Tax Differences EXPLAINED: LLC, S Corp, Partnership, Sole Prop

Summary

In this informative video, Navi Mirage, a CPA, guides entrepreneurs through the complexities of business taxation, regardless of their entity type. She explains the tax obligations for sole proprietorships, LLCs, S corporations, and partnerships, including how to calculate and when to make tax payments to avoid penalties. Navi emphasizes the importance of understanding tax responsibilities when you're self-employed, as no one else will manage these for you. She uses a spreadsheet to illustrate the process, offering a clear breakdown of revenue, business expenses, and profit across different business structures. Navi also discusses self-employment taxes, federal income tax calculations, and state tax considerations, highlighting the potential tax savings of an S corporation. She advises on payment methods, including Direct Pay and EFTPS, and recommends hiring a payroll company for S corporations to manage payroll and tax payments. The video is a comprehensive resource for business owners seeking to navigate the intricacies of tax payments and strategies to save on taxes.

Takeaways

• 📚 As a business owner, you are responsible for estimating and paying your taxes quarterly, unlike as an employee where taxes are withheld from your paycheck.
• 💼 Different business structures like sole proprietorships, LLCs, S corporations, and partnerships have different tax implications and payment schedules.
• 🤑 Sole proprietors pay self-employment taxes (Social Security and Medicare) and federal income tax, with potential additional state income tax if applicable.
• 💹 S corporations can split profits into a reasonable salary and distributions, which may reduce self-employment taxes but still require federal and state income tax payments.
• 🤝 Partnerships are taxed similarly to sole proprietorships, but the profit is split between partners, with each partner paying self-employment taxes on their share.
• 📊 Federal income tax is calculated based on tax brackets, and the actual tax owed depends on the individual's filing status and other factors like deductions and credits.
• 📉 Sole proprietorships and partnerships may benefit from a qualified business income deduction, which can reduce the taxable income.
• 💰 The potential tax savings for an S corporation come from paying self-employment taxes on a reduced amount, based on a reasonable salary rather than the entire profit.
• 📅 Tax payments for businesses are generally due on a quarterly basis, with specific dates throughout the year.
• 🔍 Business owners can use tools like Direct Pay or EFTPS to make federal tax payments, while state tax payments are made through the state's Department of Revenue.
• 📝 It's advisable for S corporations to hire a payroll company to manage payroll and tax payments, allowing business owners to focus on revenue-generating activities.

Q & A

What are the different types of business entities discussed in the video?

The video discusses Sole Proprietorship, LLC, S Corporation, and Partnership.

What is the role of a CPA in relation to taxes for entrepreneurs?

A CPA, like Navi Mirage, teaches entrepreneurs how to save money on taxes by understanding tax obligations, making tax payments, and avoiding penalties.

How does tax withholding work for an employee?

When an individual is an employee, their employer withholds federal income tax, Social Security tax, and Medicare taxes from their paycheck. The employer then periodically sends this money to the federal and state governments on behalf of the employee.

What is the responsibility of a business owner regarding taxes?

A business owner is responsible for estimating their taxes and making payments each quarter. They must also ensure timely payments to avoid penalties.

What are the two main types of taxes a sole proprietor has to pay?

A sole proprietor has to pay self-employment taxes, which include Social Security and Medicare, and federal income tax. If they live in a state with state income tax, they must also pay that.

How does an S corporation potentially save on Social Security and Medicare taxes?

An S corporation can save by paying Social Security and Medicare taxes on a reasonable compensation amount rather than the entire business profit, which is typically lower.

What is the qualified business income deduction?

The qualified business income deduction is a tax benefit for sole proprietorships and partnerships that allows a 20% deduction based on the business's profit, reducing the taxable income.

How can a business owner calculate their federal income tax?

A business owner can use an income tax calculator, inputting their filing status, income, and other factors like dependents to estimate their federal income tax.

What are the payment options for federal taxes?

Federal taxes can be paid using the Direct Pay service on irs.gov/payments or the Electronic Federal Tax Payment System (EFTPS) at eftps.gov.

Why might an S corporation hire a payroll company?

An S corporation might hire a payroll company to handle payroll reports and tax payments, as these tasks can be complex and time-consuming. This allows the business owner to focus on revenue-generating activities.

