An Update on Paying Single-Member LLC Estimated Taxes
Last week, I wrote up everything I’d learned about paying estimated taxes as a single-member LLC — but it turns out I hadn’t learned everything there was to learn yet!
When I paid my estimated taxes last Thursday, I made two separate DirectPay.IRS.gov payments: one from my personal bank account, representing the percentage of taxes I owed from my freelancing work, and one from my business bank account, representing the percentage of taxes owed by The Billfold LLC.
Last night, I got an email from the IRS. They’d rejected my Billfold LLC estimated tax payment because it came from a business bank account, and DirectPay.IRS.gov only accepts payments from personal bank accounts.
The IRS does have a direct pay option for businesses — it’s at EFTPS.gov, aka “the Electronic Federal Tax Payment System.” However, my CPA told me to make personal estimated tax payments. I know, because I’ve re-read the email from my CPA a dozen times since last night. It’s two sentences long, and it advises me to pay both the Billfold LLC estimated taxes and my freelancing estimated taxes in a single personal tax payment.
I didn’t exactly take that advice, of course. I tried to make two personal tax payments, one of them from a business account. I wanted to keep The Billfold LLC’s tax money separate from my personal tax money, and I wanted to keep my Billfold LLC tax payments separate from the Billfold LLC distributions I paid into my personal bank account, and I didn’t want to wait a week for the money to transfer from my business bank account into my personal bank account.
Obviously I was in the wrong, and in retrospect it seems obvious that the IRS wouldn’t accept personal tax payments from a business bank account — except many of the people who pay estimated taxes are running some kind of business (I had to register my freelance writing as a business with the state of Washington, for example), so you’d think the IRS would understand.
According to DirectPay.IRS.gov’s FAQ, I shouldn’t get charged a penalty for getting my estimated tax payment rejected; the IRS only issues penalties for insufficient funds, not stopped payments (which is technically what happened to my payment) and if I do get a letter stating that I’ve been charged a penalty, I should contact the IRS and dispute it.
The IRS email advised me to resubmit my payment as soon as possible, so I’ve gone ahead and made the $5,113 payment out of my personal savings account. I’ve also begun the process of transferring that money from my business account into my personal account, and I would have preferred to do that first, but I already screwed up “taking good advice” once, so I’ll follow this particular advice to the letter.
Also: I don’t know whether my business bank account tax payment to the Iowa Department of Revenue will also be rejected. It hasn’t cleared my business account yet, but it takes forever for payments to go in or out of business bank accounts (for reasons I don’t quite understand) so I’ll give it a few more days.
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