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I am self employed with an LLC that I elect to pay S-corp taxes on. I am the only employee. When you're self employed, if your taxes are greater than $1000, you have to pay quarterly taxes estimated from 1040 ES.

I also have to do payroll every quarter because I pay myself a salary, and with that I have to pay the IRS the income tax, medicare, and social security that I withhold from my pay check. This amount only comes out to a little less than my 1040 ES taxes.

My question is, how do I handle this? Do I just have to pay the difference on the 1040 ES (i.e. if I paid $2000 on 941 and had $2500 due on 1040ES, do I just pay $500 on 1040ES)? Suppose my 941 came out to more than I estimated in 1040ES, would I have to pay it at all? How do these two forms relate to one another when you run a single employee LLC?

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Don't overthink it. As an employee, whether of your own corporation or of someone else, you get a salary and there are deductions taken out. As the owner of a business you get (hopefully) business profits as well. And, in general, you often have other sources of income from investments, etc. Your estimated tax payments are based on the difference between what was withheld from your salary and what you will owe, based on salary, business income, and other sources. So, in essence, you just add up all the income you expect, estimate what the tax bill will be, and subtract what's been withheld. That's your estimated tax payment.

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I'm not sure why you're confusing the two unrelated things.

1040ES is your estimated tax payments.

941 is your corporation's payroll tax report.

They have nothing to do with each other. You being the corporation's employee is accidental, and can only help you to avoid 1040ES and use the W2 withholding instead - like any other employee.

From the IRS standpoint you're not running a LLC - you're running a corporation, and you're that corporation's employee. While technically you're self-employed, from tax perspective - you're not (to the extent of your corporate salary, at least).

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  • Thanks for the response. But whereas before, when I was filing as an LLC, 1040ES would've included all of my quarterly taxes (all of income tax and small business tax). But now as an s-corp, I'm only paying the income tax on the dividend on 1040ES and the rest (ss, medicare, and income tax on wages) will be paid via payroll. Is that right? (as far as my quarterly payments go).
    – Ser Pounce
    Apr 22, 2016 at 6:20
  • @SerPounce there's no such thing "dividend" with regards to S-Corp. There are "distributions", which are not dividends at all, but rather self-employment income (at least for "solo" S-Corp, where all income is the fruit of your own labor). While there are a lot of tax evasion schemes and urban legends with regards to S-Corp, in reality they only make sense if you have employees/subcontractors.
    – littleadv
    Apr 22, 2016 at 6:23
  • What I meant by dividend is the non wage portion of the income that isn't subject to SS or medicare.
    – Ser Pounce
    Apr 22, 2016 at 6:26
  • @SerPounce yeah, I figured. See my comment to your answer. Basically what you're doing is a tax evasion, and you'll be caught.
    – littleadv
    Apr 22, 2016 at 6:26
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I think I may have figured this out but if someone could double check my reasoning I'd appreciate it.

So if my company makes $75000 and I decide to pay myself a $30000 salary, then the quarterly payment break down would be like this:

1040ES: Would pay income tax on non salary dividend ($45000) 941: Would pay income tax, SS, medicare on salary ($30000) (I'm the only person on payroll)

So I think this answers my question in that after switching from filing as LLC to S-corp, I won't have to pay as much on 1040ES because some of it will now be covered on payroll.

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  • How would you justify such a low salary for yourself when the S-Corp makes more than twice as much? Why would someone pay you double just because you're "Ser Pounce Inc" instead of "Mr. Ser Pounce"? If you cannot reasonably justify such a difference - you're up for a very nasty surprise during the next audit.
    – littleadv
    Apr 22, 2016 at 6:25
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    @littleadv It's an app that is finished and will generate income whether I work on it or not. I am paying myself $30000 as a part time software developer who is just maintaining the app. Does that seem reasonable you think?
    – Ser Pounce
    Apr 22, 2016 at 6:27
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    That makes it sound like a passive income, which means your S-Corp will very quickly become C-Corp. You're generating passive income from an existing asset, which is prohibited for S-Corps.
    – littleadv
    Apr 22, 2016 at 6:28
  • @littleadv But I did develop this app from the ground up, and though the app will generate income on its own, it absolutely still needs maintenance, plus I'm still working on making small updates to it. But I'm only working 20 hours a week, if even that.
    – Ser Pounce
    Apr 22, 2016 at 6:30
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    Right, that's called "royalties". Being payed for the work you've already completed and is now being sold. You're being payed royalties for your app, others are being payed royalties for their books, and the fact that you're working on the next edition - doesn't change that. So if all your revenue comes from royalties - you cannot do it in S-Corp, since S-Corps are not allowed to have more than 25% passive income over more than 3 years. In your case all the income is passive, and will always be.
    – littleadv
    Apr 22, 2016 at 6:37

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