How Much Do Small Businesses Pay in Taxes in 2024?

You’ve carefully planned your 2024 business budget and you added a cushion in case unexpected costs pop up during the year. You can’t predict everything, but don’t let a surprise tax bill derail your business spending.

This article will explain how to determine your small business tax liability in 2024. You’ll learn how to find your income tax rate and whether other taxes could affect your business. You’ll also learn how to reduce your tax bill with business deductions and credits.

You can stay within budget by knowing how much small businesses pay in taxes in 2024.

So, How Much Do Small Businesses Pay in Taxes?

Small businesses generally pay income taxes of 20-30% of net earnings. Your tax rate depends on your business structure and the nature of your operations.

Some small businesses do not pay federal income tax. For example, pass-through entities distribute business profits to their owners. Pass-through owners pay individual income taxes based on their personal tax bracket.

Most small businesses pay state and local income taxes and other non-income taxes. Your business location and size affect your total tax burden. 

Continue reading to learn how your business structure impacts your tax rate and other taxes on your small business.

Your Business Structure Determines Your Tax Rules

Your federal income tax rate depends on your business's legal entity structure.

The IRS does not specify a “small business” tax rate. Instead, the IRS categorizes businesses by entity type. To determine your tax rules, identify your business structure for tax purposes. The below section explains how tax rules apply to the following types of businesses: 

• C corporations
  
• Sole proprietorships
  
• Partnerships
  
• S corporations
  
• Limited liability companies (LLCs)
  

Other uncommon business structures, such as estates and trusts, are outside the scope of this article.

Always consult your attorney and accountant to determine your business structure for tax purposes. Professional CPAs can advise you on the most advantageous entity type for your business.

C Corporations

C corporations represent standalone business entities. C corps file federal income tax returns to report business income and calculate their income tax liability. The 21% corporate tax rate applies to C corp taxable income.

Single-member LLCs with a C corporation tax election also file corporate tax returns. 

C corp owners must file individual income tax returns to report corporate dividends received and wages earned.

Pass-Through Entities

Pass-through entities distribute business income and deductions to their owners. The pass-through entity owners pay federal income tax on their business income.

For example, consider a small law firm organized as a pass-through entity. The law firm’s partners generate business revenue by providing legal services to clients. The firm’s business tax return will report its business receipts and the amount of income distributed to the lawyers. Each partner will receive a statement detailing their share of business income and deductions for the tax year. The partners must report their pass-through income on their personal income tax returns to calculate their federal tax liability. 

Sole proprietorships, partnerships, S corporations, and limited liability companies represent pass-through entities. The business owner’s personal tax rate applies to their share of taxable income.

Sole Proprietorships

Sole proprietorships generally represent businesses owned by a single individual or married couple. 

Your business defaults to sole proprietorship treatment if you’re the sole business owner. Many freelancers and independent contractors operate sole proprietorships.

Federal tax laws do not recognize sole proprietorships or single-member LLCs as separate legal entities. If you establish a single-member LLC in your state, your business will maintain sole proprietorship treatment for your federal tax return. 

Sole proprietors must report their business income and expenses on their personal tax returns.

Partnerships

Federal tax laws recognize a partnership as a distinct legal entity, meaning the business must file a standalone tax return. Partnership returns report business income, ownership information, and partner distributions. 

Multi-member LLCs default to partnership tax treatment and must file partnership returns. 

Two or more business owners can organize a partnership. Partners should establish a partnership agreement, which is a legal document outlining terms such as each member’s contribution and ownership percentages. Partnerships pass income and deductions to partners according to the partnership agreement. Each partner must report their share of business income on their personal income tax return.

We recommend consulting business tax professionals for help with complex partnership rules. 

S Corporations

Similar to partnerships, S corporations represent standalone legal entities that pass income through to the business owners. S corporations must file S corp returns to report business income and shareholder distributions. Each shareholder must report their share of business income on their personal tax return.

An existing corporation can establish an S corporation by filing the S corp election form. Check with professional CPAs before filing to ensure your business meets the S corp requirements. 

Limited Liability Companies (LLCs)

Limited liability companies default to pass-through entity treatment for federal tax purposes. The LLC’s tax return depends on the number of owners and whether any entity tax elections apply.

If you own a single-member LLC, you must report your business income on your individual income tax return. Single-member LLC owners are sole proprietors for federal income tax purposes. 

Multi-member LLCs must report business income on a partnership tax return.

Exceptions apply to entities electing C corp or S corp tax treatment. We recommend consulting tax professionals if your LLC has a valid tax election.

Personal Tax Rates for Tax Year 2023

Pass-through entity owners must report their share of business income on their personal tax returns. Your pass-through entity’s small business tax rate is zero, but your individual income tax rate applies to your share of earnings. 

