Small Business Taxes 101
The world of small business taxes is a complicated one. Small business taxes that you pay will largely be determined by what type of business you have, and how many people are included in your business. Therefore, a sole proprietorship would pay a different amount of taxes than LLC, S corporation, or a C corporation. This applies to both Federal and State income taxes.
Federal Small Business Taxes
Federal small business taxes are complex in nature mostly because there are a variety of ways to tax the income of a small business. Here is a quick breakdown of the various types of small businesses and what the pay is in Federal taxes.
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- Sole Proprietors – Sole proprietors pay both a self-employment tax and income tax at the Federal level. Therefore, they need to fill out a Schedule C and pay 15.3% on all of their net revenue.
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- Partnership – Partnerships will fill out a Form 1065 and be taxed for both income and self employment.
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- LLC – LLC’s are a little more complicated. If there are only one or two members in the LLC then it is possible to tax the limited liability company on a sole proprietor or partnership level. However, the LLC can also choose to be taxed as a corporation. Either way, all members of the LLC will pay both self employment tax, which is 15.3%, and income tax.
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- S Corporation – S corporations are special in that they distribute earnings through their shareholders. Thus, the shareholders will need to pay an income tax on their earnings. However, it is possible to avoid any self-employment taxes when operating under an S-corporation.
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- C Corporation – C corporations are taxed on any distribution to shareholders, and will pay income tax and need fill out a corporate return form for the IRS.
State Small Business Taxes
State taxes vary as each State has their own regulations. Depending on your business type, and which state your small business resides in, you may pay various rates of income tax.
Additional small business tax resources