small business taxes

Many people wonder about small business taxes. They do not know how much they have to pay. This article will help you understand all about the taxes small business owners have to pay to the IRS. 

How Much Tax Small Businesses Pay

Brace up for one more surprise. Did you know that most small businesses do not pay corporate rates for taxes? Did you know that almost 75% of the small companies are not even considered corporations? 

These businesses are known as unincorporated pass-through entities. Now, what this means is that they will pay it as per the personal tax rate. A lot of owners include income coming in from their business to individual taxes. They then calculate the income taxes on the total earnings of the small business owner.

You can use the state tax calculator to check how much money you must pay in taxes. Even though the tax amount you need to pay is high in some states, you should not be sad as there are tax deductions that you can apply to it. 

List of taxes that you, as a small business owner, must pay:

  1. Income Tax, Federal or State Taxes
  2. Self-Employment Tax
  3. Payroll Taxes
  4. Property Tax
  5. Capital Gain Tax
  6. Dividend Tax
US tax terms

The tax amount depends on a lot of factors. State taxes differ depending on the state you are operating this business. In some states, taxes are more favorable to companies. 

For example, Florida is one of the best states when it comes to operating a company. There is no individual income tax there. Similarly, in Nevada, there is no individual income or corporate tax. On the flip side, taxes in New Jersey, New York, or California, income taxes are not that favorable.

Percentage of Taxes

Did you know that small businesses or firms pay almost 19.8% of taxes? This amount depends on the type of company. Small businesses with only one owner pay around 13.3% on taxes, whereas companies with more than one owner pay approximately 23.6% on taxes. Small S corporations or small business corporations pay almost 26.9% towards the taxes. 

Corporations usually pay a lot of income taxes. It is because they earn a lot of income. Only 18% of small S corporations make almost $100,000, while 60% of companies earn less than $10,000 in net amount. 

Which Businesses Should Pay Taxes

As per IRS, all businesses must pay taxes irrespective of the income they make. You must submit the information return if you are a partnership. If you have employees, you must pay employment taxes such as social security taxes. 

If your firm is earning less than $400, then you can skip self-employment tax. Unless your business is getting enough profit, IRS may not show any interest in auditing your business. 

Prepare for Taxes

You must prepare for taxes by saving almost 30 to 40% of your income. Do not forget that you are going to pay these small business taxes every quarter. Try to save enough money every month or quarter.