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).

- I dissolved the LLC by submitting a LLC-35.15: Articles of Dissolution at the cost of $100. I needed to do this before my 1 year anniversary, or the LLC would not be in good standing. What exactly that would mean, I don’t know. To “renew” the LLC would have cost $250, and with limited funds, closing the LLC seemed like the best option. I received a confirmation letter in the mail a few days later.

- I received a notice from my self-employed 401k that I might need to submit a IRS 5500 (EZ in my case). Reading through the instructions It looks like I don’t need to unless the collected amount in the retirement fund is over $250,000. So luckily, it looks like I can leave that as-is.

- I ended up closing my HSA account a while back. Come tax time I’ll probably have to pay tax on that money. It wasn’t much, so probably only ~$40 or so.

- My taxes this year will be as much of a pain as they were last year. This time I have to make certain that I file them and select and “this business is closing” options in the tax forms. I assume the s-corporation tax return form has something for that. Not looking forward to that stuff. Tax programs are not cheap.

- As I mentioned in a previous post, I need to keep my bank accounts active until tax time as well as my IRS tax ID.

- I lucked out by electing to be taxed as an s-corporation. I am currently getting unemployment from the state because I was paying in unemployment on myself. If I had not been taxed this way, I would have had a difficult time as I would have paid higher self-employment taxes and had no money at all coming in being unemployed. These two points make it very very much worth the extra hassle.

I’m sure that I am forgetting some points, but this is good for now.

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)……….

I should be getting back almost one invoice (after estimated taxes) worth of refund money.

Downsides:
- TaxCut (personal) and TurboTax (Business) ended up costing me around $270.
- Illinois business replacement tax exists.
- Wasted money using filetaxes.com for my w-2 when I probably could have used TurboTax business (which I didn’t have at the time). Although, filetaxes.com supports w-2c forms, and TurboTax does not.
- TaxCut advertised that their program would file pass-through business returns, but it does not.

Plus-sides:
- The programs made filing safer and less time consuming (although they still require a lot of background knowledge to use when doing business related taxation).
- I now know how to properly fill out a w-2 form (ha ha ha…).
- I paid a lot less in Illinois replacement tax than I thought I would. The reason being is that wages to myself don’t count toward the total and I had a few start-up expenses that I was able to write-off (anything under $5000 can be completely written off the first year).
- Overall I should come out in positive money.