How often are estimated tax payments typically due for a business owner?

Estimated tax payments are generally due quarterly, with specific deadlines on April 15th, June 15th, September 15th, and January 15th of the following year.

Outlines

00:00

📚 Introduction to Business Taxation

Navi Mirage, a CPA, introduces the topic of business taxation for different entity types such as sole proprietorships, LLCs, S corporations, and partnerships. He explains that he will cover how much tax might be owed, how to make tax payments, and when they are due. Navi also mentions his course for a more comprehensive understanding and encourages viewers to subscribe or share the video.

05:00

💼 Sole Proprietorship and S Corporation Taxation

The video explains the tax obligations for sole proprietorships and S corporations. For sole proprietors, self-employment taxes (Social Security and Medicare) and federal income tax apply. An example is given where a $100,000 profit incurs a 12.4% Social Security tax and a 2.9% Medicare tax, totaling around $15,300. For S corporations, the owner can pay themselves a reasonable salary, with the remaining profit distributed and taxed. The example shows a salary of $40,000 and a distribution of $60,000, with potential tax savings by only taxing the salary for Social Security and Medicare.

10:01

🤝 Partnership Taxation and Federal Income Tax Calculation

Partnerships are discussed, highlighting that each partner pays self-employment taxes on their share of the profit. An example with two 50-50 partners shows each paying half the self-employment taxes compared to a sole proprietorship. Federal income tax is also explained, with an example using an online calculator to estimate tax liabilities based on income levels and filing status. The importance of adjusting for tax credits and the spouse's income is emphasized.

15:01

📊 Tax Estimation and Deductions for Different Business Entities

The video provides guidance on estimating taxes for sole proprietorships and partnerships, suggesting a reduction in the business profit by about 20% to account for the qualified business income deduction. For S corporations, the distribution amount can also be reduced by about 20% for the same deduction. The presenter advises that these are estimates and using online tools can help refine the numbers. He also mentions that these calculations can be complex and may require professional assistance.

20:02

📅 Tax Payment Schedule and Methods

Navi explains the tax payment schedule for business owners, which is divided into four quarters with specific deadlines. He outlines the methods for making federal tax payments, such as using the Direct Pay service on irs.gov or the EFTPS system for more complex tax situations. The video also touches on state income tax payments, which vary by state. Navi advises S corporation owners to consider hiring a payroll company to manage payroll and tax payments, allowing business owners to focus on revenue generation.

25:03

📝 Conclusion and Call to Action

The video concludes with a call to action, asking viewers to leave comments about what they learned, what was helpful, and what they would like to understand better. Navi encourages viewers to like and subscribe for more content and to check out other videos on similar topics. He emphasizes the importance of understanding tax obligations and strategies to maximize savings and benefit from deductions.

Highlights

Navi Mirage, a CPA, educates entrepreneurs on tax-saving strategies through social media and a comprehensive course on navimaradcpa.com.

As a business owner, you're responsible for estimating and paying your taxes quarterly, unlike as an employee where taxes are withheld.

Sole proprietorships are taxed as individuals, paying self-employment tax (Social Security and Medicare) and federal income tax.

S corporations can split profits into reasonable compensation and distributions, potentially reducing self-employment taxes.

Partnerships are taxed similarly to sole proprietorships but with profits split between partners.

Federal income tax is calculated on business profit after considering deductions and tax credits.

State income tax varies by state, with some states having a flat tax rate and others a graduated tax system.

The qualified business income deduction can reduce taxable income for sole proprietorships and partnerships by approximately 20%.

S corporations can also benefit from the qualified business income deduction, reducing the distribution amount subject to tax.

Estimates for tax payments should account for deductions and potential tax refunds to avoid overpayment.

Navi recommends using tools like Ameriprise's tax calculator and the Tax Foundation's website for accurate tax estimates.

Tax payments for individuals and businesses can be made via the IRS Direct Pay or EFTPS system.

Sole proprietorships and partnerships can use Direct Pay, while S corporations should use EFTPS for tax payments.

State income tax payments are made through the state's Department of Revenue website.

Hiring a payroll company is advisable for S corporations to manage payroll and tax payments effectively.

Navi's course offers in-depth tax strategies, including health insurance integration, home office deductions, and retirement account contributions.

