LLC under new tax plan effective date [Glossary]

Last updated : Aug 8, 2022

What are the new tax changes for 2022?

Individual Top Marginal Income Tax Rate Increase A proposed increase in the top ordinary income tax rate from 37% to 39.6% would be effective starting with the 2022 tax year. This change would accelerate the return to a top income tax bracket of 39.6% rather than waiting until tax years following 2025.

What will capital gains be in 2022?

Long-term capital gains come from assets held for over a year. Short-term capital gains come from assets held for under a year. Based on filing status and taxable income, long-term capital gains for tax year 2022 (the same rate as in 2021) will be taxed at 0%, 15% and 20%. Short-term gains are taxed as ordinary income.

What is the best tax classification for an LLC?

The best tax classification for an LLC depends on whether you want your business profits to be taxed at your personal income tax rate, or at the corporate tax rate. If you'd prefer personal tax rates, you can classify it as a disregarded entity or as a partnership. Otherwise, you can classify it as a corporation.

When was NIIT passed?

The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates and trusts, beginning with their first tax year beginning on (or after) Jan.

What's the due date for taxes 2022?

Taxpayers will have until April 18, 2022 to file and pay income taxes. California grants you an automatic extension to file your state tax return. No form is required. You must file by October 17, 2022.

Does 2022 have new tax laws?

The IRS did not change the federal tax brackets for 2022 from what they were in 2021. There are still seven in total: 10%, 12%, 22%, 24%, 32%, 35%, and a top bracket of 37%. 1 However, the income thresholds for all tax brackets increased in 2022 to reflect the rise in inflation.

What will capital gains tax be in 2023?

The 2023 capital gains brackets are: 0%: All earnings below $44,625 Individual/$89,250 Married. 15%: $44,625 Individual/$89,250 Married, an increase of $2,950/$5,900. 20%: $492,300 Individual/$553,850 Married, an increase of $32,550/$36,650.

Are tax brackets changing in 2023?

These changes are effective for the 2023 tax year. The U.S. has a progressive, or graduated, tax system, so income isn't taxed a flat rate. Instead, it's taxed at differing rates — 10%, 12%, 22%, 24%, 32%, 35% and 37% — as it rises past certain thresholds, or tax brackets.

Is the LLC requesting corporate tax treatment from the IRS?

Generally, members of LLCs filing Partnership Returns pay self-employment tax on their share of partnership earnings. If the LLC is a corporation, normal corporate tax rules will apply to the LLC and it should file a Form 1120, U.S. Corporation Income Tax Return.

When can an LLC elect to be taxed as a corporation?

An LLC can change its tax status and elect to be taxed as an S corporation. You'll need to file IRS Form 2553 with the IRS. The LLC must elect to be taxed as an S corporation no more than two months and 15 days after the beginning of the tax year when the election is to go into effect.

Should my LLC be a disregarded entity?

LLCs are not disregarded for other tax purposes It is also important to remember that a single-member LLC is a disregarded entity for income tax purposes. It is not disregarded for other tax purposes, such as having to pay employment tax, franchise tax, sales tax, or excise tax.

At what income does the 3.8 surtax kick in?

There is a flat Medicare surtax of 3.8% on net investment income for married couples who earn more than $250,000 of adjusted gross income (AGI). For single filers, the threshold is just $200,000 of AGI.

Who pays the 3.8 Obamacare tax?

As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT). But you'll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount. As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT).

What is the 3.8 investment tax?

Effective Jan. 1, 2013, individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status.

What is the business tax extension deadline for 2022?

Tax extensions For businesses that file as S corporations or partnerships, the tax extension due date is March 15, 2022. If your business has filed successfully for a tax extension, sole proprietors and C corporations must file income tax returns by October 15, 2022.

What is the due date for form 1041 in 2022?

Form 1041-A: Form 1041-A is a calendar year return which is due by April 15th.

Will there be a $300 charitable deduction in 2022?

Unfortunately, as of April 2022, the answer is no. In the 2021 tax year, the IRS temporarily allowed individuals to deduct $300 per person (those married filing jointly can deduct up to $600) without itemizing other deductions. But that change does not apply to the 2022 tax year.

Will federal tax withholding change in 2022?

Like past years, the IRS released changes to the income tax withholding tables for 2022. Use these updated tables to calculate federal income tax on employee wages in 2022. In addition to the annual tax rate and bracket changes, employers can still use the optional computational bridge released in 2021.

Are payroll taxes changing for 2022?

Did 2022 payroll taxes go up? No, the payroll tax rate has remained unchanged since 1990, but the maximum amount of income it can be applied to changes each year. The FICA tax rate is 15.3%.

What is the personal exemption for 2023?

The personal exemption for tax year 2023 remains at 0, as it was for 2022. The personal exemption was eliminated by the Tax Cuts and Jobs Act. For 2023—as in 2022, 2021, 2020, 2019, and 2018—there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.