For example, if you operate a multi-member LLC, your business must file a partnership tax return to report its activities and ownership information. The partnership will not owe income tax. Instead, you’ll receive a Schedule K-1 detailing your share of business income and deductions. You must report the income on your individual income tax return and apply your federal tax rate.

Federal Income Tax Brackets for Individuals

The IRS publishes individual income tax brackets annually. The following table displays tax rates by filing status for the 2023 tax year. 

2023 Federal Income Tax Rates by Filing Status
Tax Rate	Single	Head of Household	Married Filing Jointly
10%	$0 - $11,000	$0 - $15,700	$0 - $22,000
12%	$11,001 - $44,725	$15,701 - $59,850	$22,001 - $89,450
22%	$44,726 - $95,375	$59,851 - $95,350	$89,451 - $190,750
24%	$95,376 - $182,100	$95,351 - $182,100	$190,751 - $364,200
32%	$182,101 - $231,250	$182,101 - $231,250	$364,201 - $462,500
35%	$231,251 - $578,125	$231,251 - $578,100	$462,501 - $693,750
37%	$578,126+	$578,101+	$693,751+

The tax year 2024 brackets include inflation increases. You can find the 2024 income tax brackets on the IRS website. Use the latest rates to calculate your 2024 quarterly estimated tax payments.

Individual income tax filers pay their applicable tax rate on ordinary income, including wages, rent, and interest. 

For example, consider a single taxpayer who earned $70,000 of self-employment income in 2023. Assuming no deductions, the taxpayer uses the 22% federal tax bracket to calculate their federal income tax.

Depending on your business structure and operations, you may need to pay additional taxes on your federal income tax return. Common examples include self-employment tax and capital gains tax.

Self-Employment Tax

Self-employed individuals, such as independent contractors, must pay self-employment tax on their business income. 

What Is Self-Employment Tax?

Self-employment tax funds the Social Security and Medicare taxes.

Employees pay Social Security and Medicare taxes with every paycheck. Employers pay an equal share of the payroll taxes. Employers and employees split the 12.4% Social Security and 2.9% Medicare tax burden.

Unlike employees subject to income tax withholding on each paycheck, self-employed individuals do not remit Social Security or Medicare taxes on non-employee wages. Self-employment tax covers the employee and employer portion of the payroll taxes. 

Independent contractors must pay a 12.4% Social Security tax on up to $160,200 and a 2.9% Medicare tax on all self-employment wages earned in 2023.

Taxpayers should add their self-employment tax liability to their federal income tax liability to determine how much they owe.

Calculating Self-Employment Tax

Use IRS Form 1040, Schedule SE, to calculate your self-employment tax liability.

The 2023 Schedule SE requires taxpayers to multiply self-employment earnings by 92.35%. The result represents wages subject to self-employment tax. Additionally, taxpayers can deduct half of their self-employment tax liability.

Capital Gains Tax

Federal tax laws grant favorable treatment of long-term capital gains, meaning taxpayers generally pay lower taxes on capital gains than on ordinary income. You can generate a capital gain by selling a capital asset for more than its value. Capital assets include investment properties and shares of stock.

Your capital gains tax rate depends on your federal taxable income. 

2023 Capital Gains Tax Rates by Filing Status
Tax Rate	Single	Head of Household	Married Filing Jointly
0%	$0 - $44,625	$0 - $59,750	$0 - $89,250
15%	$44,626 - $492,300	$59,751 - $523,050	$89,251 - $553,850
20%	$492,301+	$523,051+	$553,851+

Note that individual taxpayers enjoy lower capital gains tax rates, but C corporations must pay the 21% corporate tax rate on capital gains. 

Your State Affects Your Small Business Tax Rate

Your federal income tax liability represents one component of your total tax bill. Many state and local jurisdictions impose income taxes, each with varying rates and rules. 

Like your federal tax liability, your state income tax bill depends on your business structure. States often follow the federal income tax treatment of each business type. For example, consider an S corporation filing a federal S corp return. Most state laws treat the business as a pass-through entity and require the company to file a state S corporation return.

However, some states disregard S corporation elections. S corporations enjoy pass-through entity treatment for federal income tax purposes, but several states require S corporations to file C corp returns and pay corporate taxes.

We recommend partnering with tax professionals for help with your state filing requirements. 

States with Low or No Income Tax

Taxpayer-Friendly States for Corporations

Several states impose low or no corporate income taxes. You could enjoy a lower corporate tax bill if you own a C corp in the following states. This list excludes several states imposing a gross receipts tax, which can generate a high tax liability.

