Single-member LLC: Should I pay taxes from business or personal account?

Okay but what happens if I've been paying from my business account for the last two quarters? Does that mess up my bookkeeping or create some weird audit flag? Also, if I pay from my business account does that count as me taking a draw from the business?

No worries if you've been paying from your business account! It doesn't create any audit flags or problems with the IRS. You're just making a payment they're expecting. From a bookkeeping perspective, yes, you should record tax payments from your business account as an owner's draw (not as a business expense). This is because paying your personal tax obligations isn't a deductible business expense - it's considered a distribution to you as the owner. Your accounting software should have a way to categorize these payments properly.

Sounds interesting but can you actually use it for quarterly estimated payments too or just annual taxes? My CPA charges me $75 each time I ask a question about this stuff!

I'm pretty skeptical of these tax AI tools. How does it handle state-specific LLC issues? Each state has different rules about LLCs and taxes.

Yes, it actually helped me set up my quarterly payment schedule and even calculated how much I should be setting aside based on my income patterns. Was a huge relief since my income isn't consistent month to month. It does handle state-specific issues too. You tell it what state your LLC is registered in during setup, and it applies those rules. I'm in California which has that annoying $800 minimum tax, and it correctly identified that as a business expense (unlike the federal income taxes which are owner draws).

Wait how does this actually work? You pay them and they somehow get you to the front of the IRS phone queue? That sounds too good to be true with how impossible it is to reach anyone there.

Yeah right. I've been trying to talk to the IRS for 3 months. No way this actually gets you through to a real person. Sounds like a scam to me.

It's not about getting to the "front" of the queue - they have a system that keeps calling the IRS with the right combination of menu options until they get through, then they call you and connect you. It's basically like having someone wait on hold for you. I was super skeptical too! I had spent multiple days trying to get through myself. But it worked exactly as advertised - I got a call back when they reached an agent, and I was connected right away. The IRS agent I spoke with was really helpful and didn't seem to care or know how I got connected.

But wouldn't that mean you're paying taxes on money that never actually went into your personal account? Does the IRS expect you to report all business income on your personal taxes even if you didn't transfer it to your personal account?

Whether you transfer the money to your personal account or not doesn't matter for tax purposes. With a single-member LLC (unless you've elected to be taxed as a corporation), ALL business income is considered your personal income in the year it's earned, regardless of whether you transfer it to your personal account. That's what "pass-through taxation" means - the business entity is disregarded, and all profits pass through to your personal tax return. So you're paying taxes on the business profits, not on the transfers between accounts.

I think a lot of people struggle with this. For others who are confused: both income tax AND self-employment tax for a single-member LLC are reported on your personal tax return (Schedule C and Schedule SE). So both are technically personal tax obligations.

This is such helpful advice about staying consistent! I'm just starting out with my LLC and was going back and forth on this exact issue. Quick question - when you say the self-employment tax is about 15.3%, is that on top of regular income tax or does it replace part of it? I want to make sure I'm setting aside enough money for quarterly payments and not getting surprised like you did.

The 15.3% self-employment tax is IN ADDITION to your regular income tax, not instead of it! So you'll pay both. The self-employment tax covers Social Security (12.4%) and Medicare (2.9%) taxes that would normally be split between you and an employer if you were a W-2 employee. Here's a rough breakdown: if your LLC nets $50,000, you'd owe about $7,650 in self-employment tax PLUS whatever your income tax rate is on that $50k. So if you're in the 22% tax bracket, you'd owe roughly $11,000 in income tax + $7,650 in SE tax = $18,650 total. One small silver lining - you can deduct half of the self-employment tax (about 7.65%) when calculating your income tax, which reduces the income tax portion slightly. But definitely plan for both taxes when setting aside money for quarterlies!

That's really smart advice about setting up a separate tax savings account within your business banking! I'm just getting started with my LLC and was wondering - what percentage do you typically set aside? I've heard everything from 25% to 35% and I'm not sure what's realistic for someone just starting out. Also, do you transfer the money immediately when you get paid by clients, or do you wait until the end of each month to calculate and transfer?

Great question! I typically set aside 30% of each payment I receive, which covers both income tax and self-employment tax with a small buffer. When I was starting out, I erred on the side of setting aside too much rather than too little - better to have a refund than owe money! I transfer the money immediately when I get paid by clients. I have my business checking set up so that as soon as a payment comes in, I automatically move 30% to my tax savings account. This way I never see that money as "available" for business expenses and I'm not tempted to spend it. The percentage you need really depends on your tax bracket, but 30% is a safe starting point for most people. You can always adjust it after your first year when you have a better sense of your actual tax liability. The key is building the habit of setting it aside immediately - trust me, it's much easier than trying to come up with thousands of dollars all at once when quarterly payments are due!

