How Much Do Small Businesses Pay in Taxes

Many small businesses are confused about what taxes they will need to pay. This is especially true when you start adding up all the different types of taxes, such as corporate income tax, payroll tax, and sales tax. There are even some states where there is an additional local business tax that needs to be paid and these other taxes. Unfortunately, many small businesses end up paying more in taxes than they make in profit.

This blog post discusses how much taxes businesses have to pay and includes a list of resources for further reading on this topic.

How Are Small Businesses Taxed?

The first thing that you should know is that small businesses are taxed differently than their larger counterparts. For example, many corporations in the United States can be structured as S-Corporations or Limited Liability Companies (LLC’s), which will allow them to pay fewer taxes by avoiding paying corporate income tax at a higher rate since they pass through all of the profits directly to shareholders who report this on their returns. 

There are also other types of business entities such as partnerships and sole proprietorships where company owners may not need to file any return with the IRS if there were no employees involved during the year and did not earn over $600 in self-employment income. However, just because an LLC or partnership may not be required to file a tax return, this does not mean that they do not have to pay taxes.

The type of entity you choose for your small business will dictate the amount of income and expenses that can flow through to shareholders or partners, who then report these on their returns.

Just remember, if any one individual shareholder makes over $400 in profit from an S-Corporation during the year, they are still responsible for paying self-employment tax since it is passed through directly onto them at the end of each year. This article provides more information about how much do small businesses pay in taxes.

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What Are The Different Taxes That A Small Business Might Need To Pay?

If your company ends up making money during the year, you are responsible for paying taxes on that income. There are three main types of business taxes that a company might need to pay: corporate tax, payroll tax, and sales tax.

Corporate Tax

This is the most common type of small business taxation where companies will file an annual return with the IRS reporting their net taxable profits from operations after all expenses have been deducted. Suppose your corporation made money during the course of the year. In that case, they may be required to send out estimated payments every quarter based upon this profit information even though many corporations can delay filing until March 15th each year unless they go over $500k in gross receipts or have accumulated at least $100k in assets. Even if your corporation does not owe any taxes, you are still required to file an annual return or have your accountant do it for you.

Payroll Tax

Another small business tax that owners need to be aware of is payroll tax. Employees who work at least one hour per week during the calendar year must receive a W-Tax form from their employer by January 31 st each year reporting how much they have earned in wages during 2013 even if no income taxes are withheld. There are also specific rules about when and how these forms should be sent out based upon whether employees worked more than 120 hours within any three-month period throughout the course of the year. Suppose employers withhold anything other than social security/medicare taxes. In that case, this does not relieve them from filing returns with either Social Security Administration or IRS by the end of April each year.

Sales Tax

This is another small business tax that some companies must pay depending on where they operate. For example, suppose you run an eCommerce store on your website selling products across multiple states. In that case, you might need to collect sales taxes on all purchases made within those locations, even though customers will have to remit this back as a use tax when filing their income tax returns at the end of 2013. Business owners can either register directly with one state agency for sales and use taxes or work through a third party aggregator/vendor who does not charge any type of up-front fee but takes out a percentage commission from both parties instead, which usually ranges between 0% to 20% of the transaction value.

What Are Some Of The Deductions Available To Small Businesses?

As you can see, there are many different types of small business taxes that businesses will need to pay every quarter throughout the year depending upon their specific circumstances and how these deductions impact an individual’s income tax return. There are also some standard deductions for certain expenses related to running a smaller company with employees, including mileage reimbursement for travel (55 cents per mile), home office use, uniforms, tools & equipment needed at your place of work, as well as education expenditures on job-related courses. If you have questions about what is deductible or not when filling out your returns, contact us today!