How Much Does A Small Business Pay In Taxes

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How Much Does A Small Business Pay In Taxes

It can be a daunting task to file your small business tax returns. With so many local and federal requirements, it can be hard to know what to expect. 

In this in-depth guide, we will cover everything you need to know to file your small business tax returns (based on the year 2021) and answer the question: “How much does a small business pay in taxes?” 

Numerico offers many small business accounting services for your business. Our Livonia CPA can help you successfully file your taxes and help you get the most out of your returns.

How Are Small Businesses Taxed? 

One of the first things you do when you start a business is deciding on the legal structure most suitable for your company. Each arrangement has different tax requirements that can either benefit or hinder your business. 

There are four legal structures your business can be a part of:

Sole Proprietorship 

A sole proprietorship is an individually-owned business. If you are the only person behind your company, you register as a sole proprietorship. 

This type of business does not have to file business taxes. Instead, you pay them based on your individual income. Depending on how much money your company brings in annually, this structure can be helpful or detrimental.

Partnership 

Similarly, a partnership does not require you to file business taxes. You and your partners would file separately, listing the percentage share you own of your business. 

This structure helps lower the tax rate for each partner.

S Corporation 

If your company is public, money flows through your business and down to your shareholders. Note that you must pay yourself a reasonable salary if you are an owner and shareholder. 

In this structure, shareholders pay taxes based on the bracket they fall into.

C Corporation 

C corporations elect for double taxation, meaning you will pay a 21% corporate tax rate. 

Plus, your shareholders will pay a tax anytime they receive funds from their investment in your company, such as a salary or through dividends.

Types of Taxes Paid by Small Businesses

Small businesses are also liable to pay several different types of taxes.

Income Taxes

Everyone is familiar with income taxes. Small businesses pay taxes based on the amount of income they generate annually. Depending on the type of business you run, the way you file may be different.

Employment Taxes

When your business has employees that you offer benefits to, you pay an employment tax. Many taxes fall under employment taxes, such as Medicare taxes and social security taxes.

Excise Taxes 

Excise taxes are part of the price you pay when you purchase a product. Check your local excise tax rates to see what your state’s policy is. 

Property Taxes 

You also must pay a property tax if you own the building your business does work out of. Depending on the state your business is in, you may have to pay taxes on equipment, vehicles, and more.

Sales and Use Tax 

Similar to excise taxes, customers pay a sales tax on items and goods that they purchase. When you file your taxes, you will have to pay a percentage back to the government. The sales tax rate varies by state.

Estimated Tax 

An estimated tax occurs when the amount of your federal tax withholding is not enough to cover the taxes you owe. In this case, you will pay an estimated amount. If you expect to owe more than a thousand dollars, you must set up estimated payments.

What Is the Small Business Tax Rate? 

There is a difference between small businesses and sizable corporations when it comes to the tax rate. Many people believe that small businesses must abide by the federal rate. However, most small business owners tend to follow the individual tax rates. 

Many small businesses are pass-through entities, meaning they are not subject to the federal business income tax. If your company is not a corporation or an LLC that files for corporation tax, most likely, you are a pass-through entity. 

For example, if you make over $523,601, the federal income tax rate is 37%. Thus, your small business tax rate will be the same percentage.

Michigan Accounting Services | Numerico PC | Livonia, MI

Numerico has a professional team of Michigan small business accountants and is happy to help your business get the most out of your small business tax returns. In addition to Livonia, we also serve Plymouth, Canton, Farmington Hills, Ann Arbor, Westland, and surrounding communities. 

Whether it is bookkeeping, running a business, or business consulting, our experienced CPA is eager to help. Contact us at 313-278-8030 to inquire about our small business services.

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