What Percentage Does a Small Business Pay in Taxes
Federal Income Tax: Small businesses typically pay between 10% and 37% in federal income tax, depending on their taxable income and business structure.
Corporate Tax Rate: C corporations face a flat federal tax rate of 21% on their profits.
Pass-Through Entities: For sole proprietorships, partnerships, LLCs, and S corporations, business income "passes through" to the owner’s personal tax return, taxed at individual rates (10% to 37%).
Self-Employment Tax: Small business owners must also pay self-employment tax, which is 15.3% for Social Security and Medicare on net earnings.
State Taxes: State tax rates vary, with some states charging an additional 0% to 13.3% depending on location and structure.
Sales Tax: Businesses may also need to collect and remit sales tax, which varies by state and ranges from 2.9% to 7.25%.
Qualified Business Income (QBI) Deduction: Many small businesses can claim a QBI deduction of up to 20%, reducing taxable income.
Other Taxes: Property tax, payroll tax, and excise taxes may apply, depending on the nature of the business.