Great summary of all the key points! For your bookkeeping question, I treat federal and state tax payments as separate owner draw entries even though they might go out on the same day. This makes it much easier at year-end when I need to track how much I paid to each jurisdiction for tax prep purposes. In QuickBooks, I'll create two separate transactions: one coded as "Owner Draw - Federal Taxes" and another as "Owner Draw - State Taxes" with the respective amounts. Some people lump them together, but separating them has saved me time during tax season when my accountant needs those breakdowns. Plus if you ever need to reference how much you paid in state taxes for other purposes (like if you move states mid-year), having it separated makes that much easier. The automatic 30% transfer approach really is a game-changer - I wish I had started doing that from day one instead of the manual stress-inducing method!

Great questions! Yes, self-employment tax still applies to your LLC income even if you have W-2 income from another job. The LLC income gets reported on Schedule C of your personal tax return, and you'll pay self-employment tax on that net business income regardless of your other income sources. However, having W-2 income can actually help with your estimated tax situation! If you're having enough withheld from your W-2 job to cover at least 90% of this year's total tax liability (or 100% of last year's if you made over $150k), you generally won't face underpayment penalties even if your quarterly estimates for the LLC income are low. For the estimated tax penalties, don't stress too much about Q1 since you just started in January. The penalty is calculated separately for each quarter, and it's usually not huge unless you're significantly underpaying. You can always adjust your remaining quarterly payments upward to compensate. The IRS also has a "safe harbor" rule - if your total estimated payments for the year equal at least 100% of last year's tax liability, you won't owe penalties regardless of how much you actually owe this year.

Welcome to the LLC world! You're asking all the right questions before you even start - that's going to save you so much headache down the road. For the tax savings account, I'd actually recommend keeping it at the same bank as your business checking for simplicity, especially when you're just starting out. Yes, you could earn a bit more interest in a high-yield account, but the convenience of instant transfers and having everything in one place for bookkeeping usually outweighs the extra few dollars in interest. Plus, many business banking platforms let you set up automatic transfers between accounts, which makes that 30% transfer completely seamless. For making the actual payments, I've found EFTPS (Electronic Federal Tax Payment System) to be the way to go. It's free, you can schedule payments in advance, and it gives you immediate confirmation that your payment went through. The paper vouchers work fine too, but online is just more convenient and you get better tracking. You can also make payments directly through the IRS website, but EFTPS gives you more control over timing and better record-keeping features. One tip: set up your EFTPS account as soon as you get your EIN - it takes a few days to get activated, so don't wait until you need to make your first payment!

Thank you for sharing your experience! I'm just getting started with my LLC and the quarterly payment deadlines are something I definitely need to get on my calendar. Quick question about Form 1040ES - do you recalculate your quarterly payments each quarter based on actual income, or do you estimate once at the beginning of the year and stick with those amounts? My income is pretty variable month to month, so I'm not sure if I should be adjusting each quarter or if that makes things more complicated for bookkeeping purposes. Also, when you say you record tax payments as owner's draws, do you use a specific account/category in your bookkeeping software, or just lump all owner draws together? I want to make sure I'm setting up my chart of accounts correctly from the start.

Great question about recalculating quarterly payments! I personally recalculate each quarter based on actual income trends, especially since you mentioned your income is variable. It's totally fine to adjust - the IRS expects this for businesses with fluctuating income. What I do is look at my year-to-date profit every quarter and project forward, then adjust my payment accordingly. If I underpaid in an earlier quarter, I just add the difference to the next quarter's payment. The key is making sure your total payments for the year meet the safe harbor rules (100% of last year's tax or 90% of current year's). For bookkeeping, I use a specific account called "Owner Draw - Tax Payments" separate from other draws like personal expenses or salary draws. This makes it super easy at year-end to total up exactly how much I paid in taxes, which my accountant loves. In QuickBooks, I actually break it down further into "Owner Draw - Federal Taxes" and "Owner Draw - State Taxes" so I can track each separately. The variable income thing gets easier to manage once you have a year of data to work with. Don't stress too much about getting it perfect in year one!

This whole thread has been such a lifesaver! I'm literally in the exact same boat - just started my single-member LLC a few months ago and have been losing sleep over whether I'm handling the tax payments correctly. The consensus here about paying from the business account and recording as owner draws makes so much sense, and I love how everyone emphasized the importance of including that self-employment tax in calculations. I was definitely underestimating how much I needed to set aside. One small addition for other newcomers: I found it helpful to also set up a separate subfolder in my filing system specifically for quarterly tax payment confirmations and records. Since we're treating these as owner draws rather than business expenses, having clear documentation of when and how much we paid becomes even more important for personal tax filing purposes. The automatic 30% transfer strategy is brilliant - I'm setting that up this week! Thanks everyone for sharing your real experiences instead of just generic advice.

This is such great advice about the timing of recording transactions! I'm brand new to this whole LLC thing and haven't even made my first quarterly payment yet, but I can already see how important it's going to be to stay organized from the beginning. Your point about using the specific "Owner's Draw" account type in QuickBooks is really helpful - I was just going to create a generic expense category but now I understand why that would be wrong. It sounds like getting the bookkeeping structure right from day one will save a lot of headaches later. I'm definitely convinced about setting up that automatic 30% transfer system after reading everyone's experiences here. Did you notice any difference in your stress levels around tax time once you started doing the automatic transfers? I'm hoping it will help me sleep better knowing the money is already set aside!