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welcome back to taxes made simple i'm your host carl and dennis in today's video we're going to be discussing how to reduce your taxes with an llc many people form llcs to limit their liability and prevent financial disasters in the event of a lawsuit or another difficult financial event occurring in their businesses while llcs can provide highly beneficial protection to business owners in the event of some of these circumstances switching to an s corporation can actually provide you with tax benefits that llcs can't yes that's right you might get to keep more of your hard-earned money your cash in your pocket by upgrading your llc to an s corporation and i want you to know why so let's dive in in order to understand how to reduce your taxes by switching from an llc to an s corp you first have to understand what the default taxation rules are for llcs for starters if you have a single member llc the irs treats you as a sole proprietor for tax purposes now taxpayer this means that the llc itself is not taxed and you will only have to pay taxes on the profits you make with the llc throughout the year not the llc and then you it's all you if you happen to have a multi-member llc by chance then the irs considers your llc to be a partnership and each member pays taxes based on his or hers own ownership percentage of that business now if your llc has three members for example each member would pay their equal share that means each partner would pay taxes on one third of the profits of the business each year but one thing to understand though is that if i'm a taxpayer that has other forms of income or my own spouse i may have a different tax liability than my other partners so just know that you each will have your own individual tax liabilities in multi-member llcs the llc itself still does not pay any taxes just like single member llcs but whether you have a single member llc or a multi-member llc the llc is considered a pass through entity and if you're new to my channel welcome you will learn all about pass through entities just by flicking through a couple of the videos i have on my youtube channel i talk about pass-through entities all of the time because pass-through entities are the usual entity that most taxpayers will set up initially general partnerships are passed through sole proprietorships are passed through single member llc's are passed through multi-member llc's are passed through as corporations are passed through c corporations are not passed through so it's important for us to understand all of these entities that are passed through entities the llc is considered a pass-through entity for tax purposes by the irs this means that the taxes pass through the llc directly to the owners so you are responsible for paying the taxes if you happen to have an llc although the llc does not pay any taxes itself all of the owners of the llc have to pay self-employment tax which can get quite expensive in fact the self-employment tax is 15.3 which is a tax made up of 12.4 being social security and 2.9 being medicare taxes that we have to pay into also retirement contributions are often limited to llc owners now before we continue i wanted to let you know i am a big big believer in investing whether it's generally for building wealth or if it's simply just investing into my own retirement accounts to make sure i can retire comfortably and as important as it is to save money on your taxes which i know is why you're all here it is also important to invest your savings if you really want to make money work for yourself long term now i know the challenges that come with being new to investing such as asking yourself where do i even start or simply not having the time because you're too busy running around doing your business or living your life and i don't blame you which is why i want to introduce you guys to wealthfront okay wealthfront is an easy to use application which helps you invest and build income passively here is how it works on the application they will ask you a series of questions to determine your risk tolerance and what your financial objectives are they will recommend a diversified portfolio that will be tailored to your specific needs and the financial goals that you list out to them now the cool thing about wealthfront is they also look for ways to reduce your taxes through tax loss harvesting because let's face it it's our goal to reduce the amount of money that we're currently paying to uncle sam and they also are offering retirement accounts on their platform right now you can get your first five thousand dollars managed for free with my link in my description and after that it's only a super low point 25 annual advisory fee now let's get back to this video so how can i reduce taxes with my llc the number one way to reduce your taxes within llc is to change your llc to an s corporation taxpayer i hope you're waking up right now because i'm going to give you this information i'm going to give it to you in a format that you can understand you can go take this information to your cpa your tax advisor your tax professional and let them know carlton said he knows when to change the llc to an s corporation carlton has changed thousands and thousands of llcs corporations i do not take this conversation lightly and cpas don't like to give this information away why because they can charge you for it so let's talk a little bit more about it an s corporation is a type of corporation in which the owners are considered to be employees of the business that's right you're an employee and now of your business you're eliminating some of all these damn employee taxes that everybody plays into employee taxes are self-employment taxes and i never strictly have said that directly to you on this channel but i'm going to say it to you now if you're self-employed you're paying self-employment taxes but if you're employed by somebody you're paying employee taxes which is similar to self-employment taxes by the self-employed individual the self-employed individual has to pay the employee taxes on all of their income and it hurts the llc owners why couldn't they just pay it on the income that they wanted to pay themselves because llc owners are not employees and now we're going to learn the differences between the llc and the s corporation the way that this works is that the owners of the company pay themselves a reasonable salary by doing this the owners of an s corp will only have to pay self-employment taxes on the salary that they are claiming for the rest of the money which they can take out in distributions that money is not going to be subject to self-employment tax it is not going to be subject to 15.3 percent that's a high percentage that you're not going to face on all of your businesses income that llc owners all have to pay into so this is super important to me if you don't walk away with anything else on my channel you will walk away knowing who pays self-employment tax and who pays the least amount of self-employment tax so we covered that s corporations owners will have to take a salary but for the rest of the money which they

