Okay so I finally formed a single-member LLC last year for my freelance design work. I thought it would simplify things but now tax season has me second-guessing everything. Do I file a separate business return? How do I handle the money I moved from my business account to my personal account? My accountant friend said something about Schedule C but I'm not sure if that applies. Any pointers would be great because I'm currently staring at a pile of receipts and a blank spreadsheet feeling like a fraud.
Taxes
I have a single-member LLC and tax season is confusing
Single-member LLC is a disregarded entity by default. You file Schedule C with your 1040, same as a sole prop. The LLC part is mostly legal, not tax.
The money you move to yourself isn't a taxable event, it's an owner's draw. Just don't call it a salary or you'll invite questions.
Ha, I remember my first year with an LLC. I filed a 1065 by mistake. IRS sent back a Letter that basically said 'bless your heart.' Got it sorted eventually.
Schedule C is probably right unless you elected S-corp. Did you file an 8832? If not, you're fine.
Also, don't forget self-employment tax. That's the part that stings. You'll owe both the employee and employer sude of Medicare and Social Security on your net profit.
Wait, so if I didn't file an 8832, I'm automatically a disregarded entity? I definitely didn't file one of those. And the self-employment tax thing—I was afraid of that. Is there a way to avoid it?
No way to avoid SE tax except making less money or electing S-corp, which has its own headaches. Probably not worth it for freelance design unless you're clearing six figures.
You could always just marry someone with a W-2 job and file jointly. That's my strategy.
SoggyWaffles with the real tax planning tips. But seriously, get a CPA for the first year if you can afford it. It'll save you a headache and maybe a penalty.