Business owners can significantly save on taxes by understanding and applying the right strategies and deductions.

The importance of focusing on revenue-generating activities rather than getting bogged down in complex tax and payroll management is emphasized.

Transcripts

in this video I'm going to show you no

matter how your business is set up

whether it's a sole proprietorship an

LLC an S corporation or even a

partnership how much tax you might owe

for each entity type how to make those

tax payments and even when those

payments are due so you don't have to

worry about late payments or any other

types of penalties okay but before we

jump in if it's your first time here my

name is Navi Mirage I'm a CPA that

teaches entrepreneurs how to save

thousands of dollars in taxes I do that

here on social media but I also do it in

a more easy to understand and

comprehensive manner through a course

you can find those details on my website

which is navimaradcpa.com but for now if

you get value out of this video consider

subscribing to the channel or perhaps

liking it and sharing it with a fellow

entrepreneur so

here's what I would like you to do when

we're talking about this is

um try to think back to when you were an

employee okay when you're an employee

you got paid by your employer every two

weeks or so right and we when you

received your paycheck federal income

tax Social Security tax and Medicare

taxes were being withheld from your

paycheck and you were receiving the net

amount of that paycheck right that

amount was either being given to you

physically with a physical check or most

likely direct deposited into your

personal account now of course if you

lived in a state that had state income

tax then the state income tax was also

withheld from your paycheck

um as well and not given to you well

behind the scenes your employer was

actually holding on to that money right

they call it Inc income tax withholding

so that money was withheld from your

check and instead of paying it to you

and every two weeks or so what they

would do is every two weeks or so you

your employer keeps that money in their

business account and then sends that

money on your behalf to the federal and

state governments well now that you are

a business owner no one is doing that

for you right so it's now your

responsibility to estimate your taxes

and pay them each quarter but the

problem is no one's really teaching you

how much the estimate or how to pay

those taxes uh which again is is what

all this video is all about so

um let me transfer over to my a

spreadsheet that I created to kind of

cover this for you and I'm going to

break this down for you so that you can

finally understand how this works okay

now I know you see a lot on the screen

here but before you you know Panic or

freak out don't worry I'm gonna explain

all this to you so

let's kind of go through let me give you

sort of a layout of the lane here what

we're looking at so these different

colored columns are just saying hey in

this light blue color I'm saying this is

the scenario if you're a sole

proprietorship that means you're just

out there doing business you didn't form

an entity or anything like that with

your state you just started doing

business or it could mean that you

formed a single member LLC that's an LLC

with only one member on it and by

default single member llc's are taxed as

sole proprietorships okay in the second

column this sort of purple color this is

a scenario where you've elected to have

your business taxed as an S corporation

so in order to do that you formed an LLC

perhaps single member or or multi-member

um or you file or or you you formed a

corporation a C corporation and then you

elected uh with the IRS by filing a form

called form two five five three you'll

be elected to have that entity taxed as

an S corporation that's what this purple

color column represents and then over on

the right this is um a partnership exam

example so businesses that are taxed as

Partnerships though so your taxes are

Partnership if uh even if you don't have

a formal agreement if you are two

different people doing business together

you are now a partnership or you may

sort of officially created a partnership

by filing or forming a multi-member LLC

with your state and those two members on

an LLC by default will have it'll be

taxed as a partnership all right so

that's what these three columns are sole

proprietorship S corporation partnership

so what I'm showing here is in each one

of these examples there was Revenue so

you earned a hundred and twenty five

thousand dollars of Revenue or sales in

your business right so you sold whatever

amount of products or you performed

whatever types of services and all your

customers for the year they paid you 125

Grand and then obviously business

expenses I'm saying this is things like

advertising and marketing uh you know

software fees

um things like of that nature other Tax

Strategies writing off home office cell

phone things like that those were your

business expenses and you land at a

hundred thousand dollars of profit right

you can see that's the same across all

three of these different types Soul prop

S Corp and partnership where things

start to differentiate is

um let's now instead of covering all

three at once let's cover them

separately so Soul prop what happens

here

as a sole proprietorship you mainly pay

two types of tax you pay what's called

