Small business tax rates: The complete guide

If you’re like most small business owners, you might struggle to understand this seemingly simple question: “What is the small business tax rate?”  However, the answer is not clear-cut.

How much your small businesses may pay in taxes depends on several factors including your business entity type, taxable income, and the state you reside in. And that’s just covering the “income” tax side of things.

In this post, we’ll help you understand your small business income tax rate and touch on other types of taxes, such as self-employment tax.

But, if you find you still have questions about what a small business pays in taxes, our team of Block Advisors small business certified tax pros is here to help you. Schedule a free consultation.  

How much do small businesses pay in taxes?

When you think of small business taxes, you might think there’s one set of small business tax rates. In reality, there are several different rates to cover.

Let’s start with the federal small business income tax rate. While there’s a fixed rate for corporations, most small business owners fall into other business entity structures and don’t adhere to a fixed tax rate. If you want to learn more about entity structuring options, check out Block Advisors’ business formation products and services.

Federal small business income tax rate

C corporations:

The small business corporation tax rate for 2022 is a flat 21%. The corporation’s members or shareholders are also taxed on their income if they work as the corporation’s employees. They are also taxed on dividend income received.

Other business structures (Pass-through entities):

Pass-through entities, including sole proprietorships, partnerships, S corporations or LLCs that don’t make a corporation election, follow a different tax structure. If your business is considered a pass-through entity, you’ll pay tax on the business income through your individual tax return. 

That said, there isn’t really a small business income tax rate for pass-through entities. You should report your income as part of your personal taxes and your small business tax rate will vary based on your personal tax bracket. 

Other types of small business taxes

In addition to paying taxes on your business’ profit, you may have to pay additional types of taxes, including:

• Payroll: If you have employees (or are considered an employee of your own corporation), you’ll withhold their share of Social Security and Medicare taxes and their federal income taxes from their pay and remit these, along with the employer’s share of Social Security and Medicare taxes, through payroll taxes.
• Federal unemployment taxes: As a business owner, you should pay federal unemployment tax at a rate of 6% on behalf of your employees. Learn more about FUTA.
• Property tax on business property: If you own personal property or real estate on behalf of your business, you’ll need to pay property tax.
• Excise: For businesses that sell particular goods or services, excise taxes may be required.
• Sales: In states and local municipalities that require sales tax, business owners must issue and collect sales tax on their goods sold.

When are small business taxes due?

Businesses generally pay taxes throughout the year and the dates will vary based on the type of tax you’re paying. See the notes below.

Here are a few key timeframes to remember.

ESTIMATED TAXES – You should plan for paying estimated taxes on a quarterly schedule if you expect to owe tax of $1,000 or more when your tax return is filed. General deadlines for quarterly tax payments are as follows: 

• April 15
• June 15
• Sept. 15
• Jan. 15 of the following year

Want help avoiding over or underpayment of your quarterly taxes? You can also get help with paying estimated taxes for your small business with our Quarterly Tax Payment Service to ensure you’re paying the lowest amount in quarterly taxes for $99 — a value of $150. 

PAYROLL TAXES – These are sent to federal and state authorities monthly.

FUTA TAXES – These deposits should be made quarterly. Check your state for the applicable state unemployment taxes.

Notes:

• For corporations: Estimated payments are due if they expect to owe $500 or more. This is for both C and S corporations. S corporations only make estimated payments for certain taxes they may owe. For the general income of the business they won’t make estimated payments, but rather the shareholders make estimated payments.
• For partnerships and sole proprietorships: The entity does not pay estimated taxes, but the owner/partners will be responsible for making estimated payments.

Review all business tax deadlines.

State small business tax rates

In addition to federal taxes, most small business owners will be taxed at a state level. So, “How much is small business tax in your state?” The state small business tax rate will vary by state. Most states, except for Alaska, Florida, Nevada, New Hampshire, Tennessee, Texas, South Dakota, Washington, and Wyoming, have a state income tax. 

• Instead of taxing net income, some states charge a gross receipts tax on gross sales.
• Some states charge franchise tax on a business’s stock or assets. This tax can be levied in place of or in addition to income tax and gross receipts tax.

Check with your state’s taxing authority or consult your tax pro so you know how much to pay and when. Learn more about how Block Advisors can help with your small business taxes.

How deductions and credits affect your tax rate

Deductions and credits can affect your small business tax rate and must be factored into your tax calculations. 

• Tax deductions: There are numerous small business tax deductions you might benefit from as a business owner. These include Section 179 deductions, which allow you to deduct the cost of a business asset in its entirety, as well as business meals, business use of a car (Learn more about Section 179 deductions for vehicles), advertising and marketing costs, and more.
• Tax credits: Business tax credits can directly lower your small business tax rate as they are subtracted from the total taxes you owe dollar for dollar. An example of a tax credit for small business owners is the credit for small employer health insurance premiums as well as the general business credit.

So, “what percentage does a small business pay in taxes?” In the end, the deductions and credits mentioned above can lower your overall tax rate. Because the deductions and credits you qualify for are specific to your business, the percentage your small business pays in taxes will also be specific to you.  

Get help to determine your small business tax rate

After reading this post, you’ve probably gathered the answer to “how much is business tax?” is a complex one. There are a lot of moving parts to balance when planning for and filing your small business taxes. Beyond that, the forms for calculating your small business tax rate will vary depending on your business entity structure.

Luckily, help is here. Let Block Advisors help so you can focus on running your small business. We’ll determine your small business tax rate and answer your important tax questions. 

Make an appointment.