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I'm trying to prepare my 2022 taxes (using TurboTax Deluxe, if you care).

In the beginning of 2022, I created a 1-person LLC.

I set myself up as a W-2 employee of my LLC and paid myself on payroll. I also created a solo 401k.

[Later, I stopped doing work for my LLC (but I've kept the business legally open) and got a full-time job (paid as another W-2); I'm not sure that this detail matters but I'm sharing it anyway.]

TurboTax has a field where I'm supposed to "Enter all gross receipts or sales that you have not already reported as Form 1099-MISC income, Form 1099-NEC income or as Form W-2 income."

I don't know if I understand the "or as Form W-2 income" part.

I assume that I'm supposed to put the full amount of my business revenue.

And then elsewhere in the Expenses section under Wages I'll put the value that I see on my W-2 at Box 1 "Wages, tips, other compensation".

Right?

I'm starting to feel worried that I'm getting taxed "twice" (or more than I should). My 1-person LLC paying me W-2 payroll already had taxes withheld.

P.S. Originally, I thought I'd be earning enough money that I'd want to convert my LLC to S-Corp (to save on taxes), which is why I set up payroll. But I never ended up doing the conversion because my business / employment opportunities changed, so my LLC didn't earn much for the year.

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First off, in the situation you're describing, the correct way would have been to put all your business income on Schedule C line 1 and be done with it. There's absolutely no reason to issue a W2 to yourself from your LLC, unless you've elected to treat it as a corporation (in which case you have to). It makes no sense and gives you no benefit; you're moving money from one pocket to the other and paying a payroll processor for the privilege.

But since you've issued a W2 to yourself, you'll have to deduct its wages as an expense on Schedule C line 26 and add its wages as income on Form 1040 line 1. Notice that as part of your payroll you had to pay additional taxes which you wouldn't have needed to pay had you not done this (FUTA for example, and similar State taxes).

Other than the extra payroll taxes, you should not be taxed twice. You should deduct the gross wage you paid to yourself on Schedule C, include it in the income again on Form 1040, and include the tax withholding on Form 1040 line 25(a).

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  • Ok, so it seems like my mistake will cost me FUTA and SUTA. I.e. I could have skipped calling myself a W-2 employee and paying myself payroll, and then I wouldn't have paid FUTA and SUTA. But otherwise it sounds like everything else nets out fine? And FUTA and SUTA aren't a large % of wages, right? Thank you so much for your answer!
    – Ryan
    Mar 27, 2023 at 13:14
  • @Ryan -- you should probably talk to an accountant about your exact situation. Mar 27, 2023 at 13:15
  • Wouldn't the 20% pass-through deduction also be lost here, since most if not all of the pass-through income was offset by wage expense?
    – Hart CO
    Mar 27, 2023 at 13:17
  • @PeteBecker Thanks. Since I'm completely an oblivious newbie, I'm curious: how much do you think I should expect to pay an accountant to answer about this situation? And would they need just the details I've shared here, or would they need ALL of my info (at which point they should just go ahead and prepare my taxes entirely, and I should abandon what I've completed in TurboTax)? Are there certain ways to find the right kind of accountant to answer this? Thank you so much for your help!
    – Ryan
    Mar 27, 2023 at 13:20
  • @Ryan prices vary by areas and complexity of your situation. Yes, it is likely that if you hire an accountant you'd be better off having them handling the whole return. If you hire a CPA/EA, and not just a tax preparer, you may potentially get some tax planning and proper advice about your business, given that the internet so far has seemingly fed you lies.
    – littleadv
    Mar 27, 2023 at 16:29

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