The percentage you should save for taxes as an LLC owner depends on several factors, including your business income, your tax bracket, your state’s tax laws, and any applicable deductions or credits.
Here are some general guidelines…
- Estimate your tax bracket – Determine which tax bracket you fall into based on your LLC’s income and your personal circumstances. Tax brackets can vary from year to year and depend on your filing status (single, married filing jointly, etc.).
- Federal income tax – As an LLC owner, your business income is generally taxed at your personal income tax rate. For federal taxes, this can range from 10% to 37% as of 2022. You may also need to pay self-employment taxes, which cover Social Security and Medicare taxes for self-employed individuals, at a rate of 15.3% (12.4% for Social Security and 2.9% for Medicare).
- State and local taxes – Depending on where your LLC operates, you may owe state income taxes as well as local taxes. State income tax rates vary widely, so you’ll need to check the tax laws in your state to determine the applicable rate.
- Sales tax – If your LLC sells goods or services subject to sales tax, you’ll need to collect and remit sales tax to the appropriate taxing authority. Be sure to set aside the collected sales tax separately from your business income to avoid spending it accidentally.
- Other taxes and deductions – Consider other taxes you may owe, such as property taxes if your LLC owns real estate, or any tax deductions or credits you may be eligible for, such as business expenses, retirement contributions, or health insurance premiums.
- Consult a tax professional – It’s always a good idea to consult with a tax professional or accountant who can provide personalized advice based on your specific situation. They can help you estimate your tax liability more accurately and ensure you’re taking advantage of all available deductions and credits.
Many small business owners aim to save around 25% to 30% of their income for taxes, but your actual tax rate may be higher or lower depending on your circumstances. Regularly reviewing your financial situation and consulting with a tax professional can help you stay on track with your tax obligations.