In essence, for an LLC owner or sole proprietor, the direct payment of personal income and self-employment taxes from a personal account does not need to be recorded in the business’s accounting records. These payments are considered personal rather than business transactions. The accountant’s role includes ensuring that the business’s financial activities are accurately recorded and reported and assisting the owner in understanding the tax implications of their business’s profits on their personal tax liabilities. This service is specifically designed to help LLC owner’s and Sole Props calculate their self-employment taxes.

Your Accountant Reviews Net Profits & Advises on Estimated Taxes

For an LLC where the owner takes draws from their net profits, it’s important to accurately track and record both the draws and the quarterly estimated self-employment tax payments for financial and tax reporting purposes. Owner draws are not a business expense; instead, they are distributions of after-tax profits to the owner. These should be recorded in the equity section of the business’s balance sheet, specifically in an account we name “Owner’s Pay & Personal Expenses” if your business Entity is an LLC or Sole proprietor. Each time an owner takes money out of the business for personal use, it should be recorded as a debit to the Owner’s Pay & Personal Expense account and a credit to the Cash account, reducing the business’s cash assets.

Quarterly Estimated Tax Payments

Estimated tax payments made via the Electronic Federal Tax Payment System (EFTPS) should also be tracked, as they represent cash outflows related to the owner’s tax obligations on the profits drawn from the business. These payments can be recorded in a liability account, often titled “IRS Tax Payments”, and it is setup as a sub-account to the Owner’s Pay & Personal Expense account. However, if these tax payments are paid from a personal bank account, they may not be recorded in the books.

IRS Tax Payments for LLCs and Sole Proprietorships

For LLCs taxed as sole proprietorships (or directly for sole proprietors), the income tax and self-employment tax obligations are personal, not business expenses. These taxes are based on the profits of the business but are paid by the individual, reflecting their tax liability on personal income. Since these tax payments are personal liabilities rather than direct business expenses, they typically do not need to be recorded in the business’s accounting records.

Deductions and Adjustments on Personal Tax Returns

Although the payment of self-employment tax itself is not recorded as a business expense, it’s important to note that half of the self-employment tax can be deducted on the individual’s personal tax return. This adjustment reduces the individual’s gross income for income tax purposes but doesn’t alter the business’s books. The accountant may need to be aware of these personal tax payments to provide comprehensive tax planning advice and to ensure that the individual takes advantage of all permissible deductions, such as the self-employment tax deduction on their personal tax return.

While the tax payments don’t get recorded in the business books, the accountant utilizes this service to assist the individual in preparing and planning for these payments based on the business’s profitability.

Your Personal Guide to Seamless Accounting: Advanced QuickBooks ProAdvisor at Your Service

Hey there! I’m Gina, and I’m the proud co-founder of Lend A Hand Accounting. Why did I start this? Well, I believe that everyone should have access to affordable, efficient, and flexible accounting and bookkeeping services. It’s all about making sure these essential services fit snugly into your budget without any fuss.

We’ve ditched the traditional hourly rate system and adopted a flat fee pricing. You might be wondering, “Why does this matter?” Well, this way, you know exactly what you’re paying for upfront and there are no unexpected surprises. You get to pick and choose the accounting services you need, like a customized menu. And the best part? You’re in complete control of when you start or stop using our services. We’re essentially just a call or a text away, no need for endless phone calls or draining trips to the accountant’s office.

I’m not just any accountant though. I’m an Advanced QuickBooks Online ProAdvisor. That means I’m equipped with advanced expertise and resources to help you leverage QuickBooks Online to its full potential. My goal is to make your accounting process smooth and efficient so you can focus on what you do best – running your business.

Ready to get started? Reach out to me directly at 360-637-4799. We can even kick things off immediately if you’re ready. Simply create a free account, and I can instantly take a look at your books and let you know where you stand.

At the end of the day, we’re here to serve you. We really appreciate the trust you place in us and we’re eager to meet all of your accounting and bookkeeping needs. Looking forward to being part of your team!

Take care,

Gina

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.