Payroll taxes as sole proprietor

[Daleth]

Is there a payroll service you would recommend for a sole proprietor who hates doing taxes/bookkeeping/etc., but wants all the proper deductions to be made and taxes to be paid?

My top priorities for this, apart from security (i.e. trustworthy provider), are: (1) I barely have to think about it (it's not cost effective for me to spend much time paying attention to this); and (2) it tells me all taxes owed on each paycheck (my main gig is a 1099 paid monthly), and maybe quarterly--Medicare, FICA, federal income, state income.

I've looked at Gusto but the site wants to know whether my business will be paying 1099 contractors or W2 employees. With respect to my own business, I'm neither--I'm a sole proprietor, with my main gig paying me monthly and other gigs paying me much smaller, intermittent amounts.

What services do you like?

[jpdx]

Are you looking for employee payroll, as in you are hiring employees? Or are you looking for an accountant to figure how much you owe in quarterly estimated payments on your self-employment income? It sounds like you need the latter.

As a self-employed person, you don't really have taxes owed on each paycheck. Instead, you'll pay ~15% self-employment tax on your business profit, in addition to any federal and state income tax. The SE tax is what self-employed people pay instead of Medicare/FICA.

If I understand your question correctly, you need a CPA and maybe a bookkeeper, not a payroll service.

[seattlecyclone]

Right. I'm a sole proprietor/contractor and my main client uses Gusto to pay me and take care of the 1099 at the end of the year. This type of service is what you use when you're paying other people, not when you're tracking your own business income.

[Daleth]

I've been considering creating an LLC, possibly taxed like an S-corp, with myself as sole employee. Would the taxes then be calculated like normal payroll taxes, or self-employment/sole proprietor ones?

[SimpleCycle]

I think you are making this more complicated than it needs to be.  Most sole proprietors just estimate their total tax liability (income tax and SE tax), pay quarterly taxes, and fill out a Schedule C at tax time.

If you don't want to do that, there are professional employer organizations that can handle this for you for a fee.  I know one is Insperity.  I doubt they are cost effective in most situations, and it seems MORE complicated to me, not less, but it's an option.

[SeattleCPA]

We really like and basically always recommend Gusto. (Based on seeing hundreds of small business clients of our CPA firm use all the vendors...)

FWIW...

[dandarc]

SeattleCPA - is it your "How to start an LLC taxed as S-Corp in Florida" kit I just bought? If so - thank you. It is fantastic.

A little annoyed at division of corporations turnaround - looks like 2 weeks even for electronically filed stuff here, but I think it will still be done in time for a new opportunity I'm pursuing.

I was thinking about using wave (I'd expect this to be very simple accounting) and either their integrated payroll or just filing the 941's and so on myself. But If gusto will do the job for $300 / year, that might change my mind on the payroll aspect, particularly if they get the various payroll-related paperwork filed within that price.

Expecting to be paying a $60K annual salary, about $17200 between reimbursed health insurance premiums and HSA, and then probably an individual 401K profit-sharing distribution to be determined at the end of the year. This year will be a little strange as it will be transitional, but that's what I'm thinking this looks like ongoing ballpark.

[SeattleCPA]

SeattleCPA - is it your "How to start an LLC taxed as S-Corp in Florida" kit I just bought? If so - thank you. It is fantastic.

A little annoyed at division of corporations turnaround - looks like 2 weeks even for electronically filed stuff here, but I think it will still be done in time for a new opportunity I'm pursuing.

I was thinking about using wave (I'd expect this to be very simple accounting) and either their integrated payroll or just filing the 941's and so on myself. But If gusto will do the job for $300 / year, that might change my mind on the payroll aspect, particularly if they get the various payroll-related paperwork filed within that price.

Expecting to be paying a $60K annual salary, about $17200 between reimbursed health insurance premiums and HSA, and then probably an individual 401K profit-sharing distribution to be determined at the end of the year. This year will be a little strange as it will be transitional, but that's what I'm thinking this looks like ongoing ballpark.

Yes, that's our "kit."

BTW thumbs up on using a real accounting system.

Also, we really urge folks to spring for the payroll service. We got no horse in that race.... but we see all the time the costly errors folks make when they DIY payroll.

Regarding setting a reasonable salary, sounds like you've done your research. But here are some blog posts that might help if you're still doing your research:

https://evergreensmallbusiness.com/s-corporation-reasonable-compensation/

https://evergreensmallbusiness.com/s-corporation-shareholder-salaries-sec-199a-deduction/

[dandarc]

I think I'm going to go with Wave - costs a little less than gusto "core", $15 more per month than gusto "basic". Unclear whether I can set up payroll with gusto basic for what I want to do, but with Wave I'm able to see with what I can do for free that I can easily set up what I need to. Florida is a full-service state, so supposedly will make all the filings and payments needed for me. Integrates directly with the (free) accounting system I've used before and will be using for this new project.

Probably worth the extra $15 every month just for ease of use. I hope the whole filing & paying of payroll taxes is as smooth as advertised.

[dandarc]

First payroll supposed to be removed from business account today and paid to personal account on the 15th. Was quite easy to set up, and while Wave's documentation doesn't cover every last possibility, I think that I'll likely not even have to log in to the business checking most months. Aside from regular salary, which is very straightforward, some details in case anyone else tries this provider:

1. Sole-Member Health Insurance Reimbursement (bought on my own, LLC is reimbursing me).
    a. Enter under the Employee as "Add to Pay" - select "Shareholder Medical Premiums". This gets it correct on W-2, but does not move any money.
    b. If you want the transfer to happen via payroll rather than some other way, add a corresponding "Expense Reimbursement" item.

2. Sole-Member HSA
    a. Tax treatment is same as Shareholder Medical Premiums, so use that.
    b. Transfer money to HSA provider however you need to do that - mine I do the transfer from the HSA provider's website.

3. Profit Distribution
    a. As this is not taxable, the "Expense Reimbursement" works if you'd like transfer to happen via payroll.


Anyway - I'm going to put in a feature request to be able to assign the expense account at the time you do the "Add to Pay" setup. Right now on expense reimbursements, you approve the payroll and transactions appear in the list. You can review there, click on the "edit details" option and set the expense account on the line-item in there. Would be nice, particularly for recurring items, if you didn't have to do that as a separate step every month.

[Sibley]

First payroll supposed to be removed from business account today and paid to personal account on the 15th. Was quite easy to set up, and while Wave's documentation doesn't cover every last possibility, I think that I'll likely not even have to log in to the business checking most months. Aside from regular salary, which is very straightforward, some details in case anyone else tries this provider:

.... snip....

Auditor here. Not monitoring the account for months at a time is setting yourself for problems, you will have asked for it, you will deserve it, and you will NOT get any sympathy here.

Now, if you mean that you won't need to log into the website but you'll still be getting statements, reviewing activity, doing recons at least monthly, that's different. But you need to be doing those reviews and recons.

[dandarc]

Sorry forgot to mention - it is linked to Wave, so transactions get imported automatically. Plus I'll probably have all of 4 transactions hitting that account in a typical month - invoice payment received for prior month's work, payroll withdrawal, and then 2 automatic payments on the business debit card for Wave Payroll fee and E&O insurance.

So I'll be monitoring via Wave Accounting - makes it clear when it has lost connection with bank so no worries on that front. And while I won't have to log in to the bank directly, odds are I will much more often just because I'm obsessive that way.