Do I need a W-2 as a Single-member LLC with no employees? how do I pay myself and file my taxes?
You pay yourself by writing a check from the LLC to yourself. Profit distribution.
You file your taxes by reporting your LLC’s revenues and expenses on Schedule C of your 1040 tax return.
Because the LLC is a pass-through taxed entity, you don’t have to withhold taxes on each distribution from the LLC to its member.
Do not setup a W-2 for yourself as sole member of the SMLLC. It’s incorrect, confusing, and costly.
Should I pay wages
If i have a single member llc and i am the owner of the entity and the entity is not profitable. Should i still pay wages and issue a W2 to my self to protect against piercing. Can i just have a due to account on the books for accrued compensation to show that i will eventually get paid by the entity.
Before I can answer your question, I need to ask you a few:
If the entity is not profitable, how are you funding your paychecks?
Are you borrowing money from a bank or other lender?
Are you lending your own money to the llc and taking back a note?
Are you accruing expenses to outside vendors but not paying them, and instead paying yourself?
If you pay yourself “W2” wages (as opposed to taking a draw from your llc’s profits), remember that the llc must withhold payroll taxes, pay its share of payroll taxes, and make quarterly deposits of the same.
Good follow up questions, but you did not provide answers….
What is the implication if you loan personal start-up funds to your LLC and then it is not profitable? I would assume your “pay” is just a loan repayment. Should you charge your LLC interest, at a reasonable rate, so you will actually make some money from your LLC?
I would assume at some point the LLC makes money, but what is the implication if you need an additional loan to keep the LLC running? Can you keep loaning personal money to the LLC while simultaneously withdrawing loan payments (with interest) back to yourself?
Extending a loan is not a taxable event for either party.
Repayment of loans are not taxable either (for either party).
So your LLC can keep taking losses while making payments on old loans, and you can extend additional loans as well.
Be sure to create a paper trail in the form of promissory notes for the loans, and identify the payments as loan repayments (make up a payment schedule as well). Charge a reasonable rate of interest.
If the LLC is losing money, a tax deduction from the loss will flow through to the owners. This is regardless of whether the LLC has money in the bank due to additional loans.
Payroll Tax of SMLLC
Can a single member LLC elect to be treated as a Sub S by electing under Form 2553 and pay himself/herself a “reasonable compensation” salary and receive the balance as K-1 profit. Or is all of the income from a single member LLC, electing Sub S status subject to FICA/MED .Is this where I’ll see your response? http://www.llc-made-easy.com/single-member-llc.html
If you select sub-S classification, then your “reasonable” compensation will be subject to FICA/MED, also known as self-employment taxes.
The remainder of the LLC’s profits can be distributed as dividends, which are still subject to income tax, but not self-employment tax.
The problem with electing sub-S classification is that there are more rules for sub-S than for an LLC taxed as a partnership or sole proprietor.
For example, every owner of an S corporation must be a natural person (not another LLC, corporation or partnership). If you add partners to your SMLLC, and you wish to allocate profits unevenly between yourselves, then you will lose your S-corp status.
Return to Ask A Question About Single Member LLCs.