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Does a single member, pass through LLC need to pay quarterly estimated taxes? Or is the standard process to report profit (or losses) and pay income taxes on said profit annually through a Schedule C with the single members 1040 tax return? I have reviewed the IRS guidance and numerous other sites without finding a clear answer...

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Does a single member, pass through LLC need to pay quarterly estimated taxes? Or is the standard process to report profit (or losses) and pay income > taxes on said profit annually through a Schedule C with the single members 1040 tax return?

Neither actually, by definition a pass-through entity does not pay income tax as an entity because the income is realized by the owners. So the owners, not the entity, are typically required to pay quarterly estimated taxes.

According to the IRS, in general:

You must make estimated tax payments for the current tax year if both of the following apply::

  1. You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
  2. You expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your current year’s tax return, or 100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

There are some exceptions and more details in the linked documentation. You can think of the estimated quarterly payments as the self-employment equivalent of having income tax withheld from each paycheck. You may still end up getting a refund or owing more at the end of the year, but the IRS doesn't allow you to keep all that tax money until the tax deadline, they want to collect it roughly at the time it's earned.

Edit: Here's some info from the IRS on penalties for under-payment of estimated taxes:

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

  • So the owner pays both yearly income taxes on the LLC's profit, as well as quarterly estimated taxes? – JTW May 25 '17 at 2:18
  • Yeah, but the quarterly payments count toward your annual tax burden. It's the self-employment equivalent to having money withheld from each paycheck, you may owe/get a refund at the end of the year depending on if your estimated payments covered your total tax-due or not. – Hart CO May 25 '17 at 2:20
  • Thanks for the info @HartCO. I'm wondering if I could just wait and pay with my annual income tax filing, or if that would result in some penalty? I'm making only a few thousand a quarter doing some side work and it seems like a lot of trouble to do a quarterly estimated... – JTW May 25 '17 at 2:24
  • @woogy You might not face penalties, but it's pretty easy to pay quarterly estimates, if you anticipate doing this for future years as well then it seems worth getting it sorted out. – Hart CO May 25 '17 at 2:42
  • Point taken, looks simple enough and seems to be a good practice to get up to speed with. Thanks again for the information. – JTW May 25 '17 at 2:48

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