self-employment taxes which is Social

Security and Medicare and you also pay

federal income tax if you live in a

state that has state income tax you got

to pay that too all right so let's break

this down

a sole proprietor has to pay

um Social Security and Medicare taxes as

both the employee and the employer okay

because a sole proprietorship doesn't

get some of the benefits that an S corp

has so how this math works is if you

take a hundred thousand dollars and you

multiply it by 6.2 percent and then

that's the employee portion of Social

Security and then you take 100 Grand and

you multiply it by 6.2 percent again for

the employer portion the total of that

is 12.4 percent and therefore the math

on that's pretty easy right 100 Grand

times 12.4 percent is twelve thousand

four hundred

uh very similarly the um business profit

again 100 Grand is multiplied by

Medicare you pay Medicare as an employee

and employer as well that adds up to 2.9

percent so the 100 Grand times the 2.9

percent is 2 900. so in Social Security

and Medicare taxes alone you're going to

pay something close to fifteen thousand

three hundred dollars all right

um federal income taxes what happens

here is your 100 Grand that you earned

in profit is going to flow through the

tax brackets and I'm gonna show you that

here in a moment but that's going to

flow through the various tax brackets

and your income is going to be taxed at

different tax rates and as an example

I'm just choosing and again I'll

elaborate this on a second like I'm just

showing this is a single person so not

filing married filing jointly but filing

single

um there are federal income tax on

making 100 Grand might be something like

10 374 dollars okay now a lot of you for

a state you might be in a state that

doesn't have state income tax the reason

why this says fixed or graduated is

because some states have a flat tax

where they just say hey all of your

income is taxed at three percent and

other states have what's called sort of

a graduated tax so very similar to the

federal tax system they have different

levels of income are taxed at different

tax rates so for example the first five

grand of income might be taxed at two

percent then the next five grand might

be taxed at three percent and then let's

say ten thousand on you know going

forward is you know seven or eight

percent so forth and so on okay again

I'll come back to the details of this in

the in a moment but I want to run

through the S corporation example next

okay so same thing happened here no no

point talking about this part anymore

but what happens with an S corporation

is you take your

um 100 Grand of profit and you split it

into what I'm calling two buckets

without what I mean there is you have to

pay yourself a reasonable compensation

for your services that you provided to

your S corporation I'm just making this

number up for now I'm saying it's forty

thousand dollars okay so in this example

let's say your name is John John's

reasonable competition is 40 Grand the

remaining money the sixty thousand

dollars that can either stay in the

business or it can be taken as a

distribution so um John can pull that

money out of his business account and

take that money as a distribution

regardless if John takes that money out

of the S corporation or not they're

going to have to pay federal and state

income tax on it okay let's stay on the

topic of Social Security and Medicare

tax for a moment though the strategy

here with the S corporation is that John

is going to pay social security and

Medicare tax on his 40 000 not the

hundred thousand like it was over here

with the sole proprietorship okay so you

take the 40 000 you multiply it by the

employee rate 6.2 percent so John's

paying 24.80 in Social Security tax

John's employer which happens to be his

own S corporation is doing the same so

on 40 Grand times 6.2 percent John's

employer so whatever the name of John's

S corporation is is also paying 20 40

sorry 2480 in Social Security and

Medicare taxes I should say Social

Security taxes Medicare is different

right 40 Grand times the 1.45 is the 580

and the same thing on the employer side

of things okay so you can see the

potential sort of S Corp tax savings

here is the difference between fifteen

thousand three hundred and six thousand

one twenty those aren't the exact

numbers but this is just a general

explanation of how this stuff works but

you know if you're trying to calculate

how much money can an S corp save me

this is the maximum sort of uh tax

savings you could sort of received using

these numbers okay I'm going to come

back and explain why federal income tax

is a little bit different here because

remember the business the business still

made 100 Grand in profit so you might be

wondering well why is the federal income

tax a little bit more we'll come back to

that here in a second

state income tax I'm just putting it as

five grand we'll elaborate that on on

just in just a moment okay let's go look

at the partnership here okay partnership

same thing the whole partnership brought

in 125 25k and expenses 100 000 of

profit but you know you gotta split this

profit between two

different partners right and let's just

assume they're 50 50 Partners so what

you might notice here is that this kind

of works the same exact way as the sole

proprietorship does just with less money

so partner one is going to get 50 Grand

