Question: What do you recommend for payroll for an LLC with only one employee? I will only be cutting 1-2 checks a month so it needs to be extremely affordable. I want to pay myself a bonus based on sales goals. I’m concerned about accurate tax withholding.
Let me first say that I am not a CPA, so consult yours for your specific situation. I’ll share how I do it in my own business.
My business is a Single-Member LLC. That just means I have no other members or partners. So, I am taxed as a Sole Proprietor. Basically, that means, I add my net business income to my personal tax return and I’m taxed there. It sounds from your question that you are in the same boat.
The accounting way of paying an Owner (Sole Proprietor) or a Member (Single-Member LLC) can be as simple as taking a draw. There are no taxes withheld. So what I do, is set aside the percentage I will need to pay in taxes when I file my income tax return, instead of having payroll for an LLC with only one employee.
If I am having a great year and need to go ahead and pay some taxes in, I do that through the free IRS payment system. You can set up an account at https://www.eftps.gov/eftps/
Here’s a little information on paying Estimated Taxes and the importance of doing so. In lieu of that, I’ve even had my husband adjust his withholding at work to the max to ensure we paid in enough.
The thing is, whether or not you take a draw or paycheck as a Sole Proprietor or Single-Member LLC, you still have to pay taxes on your net income. It is the same income minus expenses you would be paying taxes on anyway. (This is different for S-Corp filers if you are that type of entity you need to do paychecks from my understanding)
In my opinion, there is no need for a payroll company for an LLC with only one employee, when that employee is actually the only member of the LLC. The service would run between $25 and $100 per month and not really give any benefit. There are better ways to spend your money.
If you are not sure about the accounting and need a course on QuickBooks for Amazon Sellers, I created one a few years back and recently updated it. Also, I offer an add-on to that course for Bucket Accounting (like Profit First) where you can set aside funds in accounting to use later. It helps track goals by % of realized income. (Amazon sales income minus selling fees – the amount deposited into the bank)
If you are struggling with the % to set up for Self Employment Tax, which will be the bulk of what you will be paying, check out this link. “The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).” Be sure to read other stipulations in the IRS information such as income thresholds, but a good rule of thumb is 15% to 17% should be set aside for Self-Employment Tax. The reason I say, “the bulk of what you will be paying,” is because we often have lots of selling fees and other business expenses as Amazon Sellers that lower our income drastically. This may off-set your sales income making it far less than the income you started with. This lowers your Federal Income Tax but does not lower your Self-Employment Tax. I don’t want to get into tax advising so I will just say, make sure you read and follow all the rules set forth by the IRS.
Important: Information in this document does not constitute tax or legal advice and must not be used as such. If you have tax or legal questions, please contact your professional adviser. Any course offered here is simply to demonstrate how to use accounting software or spreadsheets. QuickBooks for Amazon Sellers and QuickBooks for Beginners courses have a 30-day refund policy. Spreadsheets and courses for spreadsheets are not included in the 30-day refund policy. I am happy to help with use issues with spreadsheets and courses.
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