Sole Proprietor In Software

I started going through TurboTax Business.  It loaded up my 2008 return and filled in all of the basics, which was nice.

As I fill out the required new information I wonder how this will work out…

In May of 2009, I received a letter from the IRS stating that I owed an additional ~$1257.88 in payroll tax (eg. social security/medicare tax).  The wage I paid to myself was $8199 ($16398 total charged to the company I was contracted with) , and the estimated payroll tax I paid was $2721.67 (eg 33%).  It’s been a while since I’ve researched this crazy thing called taxes… but since when do businesses pay in 48.54% on payroll?  On the sheet it didn’t explain why they “recalculated” my submitted 941 for that final quarter, but I ended up paying it anyway to avoid the hassle.

Also another thing to keep in mind is that I pay personal estimated federal income tax on the distribution half of my profit from the contract work.  That totaled out to be $1467.23.

If I add up all of the taxes (federal, state, unemployment insurance) on that money it comes to a total of around $5950.  5950/16398*100=36.28%, that’s fine and dandy if I were an LLC, but my company was being taxed as an s-corporation with half as payroll only.

So based on those numbers, I have a feeling, they knew my total charges to the company I was contracted with and assumes they are entitled to the full amount as payroll, but half is distribution…  I think once my taxes are filed, I get this mystery tax sorted out.  I think half of the profit as payroll and half as distribution is reasonable.

All that being said, I’ve learned quite a bit over the time I started my LLC taxed as an s-corporation, worked, and eventually disbanded the company.  In the future I want to have a successful business (not service based), so any endeavor that can add to my knowledge of business is a good thing.

At this point, there are still tax forms that are not final, so it looks like it will be late January until I can submit the business side of my taxes (both state and federal).

My client is having money troubles and will be letting go most of it’s contracted labor. I’ve in turn decided to close my “business” because there is too much time and cost involved.

So once March is over, I will have started a business, finished a year’s worth of taxation, and closed down a business within less than a year. Running a business as a s-corporation is quite a bit of work, so I’m glad in a way to stop.

What I see is involved so far:
- Submit a desolve notice to Illinois. Costs $100 for that pleasure…
- When submitting 941s and such, most should have a “final payment” option to select.
- Will still need to do next business taxes at the end of 2009.
- Cancel as many ongoing expenses as I can until I find a job.
- Retire my business number with the IRS
- Close my two business bank accounts (still need them to take/receive tax money at the end of the year probably, so I will be keeping them for quite a while).

Probably a lot more to this, but I have not done much research yet.

I plan on still doing side business whenever I can. I’ll just do it as myself and not an LLC. It should be a lot simpler… Although if I do any extra work in 2009 it will make my taxes a big pain I imagine. (S-corp stuff, K-1 stuff, 1040 Schedule C)……….