LLC Tax Reality: What the IRS Actually Sees

A single-member LLC is a disregarded entity for federal tax purposes by default. That means the IRS does not tax the LLC separately — all the income flows to your personal tax return. This is called pass-through taxation.

How Your Taxes Actually Work

As a self-employed baker, you pay two layers of tax on your business profit:

• Self-Employment Tax (SE Tax): 15.3%
  This covers Social Security (12.4%) and Medicare (2.9%). As a W-2 employee, your employer pays half of this. When you work for yourself, you pay both halves. This is in addition to your regular income tax.
• Federal (and state) income tax
  You report business profit on Schedule C, which flows to your Form 1040. The rate depends on your total household income and tax bracket.

Quarterly Estimated Taxes

When you are self-employed, the IRS does not withhold taxes from your income. You are responsible for paying them yourself — quarterly. Miss these payments and you owe penalties at tax time.

The four due dates every year:

• April 15 (covers Jan–Mar)
• June 15 (covers Apr–May)
• September 15 (covers Jun–Aug)
• January 15 of the following year (covers Sep–Dec)

Add all four to your calendar right now. Set a reminder 2 weeks before each one so you’re not scrambling.

The Simple Tax Savings System

Every time money hits your business account, transfer 25–30% immediately to a separate savings account labeled “Taxes.” Do not touch this money for anything else. When quarterly payments are due, it’s already sitting there.

This single habit eliminates the most common financial crisis home bakers face: a surprise tax bill at the end of the year.

Deductions That Belong to Your Business

Track these from day one — they reduce your taxable profit:

• Ingredients and supplies (packaging, parchment, gloves)
• Equipment (stand mixer, pans, decorating tools) — may be deducted in the year purchased
• Home office (the square footage of your dedicated baking area as a % of your home)
• Mileage for business purposes (ingredient runs, market trips) — log the date, destination, and miles
• Insurance premiums
• Software and subscriptions (BatterSuite, your order management tools)
• Education (this course counts)