United States Accounting Questions Answered

What is the difference between an LLC and S-Corp for taxes?

A single-member LLC defaults to sole proprietor taxation (all profit subject to self-employment tax). An S-Corp (or an LLC with an S-Corp election) allows owners to pay themselves a reasonable salary and take remaining profits as distributions not subject to self-employment tax, potentially saving thousands.

What is reasonable compensation for an S-Corp owner?

Reasonable compensation for an S-Corp owner is the salary a market-rate employer would pay for the same services. The IRS requires this to prevent owners from taking all distributions and avoiding payroll taxes. It is generally what you would have to pay a third party to do the same job.

How do I pay myself as an S-Corp owner?

S-Corp owner-employees must pay themselves a reasonable W-2 salary through formal payroll, withholding income and payroll taxes, then can take additional distributions of after-tax profits which are not subject to FICA taxes. Both salary and distributions are reported on personal tax returns.

When do I need to pay quarterly estimated taxes in the US?

You must make quarterly estimated tax payments if you expect to owe at least $1,000 in federal tax after withholding and credits. The 2024 due dates are April 15, June 17, September 16, and January 15, 2025.

What are the tax deadlines for small businesses in the US?

Key US small business tax deadlines include: March 15 (S-Corp Form 1120-S and partnership Form 1065), April 15 (individual/sole proprietor Form 1040), January 31 (W-2 and 1099-NEC), and quarterly payroll returns (Form 941) due in April, July, October, and January.

When do I need to collect sales tax in the US?

You must collect sales tax in a US state when you have nexus there — either physical presence (office, warehouse, employees) or economic nexus (typically $100,000 in sales or 200 transactions in the prior calendar year). The rules changed dramatically after the 2018 Supreme Court South Dakota v. Wayfair decision.

What business expenses can I deduct as a small business in the US?

US small businesses can deduct any ordinary and necessary expense paid or incurred in carrying on a trade or business. Common deductions include rent, wages, supplies, insurance, professional fees, marketing, vehicle costs, and home office expenses.

What is the QBI deduction (Section 199A) for small businesses?

The Qualified Business Income (QBI) deduction under Section 199A allows eligible sole proprietors, LLC owners, S-Corp shareholders, and partners to deduct up to 20% of qualified business income from their taxable income. Income limits apply above $191,950 (single) or $383,900 (married, 2024).

What is the home office deduction for the self-employed?

Self-employed individuals who use part of their home regularly and exclusively as their principal place of business can deduct home office expenses. The simplified method allows $5 per square foot (up to 300 sq ft), while the regular method deducts a percentage of all home expenses.

How much self-employment tax do I pay as an LLC owner?

As a single-member LLC owner, you pay self-employment (SE) tax of 15.3% on the first $168,600 of net self-employment income in 2024, and 2.9% on amounts above that. The effective rate is slightly lower because SE income is multiplied by 92.35% before applying the rate, and you can deduct 50% of SE tax paid.