right half of 100 is 50 000. partner one

is going to take 50 000 times 12.4

because they're the employee and

employer and pay sixty two hundred and

then 50 000 times the 2.9 because again

partner one is the employee and employer

and is going to pay 1450 between Social

Security and Medicare taxes partner two

it's the same exact thing right they

also made 50 Grand you multiply it by

these percentages here and that's how

you get to these numbers if you look at

it it makes sense right A partnership

it's kind of like having two different

sole Proprietors come together and

that's why these numbers is exactly half

of this number and that's why this

number is exactly half of this number

okay so you see the total here paid if

you add these two together is 15 300

just like it is here all right and now

here down on the federal income tax

again I'll elaborate this on this a

little bit more in a second it's 50

Grand that's going through their federal

income tax brackets and that's why this

is so low it's it's 3044 and then um the

state income tax same thing I'm taking

fifty thousand dollars multiplying that

by I think five percent and that's how

we're getting to the 2500 okay let me

take you through that here

um a little bit further with the federal

income tax so let's start with the sole

proprietorship again so I said a hundred

grand

um is going to pay ten thousand three

hundred seventy four dollars in federal

income tax well on a separate screen

here

um I have that number for you so what I

want to show you is I just went to this

calculator and I'll put this in the

description below if you're watching on

YouTube this is uh by Ameriprise and I'm

saying hey this filing status is single

right they're not married and I put here

eighty thousand dollars in wages I'll

come back to that in a moment as to why

it's 80 000 and not a hundred so when

you put single and you put 80 grand the

eighty thousand dollars is going to flow

through these tax brackets right this is

something people get confused by they're

like they might look at these tax

brackets and say hey I made

um 80 or a hundred thousand dollars so

that means all my tax all my income is

being taxed at 24 no that's not how it

works it's showing you the different

brackets so zero to ten thousand and

change is ten percent ten two seventy

five to this amount is 12 percent and so

forth and so on okay so that's how I was

able to develop this and that's what you

should do too maybe go to this

calculator uh plug in if you're single

or married filing jointly type in what

the um amount of profit is that you had

from your business put in if you have a

child or not and it will calculate the

tax credits like if I had put in one uh

dependent then all of a sudden I owe

about two thousand dollars less because

the tax credit is two thousand dollars

you see this number went from ten

thousand three seventy four to eight

thousand three seventy four so I'm gonna

switch that back okay

um

also too while doing this you might want

to add your spouse's income here too so

again I'll explain why this is 80 and

not 100 in a second but let's say your

spouse makes a hundred grand as an

employee okay so now you got a hundred

and eighty thousand dollars

okay this is how you might estimate how

much tax you owe so you might now owe

close to thirty four thousand dollars in

federal income tax so what you might

want to do is say okay well we're gonna

owe forty thirty four thousand dollars

in federal income tax let me subtract

the amount of taxes being withheld from

my spouse's paycheck each time she gets

paid right so let's say for the entire

year she's having

um I don't know thirteen thousand nine

hundred and twenty eight dollars

withheld from her check that leads you

to believe okay well now I need to make

sure I pay at least 20 grand into the

system to make sure that when I pay my

taxes at the end of the year I don't owe

a bunch that might have gone

um that might have been a little bit

um too detailed here so let me switch

this just back to single and um income

of of 80 grand okay so again single 80

grand ten thousand three uh ten thousand

three seventy four is how we got to this

number right here for state income tax

you might want to use a tool I have

something pulled up for that as well

right here this is by the tax Foundation

I'll put this link in the description

below too it just goes through each

state I decided to just pick uh Alabama

as if that was the state that I was

having and I said hey

um the state tax bracket you know as

soon as you hit 6 000 in income uh

married filing jointly or 3 000 in

income as a single file filer you're

paying five percent so what I did for

Simplicity purposes is just said hey um

I'm just going to do five percent for

this math right so I took the 100 Grand

multiplied by five percent same thing

here 100 Grand by five percent here it's

the 50 Grand uh times five percent okay

so that's how I kind of estimated that

number but go to

um you know this website if you don't

know how much your tax your State uh you

know the tax brackets in your state or

if you're in a state like Alaska there's

no income tax right so you don't have to

worry about that part of it so maybe use

this website as a reference to

um calculate your numbers okay so I

think it's time that I sort of addressed

this thing that I mentioned a few times

now let me read this box to you it says

