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    12 Replies Latest reply on Feb 12, 2008 9:09 AM by dublincpa

    Do I need to do Payroll if I am single LLC owner?

    tsissar Newbie
      Hi, I just formed an LLC in California. I am project manager in the IT field and I will the only owner/employee of my LLC. The question is do I need to do Payroll for myself or not? Also, besides Payroll (if indeed I need to do it), what other IRS taxes/things I need to warry about? Estimated taxes once in a quarter? Anything else?
        • Re: Do I need to do Payroll if I am single LLC owner?
          LUCKIEST Guide
          Yes, as a LLC you do have to do payroll and payroll taxes.
          The LLC is a Corporation and is subject to more govt. regulations. Corp earnings are subject to
          "double taxation" and the right way to take money out of a LLC is by SALARY.
          Have you applied for a Federal I D Number?? Do you have an Accountant??
          Good luck, LUCKIEST
          • Re: Do I need to do Payroll if I am single LLC owner?
            tsissar Newbie
            Hm that is strange, I heard that since I am singel LLC owner/employee, IRS considers this LLC for the tax purposes as a sole propriatorship and not as a Corporation and in that case I heard I don't need to do Payroll...?
            • Re: Do I need to do Payroll if I am single LLC owner?
              CorpCons08 Ranger
              Clarification: The IRS never assumes.
              You need to complete an LLC designation to call yourself a Sole Proprietorship.
              Otherwise you are defaulted as a Corporation.

              • Re: Do I need to do Payroll if I am single LLC owner?
                Lighthouse24 Ranger

                From an IRS perspective, the money you take from your LLC is subject to Self Employment tax, regardless of whether you take it as a salary or distributed earnings. So there is no real tax advantage associated with either, although since a salary qualifies for asset exemption, it's generally what accountants seem to recommend for LLCs. A California LLC is treated like a partnership unless it has only one owner (as you do), in which case the LLC must elect to be treated as either a sole proprietorship or corporation (as others already noted). Because you have state income and/or self-employment taxes as well as federal taxes depending on which option you choose and how you take the money, you'll really just have to run your numbers (or have an accountant do it) to see which choice would be most advantageous. Hope this helps. Best wishes.
                • Re: Do I need to do Payroll if I am single LLC owner?
                  Manoj Gupta Adventurer

                  Per IRS regulations, you do not need to take salary in case of an LLC. But whether you take salary or not, there will not be any tax effect as all of your income whether salary or otherwise, will be subject to self employment tax. That is why I always suggest most of my clients to form an S corp. In most cases for small businesses, S-Corp. is better than LLC. In case of LLC, 100% of net income is subject to self employment taxes (15.30%) while in case of S-Corp., the income subject to self employment tax is typically 30-50% of net income. I have illustrated this and the tax saving impact, on my website with the help of an example. Please see "FREE DOWNLOADS" page on my web site and download the excel file, review and give me your feedback, if any.

                  Hope it helped.
                  • Re: Do I need to do Payroll if I am single LLC owner?
                    sirebral Wayfarer
                    Why would you form an LLC with only one Proprietor? The legal protection an LLC offers is not going to be provided if you have only yourself as an employee.

                    You can still operate as an LLC. I think it would have been wiser to establish the Trade Name as a Sole-Proprietorship and upgrade to LLC when you have at least one Manager.
                      • Re: Do I need to do Payroll if I am single LLC owner?
                        Lighthouse24 Ranger
                        Sirebral, I'm not sure I understand -- a Limited Liability Company, by definition, provides limited liability to its members (owners) even if there is only one -- does it not?
                          • Re: Do I need to do Payroll if I am single LLC owner?
                            sirebral Wayfarer
                            No. What I understand about an LLC is that the people who recieve the protection are the Members and the Managers.

                            Take this example from a book I have read. A manager of an LLC is hired and becomes president of the LLC. The person enters into an agreement with a bank where the LLC borrows a sum of money. If the LLC defaults on the loan the manger is not personally responsible, the entire LLC is.

                            So my understanding is that the owner is responsible. Because an LLC is a legal entity it can be sued, and if you are the owner that puts you in that place. An LLC isn't bad, I just think it would be wiser to start as a Sole-Proprietorship until an actual partnership can be formed. Unless of course you are using your LLC to dodge lawsuits, then that is spelling trouble.
                              • Re: Do I need to do Payroll if I am single LLC owner?
                                Lighthouse24 Ranger
                                Hmmm . . . we may have to agree to disagree -- or perhaps an LLC has different rules in your state (I guess that's possible). "Member" = "owner" for an LLC. In Texas, an LLC can be formed with only one initial member (owner), and must choose when filing to be member-managed or manager-managed. A one-person business is naturally going to elect to be member-managed (otherwise, what's the point?), in which case the law reads: If the limited liability company is managed in whole or in part by members, all articles of this Act shall apply to those members to the same extent as they would to managers of a corporation.

                                A sole proprietor does not have limited liability, but a one-person LLC member-manager does (limited to the amount of his/her initial investment -- here, anyway).
                          • Re: Do I need to do Payroll if I am single LLC owner?
                            dublincpa Scout

                            This thread is a little all over the place. Rather than address each point, I will summarize my understanding. The tax part is 100% accurate. The liability/legal is just what I have gotten from attorneys not being one myself.

                            In all US states that recognize LLCs:
                            • A single member LLC is a sole proprietor unless you elect to be taxed as a Corp (8832) or S Corp (8832 and 2553).
                            • A multi member LLC is taxed as a partnership unless the above elections are made.
                            • LLC members and managers who have not provided personal guarantees with a few exceptions are not liable for the debts of the entity or the torts of its EE's, other members or managers so long and the articles of organization, operating agreement, state and federal laws are adhered to by the "innocent party". There are environmental laws and I am sure other examples from which there is little to no protection by any form.
                            • Some states do tax LLCs similar to corporations. I don't know if the members are then taxed additionally on their distributive share as well.

                            To answer the original question: It is completely wrong for you to take a W-2 unless you have made a corporate election. You may be required by some states to pay unemployment on yourself, but you will pay Federal Self Employment Tax and no Federal Unemployment tax on yourself.

                            PS - I strongly recommend getting an EA or CPA to help from the beginning and on an ongoing basis. I don't want to sound condescending, but if you need these answers here, you should probably not go it alone. There are too many opportunities to do things wrong. Your interests are likely better served in the long run by focusing on your business and paying someone a reasonable amount to CYA on these matters.

                            Good Luck.