Ah, taxes. One of life’s two absolute certainties alongside death, to somewhat paraphrase Benjamin Franklin. And, if there’s anything that stops budding entrepreneurs in their tracks faster than anything else, it’s the thought of having to pay taxes to the government instead of receiving a refund like almost three-fourths of the tax-filing population.
So, for those looking to start a business, you may wonder, “How much do small businesses pay in taxes?” The answer is that it depends on a variety of external factors. Here’s what you need to know come tax season.
How Much Do Small Businesses Pay in Taxes?
So, how much do small businesses pay in taxes? Interestingly enough, most small businesses are not considered corporations, and therefore don’t need to pay at the usual federal business income tax rate. Rather, the amount paid in small business taxes depends on the personal income tax rate of the business owner.
So, if your business makes over half a million dollars in a given year and you file by yourself, you can expect to pay around a thirty-seven percent tax rate. Most small businesses just getting off the ground will not see this level of success. Therefore, they will get taxed at a much lower rate.
Other Types of Taxes Business Owners Need to Pay
In addition to paying taxes on their personal income, entrepreneurs must pay several other types of taxes to ensure their business remains legal and paid for. These taxes may include, but are by no means limited to:
- Payroll taxes: By far the largest tax bill for small businesses, this covers Social Security and Medicare taxes
- Capital gains taxes: Tax paid on the money earned from selling business assets
- Tax on dividends: Only applicable for investments your business makes
- Property taxes: Any taxes you pay on the land and buildings used to run your business
Depending on your location, you may have some state-specific taxes that get applied to your final bill. You may also have to pay unemployment and worker’s compensation taxes as part and parcel of your payroll taxes.
Should You File Small Business Taxes Yourself?
Technically speaking, since most small businesses operate off of your personal income taxes, you could file your own. However, this is not recommended, as the IRS does not play around when it comes to businesses accurately reporting their earnings. If you fail to mention something, it could get you audited, fined, or even imprisoned for tax evasion.
It’s not worth the risk. Reach out to tax professionals like those at the Avitus Group to prepare and file your taxes correctly.
Need More Financial Information to Run Your Business?
Now that you know the answer to the question “how much do small businesses pay in taxes”, you may have other financial concerns about running your business. If you need more financial information to run your new business effectively, then why not check out our blog? We update each day with more helpful and informative articles like this one!