no remember this is all just an estimate

okay for the sole prop and partnership

examples you can use 14 instead of 15.3

to account for a federal tax deduction

you receive for paying self-employment

taxes so what I mean by that is earlier

I was saying hey 100 Grand times 15.3

percent is fifteen thousand three

hundred if you really want to dial that

in

and you're doing this math over for your

own business take the 100 Grand multiply

it by something more like 14 because

that's probably what the number is going

to be like because you get a little bit

of a tax deduction for paying

self-employment taxes

um so if you want to dial it in that's

what the number you can use let's look

at the other sentence here so also for

the sole proprietorship and partnership

examples you can reduce the business

profit which was 100K in my examples

right 100K and 100K over here by about

20 percent when calculating the federal

income tax to account for the qualified

business income deduction I know I'm

giving you a lot of information here but

basically uh there's a deduction that

applies to Sole proprietorships and

Partnerships to where

um you get a 20

deduction based on your business's

profit that's why when I was showing you

you know the income tax calculator here

instead of a hundred grand I put in

eighty thousand dollars right because I

kind of was trying to get you a truer

number to account for that if I didn't

if I just left a hundred grand here you

can see that instead of

um ten thousand and change in taxes it's

now now almost like 15 grand so that uh

qualified business income deduction is

pretty powerful all right

um let's let's go on and read what it

says here for the S corporation example

you can reduce the distribution amount

which is here the sixty thousand dollars

um by about 20 percent when calculating

the federal income tax to account for

the qualified business income deduction

all right so for the S Corp example I

entered 88 000 because I took twenty

percent off of the sixty thousand okay

so that was forty eight thousand

plus the 40 000 of reasonable

compensation to arrive at 88 000. let me

show that you to you visually just in

case that kind of misses you up eighty

eight thousand dollars is what I put

here

um where did that come from again that's

the 40 Grand here and then I reduce this

amount by 20 so I took forty eight

thousand uh plus the 40 and that's how I

got to uh eighty eight thousand dollars

okay again for the partnership example I

entered in forty thousand dollars for

each partner because I took twenty

percent off of the fifty thousand dollar

profit number to arrive at forty

thousand dollars okay I'll just show it

to you visually just in case I'm all I'm

saying here is instead of fifty thousand

dollars of profit I put in 40 Grand to

help account for that qualified business

income deduction to show me the taxes

that I might oh again your numbers might

be different and they should be

different right if you're married switch

the filing stylist to married if your

spouse makes income as well then throw

her income in here his or her income in

here too so you get a more uh realistic

number for your exact situation okay so

what I would recommend actually is

follow my steps go through this video

again watch what I did and then do this

for your own business so you can have a

better idea as to how much tax you're

going to have to pay if that last part

confused you about reducing stuff for

twenty percent and stuff like that you

know that was all related to the

qualified business income deduction skip

it okay just skip it just know that your

estimate will be a high estimate and if

you make those payments throughout the

year you're going to end up with a tax

refund so that could be like a bonus

that you didn't realize was coming your

way okay as I mentioned earlier I'm just

touching really on the surface here

about some of these things

um

you know

if you're a little confused that's

totally okay and normal if it's the

first time you're seeing some of this

stuff you may need to watch again that

that part of the video one more time but

in my course I have more time with you

and I make sure you understand all these

pieces of the puzzle and and you know

just kind of make it easier for you

obviously I'm just teaching you on this

topic today right but I'm also teaching

you in the course Tax Strategies like

how we make the S corporation strategy

even uh better by incorporating health

insurance premiums and health savings

accounts how to deduct your home office

cell phone internet hire your mind your

children establish retirement accounts

as a business owner you can contribute

over sixty thousand dollars in a Roth

account that's after tax money

um for your retirement when you're a

business owner okay so give that a look

if you want to learn how all of this

stuff works you can go to my website

again click this video it'll talk you

through it for about four minutes or so

so explain it to you and you can preview

all this content here that you see the

courses pretty comprehensive okay we

color a lot of things here nothing too

much to where it gets boring and

monotonous but just enough to learn all

the strategies and how to properly

Implement them so you might be asking

you know when all your taxes due as a

business owner well really this applies

to even if you're not a business owner

if you think uh you owe money in taxes

