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Archive for the ‘Self Employment Taxes’ Category

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Question: Why is only half of a sole proprietor’s self-employment tax deductible in the computation of taxable income?

Answer: The self-employment tax is actually Social Security. Half is deductible because if the sole proprieter worked for a large company, the company would be allowed a deduction on half his Social Security. The rule is an effort to be fair to the little guy.

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We are a network of advisors composed of Latin American, Caribbean, U.S. and Canadian professional firms.

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Question: Do you pay payroll taxes to partners in a California LLC?

There are four partners who work and all own a share of our California LLC. Do we pay taxes to the EDD for Payroll, or do we pay Self-Employment taxes at the end of the year, or do we do both?
Note: The four partners are the only employees of the LLC.

Answer: Members (what you refer to as “Partners”) of LLC’s are not considered employees, and thus do not pay payroll tax. Each member will be issued a K-1 at the end of the year w/ their share of the LLC’s income/loss which each member will report on their own individual income tax return.

The one thing to beware of is that LLC’s in CA have a tax that is calculated on gross receipts and not net income. If your gross receipts are greater than $5M, you will be taxed $11,700, regardless of whether you actually have any net income. So if you are in that situation, there may be other entity structures that would provide more tax efficiency.

Going into business with a foreign partner

To avoid adverse tax consequences, the owners of the LLC interest should be corporations.

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Question: Tax Question for an LLC?

I have a company that sells software online to fx traders in 2008?

Revenues: $ 74,952.00
Expenses: $ 13,123.66
Net Income: $ 61,828.34

What would the total tax be for a “single member LLC” in Illinois
Which includes federal, state, and self-employment taxes?
And any other taxes that I might be forgetting.

Thanks

Answer: You’ll need to file a separate return using your EIN. The LLC return should produce a K-1 form. You would pay your income tax showing the net proceeds from the K-1.
The rough estimate on the Fed portion of the LLC will be between 25-30% of your net income.

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Ch. 4 LLC & Self Employment Tax