Questions on how LLC Affects Indv. Return

[Hoons]

What is the name of your state (only U.S. law)? Indiana

My wife is starting a single-owner LLC with no employees. I'm trying to help her research the taxing process so she knows how much to set aside to pay her taxes comfortably. Of course it seems complicated; especially when trying to sort out state liability. She's anticipating profiting about $40,000 this year after deductions.

From my understanding, if my wife's LLC makes profits this amount, she is to simply tack that on to her personal income from her employment (she also has a job) and will be taxed at the individual marginal rate (via a Schedule C). Question: will she also have to pay self-employment tax on the $40K on top of the marginal rate to the IRS? What should she anticipate for that?

As far as Indiana, I'm getting that she will be taxed at the flat 3.4% on top of her state individual income. Question: will Indiana also tax her a self-employment tax on top of the 3.4%, and how much is that?

If she and I file jointly (the EIN of the LLC is only filed in her name), will this cause her LLC tax rate to increase because of my income being lumped in with her income and her profit?

That's in for now. I'm sure I'll have more questions after these are addressed. She is new to this and I am no help to her. I've been trying to look it up, but I really need dialog with someone that knows how this works.

Thanks for any assistance!

 

[LdiJ]

What is the name of your state (only U.S. law)? Indiana

My wife is starting a single-owner LLC with no employees. I'm trying to help her research the taxing process so she knows how much to set aside to pay her taxes comfortably. Of course it seems complicated; especially when trying to sort out state liability. She's anticipating profiting about $40,000 this year after deductions.

From my understanding, if my wife's LLC makes profits this amount, she is to simply tack that on to her personal income from her employment (she also has a job) and will be taxed at the individual marginal rate (via a Schedule C). Question: will she also have to pay self-employment tax on the $40K on top of the marginal rate to the IRS? What should she anticipate for that?

As far as Indiana, I'm getting that she will be taxed at the flat 3.4% on top of her state individual income. Question: will Indiana also tax her a self-employment tax on top of the 3.4%, and how much is that?

If she and I file jointly (the EIN of the LLC is only filed in her name), will this cause her LLC tax rate to increase because of my income being lumped in with her income and her profit?

That's in for now. I'm sure I'll have more questions after these are addressed. She is new to this and I am no help to her. I've been trying to look it up, but I really need dialog with someone that knows how this works.

Thanks for any assistance!

Yes, she will pay self employment tax (federal) that is 15.4%

There is no state self employment tax for Indiana, but you have forgotten county tax.

The LLC doesn't have its own separate tax rate. (other than the self employment tax) its simply taxed at whatever your joint tax rate ends up being. Its almost always better to file a joint return than separate returns.

 

[Hoons]

Thank you! So when we file joint, her profit will likely be in the 25% federal bracket + 15.4 SE tax + 3.4% IN tax + county. So we are looking at close to 45%?

Yikes!!!!! 45% is awful!!!! I'm not complaining about taxes being too high, I'm just wondering if she's using a wrong business model. 45% just seems unreasonable for such low income.

 

[LdiJ]

Thank you! So when we file joint, her profit will likely be in the 25% federal bracket + 15.4 SE tax + 3.4% IN tax + county. So we are looking at close to 45%?

Yikes!!!!! 45% is awful!!!! I'm not complaining about taxes being too high, I'm just wondering if she's using a wrong business model. 45% just seems unreasonable for such low income.

If she were single and that was her only income then her regular federal taxes would of course be significantly lower. However yes, if your marginal tax rate is 25% then all together it would be about 45%.

About the only way she could reduce that at all would be to set up an S-corp or an LLC electing to be taxed as an S-corp, but in doing that she can only shield a limited percentage of the income from self employment tax.