that can mean that you're even if you

have a day job and your day job is not

withholding enough tax from your

paycheck well then you can go into the

IRS system and make tax payments when

you would you do that well it's set up

in equal quarters q1 April 15th Q2 you

can see the dates here June 15th Q3

September 15th and Q4 right September

1st through December 31st it's January

15th obviously of the following year

okay so that's when the tax payments are

generally due a big question is well

okay Navi you told me how much I might

owe and how to pay and how when to pay

those right but let's talk about now how

do you pay the tax that you owe so for

federal taxes you could you have a

couple options

um you can go to

irs.gov forward slash payments to use

this service here called direct pay all

right on the direct pay website that you

can see here you can pay your individual

federal income taxes and you can also

pay

self-employment taxes there okay if

that's a little bit confusing I always

want to make a distinction here

um so if your tax is a sole proprietor

you can go to the direct pay website and

pay these your self-employment taxes and

your federal income tax uh payments okay

same thing as a partnership you can pay

your

um self-employment taxes as a

partnership and you can also pay your

federal income tax there as well well

all right so hopefully that kind of

clarifies what you can use direct pay

for you can also use the

EFTPS system that's right here it's

eftps.gov maybe I'll throw that in the

description too if you're watching on

YouTube

um and you actually may be required to

use this system so this system just so

you know requires Advanced registration

so it takes about two weeks to set it

all up however on this system the EFTPS

system in addition to making individual

federal income tax and self-employment

tax payments you can make business tax

payments so on EFTPS you can register as

an individual or a business I know that

might be a little bit confusing what I

mean by using EFTPS for business

payments is for any taxes that the

business itself is required to pay so

for example if you have an S corporation

your business is required to pay the

employee and the employer portion of

Social Security and Medicare taxes and

you know you also have to pay the

federal income taxes that might have

been withheld from the employee's

paycheck even if that's your own

paycheck okay if you're the only

employee of your S corporation so if

you're making payments on behalf of the

business entity then you need to use EF

uh the EFTPS system I'll show you that

visually real quick I'm saying if you're

an S corporation and you're set up

properly fees tax is right here as well

as

um federal income taxes that might be

withheld from your paycheck

those are tax payments that the business

is actually making okay the business is

making them on behalf of the employee in

this example John okay so

um that's what you really use the EFTPS

system I mean as a general statement

I'll say this if your tax is a sole

proprietorship or a partnership you can

make your payments uh via direct pay if

your tax is an S corporation the S

corporations tax payment should be made

via EFTPS okay

state taxes this doesn't apply to a lot

of you but some of you are in a state

that has state income tax right what

you'll do there is you can just visit

your State's Department of Revenue

website and there's usually instructions

on how to pay your individual state

income taxes okay

um

I just want to emphasize

um in my opinion if your taxes in S

corporation my advice is to hire a

payroll company to handle all of your

payroll reports and all of your tax

payments that are required this stuff is

kind of a mess to do on your own I don't

even like doing it as an accountant okay

um what you'll do is when you hire a

payroll company it's now their

responsibility let them handle that you

should be focusing on generating revenue

for your business not keeping track of

all the due dates and reports you should

have an understanding of what is the

payroll company is doing just a high

level understanding but don't get into

the weed so much that you actually you

know know how to do it yourself and are

doing it yourself that's just wasting a

few hours

um every couple of weeks on payroll

where you can focusing yourself on

Revenue generating business activities

instead of you know time suck activities

that don't help you generate any Revenue

to your business that's kind kind of all

I have for you but before I wrap up do

me a favor leave me a note in the

comment section letting me know what you

learned what was helpful what else do

you want to understand better did I lose

you while going over some of this I want

to know so I can help you know create

better content for you and if you need

me to expand on something I will

um in a moment here if you're watching

on YouTube at least check out some of

these other videos that might be helpful

to you if you're interested in learning

more about the S Corp taxes and kind of

how that works a good video to watch is

is one entitled how escort taxes work

that'll show you what the idea of this

what's called pass through entity work

and what taxes the S Corp has to pay

versus what taxes you pay as the

employee okay do me a favor before you

leave don't forget to like And subscribe

and I'll see you either in the course or

in the next video