Forums: Discussions for entrepreneurs and small business.

Quick question for all the accountants out there -

I have been told two different things on how payroll should be handled for our business.  First of all - we have a small LLC (partnership - my wife and I).  We both work full time jobs and the LLC is something that we do in addition to "regular" jobs.  We would like to pay ourselves once per quarter.  How should this be handled?  I have been told to cut ourselves a check, and claim it in Quickbooks as a equity disbursement since the business profit will be added to our personal income at the end of year.

I have also been told to register with the IRS, receive the coupon book, and cut payroll just like every other company.  Please help.

I appreciate your help.

Derrick

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DKS Marketing, LLC www.marketingbydks.com info@marketingbydks.com

Derrick,

I`m not an accountant, but have run several small businesses as soles props or LLC`s.  The answer is two-fold, your choice.

1) You can do the payroll tax thing, pay SS, FICA, FUTA, etc. and write the added expenses off your company`s profit and the company issues you a W-2 (this is the complicated way, but a tax accountant would be able to give you the better picture) or . . .

2) Take draws agains revenues, pay your quarterly estimated taxes on the net and then reconcile at the end of the tax year.  All profit is passed through to you anyway, so all you are doing is availing yourself of the profit as it is available.  You do not deduct the draws paid to yourself as a payroll expense.

Again, the disclaimer: 

**** I AM NOT AN ACCOUNTANT ****

I hope this helps, but the real help is to find a good certified accountant that can answer all these questions and keep you out of trouble. 

Mike Michaud

--I am not an accountant---
But from my experience, I am a C corp in the state of California. What I do is a have a sub-chapter S filed with the IRS, which means, I only pay taxes on the total amount of profits which are done after I have deducted all expenses from the corporation, so let`s say if I made 48K a year, at the end of the year after I claim all expenses my total income was 10K that is all I pay taxes on. I think that is what my accountant told me, but if you are going to pay yourself, just get a FED ID number I think.. Check with a CPA or Accountant. This is on my experience.

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Edgar Monroy
Web Developer / Owner / Consultant
When starting your own business the need to "know-how" is greater than money!
http://www.nuevolution.net

Hi Derrick,

I am a CPA and operate several LLC`s myself.  The answer to your question is it`s common, and typically recommended, for partners in an LLC to take regular salaries. In an LLC taxed as a partnership, members fall into the elf-employed category, which means they must pay SECA (the self-employment form of FICA tax) on net earnings from their self-employment -- which includes income or loss from the LLC.

Inividuals pay the same amount in income and employment taxes whether some of what they receive is paid in the form of `salary` or it is all paid out in the form of a distribution of profits from the limited liability company.

That means the form of compensation you take -- profit distributions ("draws") vs. salaries -- is less important for you than it would be if you had formed an S Corporation. In an S Corporation, a partner can shelter some income from employment taxes by taking part of the business income as a shareholder distribution -- rather than as compensation for employment. This doesn`t hold true in an LLC.

Hope this helps and good luck!

Chris,
Call me I have more questions, Monday morning is always good for me, where are you at?

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Edgar Monroy
Web Developer / Owner / Consultant
When starting your own business the need to "know-how" is greater than money!
http://www.nuevolution.net

Chris,

Thanks for the informaion.  So if I understand what you are saying correctly, I can take salary either way, profit distribution or salary, it will come out the same at the end of year?  I just want to make sure that if either way i choose, it is acceptable to the IRS. 

Thanks,

Derrick

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DKS Marketing, LLC www.marketingbydks.com info@marketingbydks.com

That`s right Derrick.  Because an LLC is a pass-thru entity for tax purposes everything ultimately ends up getting taxed the same way on your individual tax return. 

Good luck!