Do LLCs Pay Self Employment Tax?

I get this question a lot, so thought I would post a quick answer for those who have this same question…

Basically it depends on how you set your LLC up.  LLCs are really legal entities, not tax entities.  When you setup your LLC, you can choose to be taxed as a sole proprietor, partnership or corporation.  If you choose corporation, you can choose to be a C-Corporation or an S-Corporation.  It’s a little more complicated than that, but you get the idea.

If you are a sole proprietor when you setup your LLC, then most likely you will continue to be taxed as a sole proprietor.

As a sole proprietor, you are subject to the self employment tax, which is 15.3% of your net profits.

For more information on the self employment tax, please visit these resources:

Self Employed Taxes on the IRS website
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Bailout Bill Includes Tax Relief Too

Unless you’ve been living under a rock, you’ve probably heard about the $700 billion bailout plan that was passed recently in an attempt to rescue the housing market.  What you may not know is that there were several tax relief provisions included in this bill.

Included in the bill were some new tax credits, and some other tax bills that were set to expire were extended.

Here’s a quick summary of the tax breaks found in the bailout bill:

Mortgage debt forgiveness – under previous tax law, if you had any debt forgiven, the cancelled debt was taxable income to you.  The new law temporarily stops homeowners from owing tax on cancelled debt up to $2 million.  The debt has to be related to your primary residence.  This is actually an extension on a law that was set to expire; the new law will extend this provision until 2012.

Lower property taxes – homeowners who don’t itemize their deductions will be able to deduct up to $500 ($1,000 for joint taxpayers) of personal property taxes in addition to the standard deduction.  This is effective for 2008 and 2009.
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Final Deadline for Filing Taxes and Receiving Rebate Check Approaching Quickly

Don’t forget that October 15 is the final deadline for filing your 2007 tax return. In addition, it’s your last chance to file for the economic stimulus rebate check.

As a reminder, if you file a 2007 federal income tax return, and have $3,000 or more of qualifying income (including amounts received from Social Security and certain veterans benefits) you may be eligible for a stimulus payment. Other criteria that you must meet: you must have a valid Social Security number and you can’t be claimed as a dependent by someone else.

Rebate checks can be as much as $600 per individual, plus $300 for each qualifying child under the age of 17. If you don’t have any tax liability but otherwise qualify, you may be eligible for a stimulus payment of $300, also with an additional $300 for each qualifying child.

While most people have already filed their 2007 tax returns, there are still millions who filed extensions who have not filed yet filed their tax return. You must file by October 15 to recieve the stimulus payment this year.

Even if you’ve already filed and received your stimulus payment, you may want to check with your parents and/or elderly relatives who might be eligible, but do not normally file a return. If they qualify, but haven’t filed a 2007 return yet, they have until October 15, 2008, to do so in order to receive an economic stimulus payment in 2008.

Filing information is available on the IRS website, including a Free File return preparation option for qualifying individuals. Individuals who are eligible but do not receive a stimulus payment in 2008 won’t lose out–but they’ll have to wait until 2009 to claim a credit on their 2008 federal income tax returns.