Thanks for your comment Arlen Ou, have a nice day.
- Leatha Mcgathy, Staff Member

what's up you guys it's graham here so if you pay any amount of tax whatsoever you're going to want to hear this because there's a chance you're going to owe a lot more money than you initially expected that's because the irs is about to receive an 80 billion dollar injection of funds to increase audit rates strength and enforcement and collect an estimated 200 billion dollars more from taxpayers over these next 10 years not to mention as it stands right now if you make under 25 000 a year you're five times more likely to face the irs than anybody else and if you make over a hundred thousand dollars a year well congratulations your chance of an audit just doubled so let's talk about exactly what this means how this is going to affect you what you could do about it and then finally how you could use this information to make you money on this episode of the irs is always watching although before we start as usual if you appreciate all the research that goes into making a video like this it would mean a lot to me if you audited that like button by giving it a gentle tap or subscribing if you haven't done that already so thank you guys so much and also big thank you to ftx for sponsoring this video but more on that later all right so to start for those unaware of what's going on we need to talk about the irs or if we're really starting off with the basics the internal revenue service they're responsible for collecting the money needed to fund the federal government and enforcing tax laws throughout 330 million americans but since 2010 those enforcement rates have been declining see the irs mainly works on a trust me bro system where you file the amount of taxes that you think you owe based on the metrics that they provide and from there the irs is able to double check those informations against their own records to determine if you've paid the correct amount if you did you hear nothing back except the faint crying of your bank account and you're free to do it again the next year but if you didn't file correctly or the irs believes that you owe more money than you paid they'll issue a term that everyone fears more than an out-of-service ice cream machine at mcdonald's and that would be an audit when this occurs the irs is grounds to believe that there's been a mismatch in reporting they've identified your return as high risk and they simply want more evidence from you to prove your innocence now in all fairness most irs audits are done over the mail they're not with any malicious intent and they simply want you to pay what you owe however there is what's known as a tax gap between what should be owed and what's actually paid and right now there's 200 billion dollars that's missing so it's the irs's job to collect more money and that's where you come in as it is right now 57 of americans paid absolutely no federal income tax whatsoever due to a combination of declining income tax credits stimulus and covered relief funds but the remaining 43 simply doesn't bring in as much money as they need to with a deficit that continues to grow so it's only logical that enforcement would begin to increase now you would think that the audit rates would traditionally be the highest among the ultra-rich jet-setting entrepreneurs who write off every lobster dinner at maastros as a business expense but nope instead it's actually the poor according to irs data those with incomes below 25 000 a year have the highest audit rates of just about any bracket in fact that group was audited at the same frequency as the top one percent so why is it you ask well most low income audits are done by computers who automatically send out a letter in regards to the earned income tax credit and everything is handled electronically without the involvement of the skilled employees so it's very low effort on the other hand high income tax returns are often much more complex involve a team of people and take specialized knowledge of the tax code to prove any wrongdoing that's why it's a lot easier to go after the low-hanging automated fruit than prep for a lengthy legal battle with someone who may be over inflating the value of their painting that was donated to the charity of fine wine for a tax deduction the other problem however is that flat out the irs is broke budget cuts a lack of agents old technology and a high volume of tax returns means that the irs has fewer resources to go after tax cheats and enforce payments this leads to unprecedented delays missed correspondence unorganized accounting and phone wait times that rival that of space mountain at disneyland the reality is the irs has so few staff that only three percent of their calls are answered and 17 million people are still without their tax refund but now with the introduction of the inflation relief act 80 billion dollars will be funneled back into the irs for the sole purpose of being able to collect more money of course any time the irs is brought up you inevitably get people in organizations who claim that income taxes are unconstitutional or that it's voluntary based on the misrepresentation of how it's worded but rest assured every single argument has eventually been rejected and with 80 billion dollars of fresh funding behind them they're about to ramp up their operations by a lot and make a lot of money that's because the 2013 survey found that the irs collects six dollars for every one dollar they spent and once fees and penalties are assessed it adds up to a lot for example most people don't know that the irs is able to go back three years in the event that they want to audit a tax return and if they identify a substantial error they could go back even further sometimes up to six years now if you flat out don't file a return or if your return is fraudulent then congratulations there's no time limit and the irs is able to go back as far as they want to make sure that you pay your fair share now in terms of penalties though here's where things get interesting on the surface a three percent interest rate is going to be applied to all unpaid balances until it's paid off in full but in addition to that there's also a late payment penalty of half percent each month up to a maximum of 25 in addition to that if you decide not to file at all there's a failure to file penalty that's five percent of the amount of tax owed each month again up to a maximum of 25 so it's quite costly although in terms of these new changes and how this is most likely going to affect you here's what we know so far although before we go into that the irs has already begun to expand their guidance on cryptocurrency and legitimize it as a way that people are investing their money so when it comes to that our sponsor ftxus wants to help for those unaware ftx us is one of the largest u.s regulated cryptocurrency exchanges in the world in terms of daily users and trading volume with millions of users who buy sell track and trade both crypto and nfts all in one 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Thanks Leoma your participation is very much appreciated
- Leatha Mcgathy

About the author

Leatha Mcgathy

I've studied sports coaching at Bryan College in Dayton and I am an expert in athletic training. I usually feel irate. My previous job was horticultural worker supervisor I held this position for 26 years, I love talking about amateur astronomy and pachisi game. Huge fan of Peter Thiel I practice soccer and collect breweriana.