According to the IRS, there is no blanket category called "small business." Instead, your business is taxed as either a sole proprietorship, partnership, LLC, S corporation, or C corporation.
Whatever your business structure, we'll walk you through the tax rates so you can understand how your company is taxed (or you can just use our free estimated tax tool).
Businesses pay different tax rates based on their structure, the amount of income they have, and the deductions and credits available to them. Here's an overview of the tax rates for each type of entity.
If your business is structured as a C corporation, estimating the amount of tax you'll owe on your business profits is pretty simple. Thanks to the Tax Cuts and Jobs Act of 2017, C corporations pay tax at a flat rate of 21%.
The TCJA also eliminated the alternative minimum tax (AMT) for corporations, so shareholders don't have to worry about getting hit with a surprise AMT bill at the end of the year.
To illustrate, say Carter's Cat Toy Consortium, a fictional C corp, has a total taxable income of $75,000 after taking into account all revenues and business expenses. Carter could calculate his IRS income tax bill by simply multiplying $75,000 by the 21% corporate tax rate and know what he'll owe: $15,750.
If you're not a C corp, that means your business is a pass-through entity, such as a sole proprietorship, partnership, limited liability company (LLC), or S corporation. Pass-through businesses don't pay federal income taxes. Instead, the business owner pays personal income taxes on the income made from the business.
That means the question of "How much are small business taxes" depends on how much money you personally made this year. Which gets complicated because:
For 2022, seven tax brackets apply to individuals, depending on the filing status used on their tax return:
To illustrate, say Carolyn Conway, a fictional LLC member, had the following income in 2022:
Since Carolyn is single and has a total taxable income of $90,000, looking at the table above, she can determine she falls into the 24% tax bracket. But that doesn't mean all $90,000 of her taxable income is taxed at 24%. Only the amount over $89,075 is taxed at 24%.
Using the tax brackets above, Carolyn could estimate her income tax liability as follows:
$10,275 x 10% = $1,027.50
($41,775 - $10,275) x 12% = $3,780
($89,075 - $41,775) x 22% = $10,406
($90,000 - $89,075) x 24% = $222
Carolyn's estimated tax bill for 2022 would be $15,435.50.
Further reading: Tax Brackets 2022: How Much Tax You Owe
Several other factors that can affect the amount of taxes small businesses pay.
The calculations above don't take into account any tax credits. Tax credits are dollar-for-dollar reductions in the amount of tax you owe. They're often designed to influence taxpayers to take certain actions or make specific investments.
Examples of business tax credits include:
Further reading: The Big List of U.S. Small Business Tax Credits
If a sole proprietorship, partnership, LLC, or S corporation is eligible to claim a tax credit, the credit will pass through to the owner's personal tax return.
Examples of federal tax credits available to individuals include:
Deductions are expenses that lower your taxable income. Check out our Big List of Small Business Tax Deductions for examples of expenses that can reduce your business's taxable income.
Individuals can also claim a variety of deductions on their personal income tax returns. Some common ones include:
How Accracy can help
Trying to figure out how much you owe in taxes can be exhausting. After long nights spent crawling through bank statements to find that one deductible business expense from months ago (you know it's there!), you end up with a tax bill bigger than you've expected and more than you want to pay. All of that just to find a tax bill bigger than expected and more than you want to pay.
Enter Accracy, America's largest bookkeeping company. Connect your bank, credit card, and merchant accounts to our platform, and a team of bookkeepers tracks every transaction for you. No more searching for receipts or trying to remember transactions, just clear information updated monthly you can use for tax filing, financing, forecasting, and more.
Want someone else to file your taxes? Upgrade to a premium package and our in-house tax professionals will handle everything for you. You'll also get access to unlimited, on-demand consultations to talk tax planning and guarantee the smallest possible tax bill. With Accracy on your side, tax filing stress is a thing of the past. Learn more.
Federal income taxes aren't the only taxes small business owners must pay. Several other taxes must be paid to the IRS and state and local taxing authorities. Your small business may need to pay one or all of them, depending on your type of business, the products and services you provide, and whether you have employees.
Most states levy a state income tax on corporations and individuals that earn income in their state. Tax laws and rates vary by state. Check with your state's taxing authority or a tax professional to ensure you know how much you have to pay and when. Only Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don't have a state tax on income.
Some states, like Nevada and Texas, don't have a state income tax, but they do assess a gross receipts tax on businesses. Others charge a franchise tax based on the value of the company. Check with your local tax authority or a tax professional to find out whether these taxes apply to your business.
If you have employees, you are responsible for paying payroll taxes on their wages. Payroll taxes include federal and state income tax withholding, Social Security and Medicare (FICA) taxes, and federal and state unemployment taxes.
Further reading: Payroll Taxes (What They Are, How to Calculate Them)
Many self-employed people don't receive a paycheck or have Social Security and Medicare taxes withheld from wages. Instead, they're responsible for paying self-employment taxes "”the self-employed version of FICA taxes.
Businesses in certain industries or that sell specific products and services may be responsible for paying excise taxes to the IRS. Examples include sales of gasoline, trucking companies, sports wagering, and indoor tanning services.
Many states and local governments levy a sales tax on transactions of goods and services. Business owners are responsible for calculating, collecting, and paying sales tax to their state or local taxing authority.
If your business owns real estate, you'll have to pay property taxes to the city or county where the property is located. Some states or localities also require small business owners to pay taxes on personal property, such as furniture and equipment.
No matter your business structure, paying taxes is complicated due to different rate rates, rules, and obligations. For that reason, it's a good idea to work with a tax professional who is familiar with the regulations in your state. They can help you figure out how much you'll owe and make sure you're making all necessary tax payments to the right taxing authorities.
Once you know how much you owe, it's time to pay your taxes.
For a more comprehensive overview of small business taxes and how to file and pay them, check out Small Business Taxes (A Simple Guide).
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
Gain insights from Accracy's partner, tax professional, and Enrolled Agent Adam Short, as he explains the critical role of bookkeeping in the tax resolution process.
.png)
Read our review of Sage's accounting services to see if it is the right solution for your business. We examine their pricing, software and packages.
If you're behind on your income taxes, a tax relief program can help sort out your back taxes and get your business back in compliance with the IRS.
