
Is your LLC a C corp or an S corp? The rules are different for each.
When the IRS audits you, they can peek into your bank accounts and wonder why you're getting all those deposits from nowhere. They can then subpoena the bank for the deposited checks (they scan the checks) and they can ask you where that money is coming from.
LLCs are neither sub-S nor sub-C. It is a different thing entirely. Those are incorporated structures, while an LLC is closer to a partnership arrangement. In terms of tax structure, it closely mimics an S Corp, in that it is a pass through tax entity.
As for the rest, you are correct. The IRS has wide discovery powers, and if you are audited, they will fine those checks and fine you into oblivion.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,585 posts, read 81,186,228 times
Reputation: 57820
If any of your customers are a business, they are probably deducting what they pay you as a business expense. That being the case, either the IRS or the state revenue department, when auditing them, will verify that you reported that income. That will result in auditing you. While a small business with less than $200,000 annual revenue is less likely to be audited, those in their first few years are scrutinized more closely. The good news is that in each of the last 4 years the number of audits has gone down.
Don't even think about not reporting income. When the IRS catches up with you, and they will, you will be subject to the original tax owed, interest, and penalties. The penalties are substantial. You risk having bank accounts frozen, future wages garnished, the wages of your spouse garnished, and jail. They don't mess around.
The only thing worse than owing the IRS money is owing your local loan shark. At least the IRS won't break your legs, but the vig is probably the same.
If you're just a non-corp LLC, even if your income is direct into your name it doesn't make that much difference. If the pay goes to the LLC name, you file it as self-employment section. The tax rate is different, however you have to pay self-employment tax. If the pay goes to your name, it will be subject to standard income tax rates based on your bracket.
If your income is over $50k then I would make sure it gets put in as LLC name. If not, it's not gonna make a huge difference whether they pay you as a 1099 with your name.
If you're just a non-corp LLC, even if your income is direct into your name it doesn't make that much difference. If the pay goes to the LLC name, you file it as self-employment section. The tax rate is different, however you have to pay self-employment tax. If the pay goes to your name, it will be subject to standard income tax rates based on your bracket.
If your income is over $50k then I would make sure it gets put in as LLC name. If not, it's not gonna make a huge difference whether they pay you as a 1099 with your name.
I know a fair bit about tax law and corporate structures, and I have no idea what you are trying to say here.
My business is a single member LLC. I do residential work only. All my customers are non-business owners. It is my first year in business and its not booming as much as I had hoped it would to the point where I can make at least $30,000 and opt in for S-corp. The woman I talked to from H & R Block informed me that all business income must go into the business bank account regardless of how it was wrote out. She further indicated that regardless of business loss or profit I'm still liable for 15.3% taxes for medicare and social security. As far as paying myself she couldn't really help me on this one. I have way more overhead than I make in my business and my business bank account alone isn't able to afford to pay for all of it and has to come out of my personal bank account. Since that conversation I've put 1/3 in my personal account, 1/3 in my business savings for social security and medicare, and 1/3 was kept in the business checking account.
I am hoping I can do this without raising any red flags to the IRS. I need to be able to put money into my personal checking to pay for my mortgage on house, utilities, and my truck loan. At this time all my business has been able to cover is gas for travel and my equipment, truck and liability insurance, cost of equipment repair, supplies for business, and buying some new equipment once in a blue moon. What my business is able to cover is only 1/4 my actual cost of overhead and I need to be able to transfer funds to and from my personal checking and business bank checking when needed to make sure all gets paid without giving the IRS good reason to audit me. At this time I do not know how much I will potentially make in my business this year. I was told by that same woman at H & R Block that I could file taxes yearly instead of quarterly since I didn't make very much.
Not sure if any of her advice was good or not. However she said she was the only one there at H & R Block that was in charge of doing business taxes and told me she had 35 years job experience in file business taxes for other people. Any additional advice would be much appreciated on how to move around my money legally to make sure my bills are paid until I can land more clients to the point my business pays for all my overhead. Until then, this is the best way I know how to do this so far. Hope it is legal. Very sorry for the delay in response.
At the end of the year, you'll sit down and add up all your business income and subtract out all of your business expenses. If you spent more than you made, you'll have a loss and you won't owe any taxes. If you show a profit, you'll pay the 15.3% on that, not your entire income, plus income taxes. You don't need to pay quarterly yet, you don't even know if you'll have a profit.
Just keep excellent records of everything.
I know the correct advice is to keep everything in your business account, however, I'm just like you, I transfer between accounts all the time. This wasn't a problem in our audit, you just need to keep track of what is business income and what is just a transfer. And yes, you're allowed to spend the money you're making in your business. You just can't count the home expenses as a business expense when you file your taxes.
KaraG’s advice is pretty good, but you need a real accountant to help you with this. It doesn’t have to be a FT employee, but a person well versed in small business accounting is really important. I have typically hired a single person in private practice to handle that stuff for me.
Your post is confusing, because you are not using terms very consistently. I am not sure what you mean by overhead, and I think you are including your personal expenses like your mortgage. While important, those things are not business overhead. Business overhead is generally defined as those things necessary to run the business, such as business vehicle expenses, utilities, supplies, advertising etc.
What it costs to keep your family housed and fed is another matter. As a business owner, you aren’t paid in the traditional manner, instead you take a draw against future profits. Hopefully that is enough, if not you need to do things to change your profitability or reduce personal expenses.
15.3% is only applicable to your profit, not your gross business revenue.
You can shift money back and forth between accounts, but it is not advised because it is confusing and easily leads to overdrawing against profits. The other potential problem is that you destroy the protections created by the LLC. If you use LLC funds to pay personal expenses, then later default on payments to a vendor, that vendor can sue both the LLC and your personal assets.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
