Below, we'll look at several tax rate schemes that typically apply to small businesses. How can you determine the tax rate your small business will pay?Įach tax comes with its own set of rates, and the rate your business pays can depend on factors specific to each type of tax. These taxes typically apply only to a select set of small businesses. There are many other taxes that can apply in certain cases, including excise taxes on certain goods such as fuel or alcohol, gross receipts taxes, franchise taxes, and dividend taxes on corporations. Instead, the self-employment tax is borne by the owners individually, usually (but not always) in proportion to their ownership interest in the business. This is different from a pure income tax, because the business itself pays no tax. If your business is set up as a sole proprietorship, a partnership, or a limited liability company that chooses to be taxed as a partnership, you'll have to pay self-employment taxes on the income of the business. You're responsible for withholding the appropriate payroll taxes from your employees' paychecks, but you'll also have to add in the employer portion of each tax. If you have employees, you'll typically have to pay payroll taxes for Social Security, Medicare, and unemployment insurance. This can include real estate as well as tangible property such as business equipment. Many state and local government entities charge businesses tax on the property they own. If you don't collect the sales tax, you're still potentially on the hook for paying it. Businesses typically pass the burden of a state or local sales tax on to their customers, but it's up to you to collect the proper tax and send it on to the appropriate tax authority. If your business sells products or certain services, then you may be subject to sales tax. Specifics vary depending on the form of business you choose, but income tax often makes up a substantial portion of your overall tax burden. Many states also impose business income taxes of their own, with similar but not always identical rules. Income taxĪll businesses that make a profit must pay income taxes at the federal level. Not every business pays every tax, but here's a sampling of some of the more common taxes you're likely to run into as a small business owner. What are the types of taxes businesses pay?īusinesses pay a wide variety of different types of taxes. With that in mind, though, this guide will give you an introduction to taxes for business owners and provide you with a starting point for doing your tax planning - while still leaving you time to run your business. It'd take a book to fully describe everything about the taxes small businesses have to pay. However, it's critical to handle your small business taxes correctly, or you could get a nasty surprise from the IRS or other tax agencies. Small business owners are too busy running their own businesses to spend any more time than necessary on side issues like taxes.
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