States with No Corporate Income Tax or Gross Receipts Tax

• South Dakota
  
• Wyoming

States with Low Corporate Income Tax

• North Carolina (2.5%)
  
• Missouri (4%)
  
• Oklahoma (4%)
  
• North Dakota (4.31%)
  
• Colorado (4.4%)

Taxpayer-Friendly States for Pass-Through Entities and Individuals

Sole proprietors and pass-through entity owners must pay individual income tax on their share of business income. You could enjoy a lower state income tax bill if you’re a business owner in one of the following locations.

States with No Individual Income Tax

• Alaska
  
• Florida
  
• Nevada
  
• South Dakota
  
• Tennessee
  
• Texas
  
• Wyoming

States with Low Individual Income Tax

The following list reflects each state’s flat rate or highest tax bracket in each state.

• Arizona (2.5%)
  
• North Dakota (2.5%)
  
• New Hampshire (dividend and interest income only) (4.0% in 2023; 3.0% in 2024)
  
• Indiana (3.15% in 2023; 3.05% in 2024)
  
• Pennsylvania (3.07%)
  
• Washington (capital gains for high-income individuals only) (7.0%)

States with the Highest Income Taxes

The following section includes states with the highest income taxes for businesses and individuals. If you own a business in one of these locations, consider partnering with tax advisory professionals who can help you implement tax planning strategies.

States with High Corporate Income Tax Rates

• New Jersey (11.5% in 2023; 9% in 2024)
  
• Minnesota (9.8%)
  
• Illinois (9.5%)
  
• Alaska (9.4%)
  
• Maine (8.93%)
  
• California (8.84%)
  
• Pennsylvania (8.99% in 2023; 8.49% in 2024)

States with High Individual Income Tax Rates

The following list reflects each state’s flat rate or highest tax bracket in each state.

• California (13.3%); CA also imposes a fee on all LLCs
  
• Hawaii (11%)
  
• New York (10.9%)
  
• New Jersey (10.75%)
  
• District of Columbia (Washington D.C.) (10.75%)

What Other Types of Taxes Should Your Small Business Pay?

Your federal and state income tax liability depends on your business structure, but several non-income taxes could apply to your small business, regardless of your business type.

For example, all employers must remit payroll taxes on employee wages. Other taxes include sales, property, and excise taxes. As we’ll discuss, some taxes vary by state.

Payroll Taxes

Your small business must pay taxes on employee wages. Payroll taxes include the following:

• Social Security and Medicare taxes: The Federal Insurance Contributions Act (FICA) requires most employers to withhold and remit payroll taxes. Employers and employees must each pay 6.2% Social Security and 1.45% Medicare tax (collectively, FICA taxes) on employee wages.
  
• Federal Unemployment Taxes (FUTA): Most employers pay a 6% Federal Unemployment Tax on the first $7,000 of each employee’s wages.
  
• State Unemployment Taxes (SUTA): SUTA represents the state counterpart to the Federal Unemployment Tax. State Unemployment Tax rates vary.

Sales Taxes

States impose sales tax on numerous types of transactions. Historically, businesses paid sales tax for selling physical goods, but many states now tax the sale of digital products and certain services. 

Sales tax rates vary by state, city, and county. Additionally, most jurisdictions apply different tax rates to each product category. For example, groceries may be subject to a different sales tax rate than clothing.

Note that federal laws do not impose sales tax, but state and local taxing authorities assess sales tax in many jurisdictions. States, cities, counties, and other localities may each impose sales taxes.

Property Taxes

Like sales taxes, property taxes depend on your business location. State and local tax authorities levy tax on real estate and personal property, including buildings, land, vehicles, and machinery. 

Property tax represents a percentage of your property value. For example, your local assessor may determine the market value of all taxable property in your county every three years. Your property tax bill represents a percentage of your property’s market value.

Property tax rates vary by state and county. Some locations tax all property, while others exempt personal property. 

States with High Sales or Property Taxes

Sales and property taxes often disregard business entity type and impact small businesses equally. Additionally, sales and property tax systems can be complex. Most state laws allow cities and counties to impose local taxes in addition to the statewide tax. 

Be aware of the following locations with high sales or property taxes.

States with high sales taxes:

• Tennessee
  
• Louisiana
  
• Arkansas
  
• Washington
  
• Alabama

States with high business property taxes:

• Connecticut
  
• New York
• Vermont
  
• Maine
  
• Massachusetts

Excise Taxes

Excise tax represents a tax on specified items such as gas, tobacco, and alcohol. The taxes often apply to activities with negative health or environmental consequences. Federal, state, and local governments impose excise taxes to fund government programs. 

Review the IRS excise tax overview to determine whether your business activities create an excise tax liability. Check your state and local laws for location-specific requirements. 

Other State and Local Taxes

Many state and local jurisdictions impose other non-income taxes such as gross receipts, franchise, or net worth taxes.

Gross receipts taxes apply to total sales revenues rather than business net income, which considers expenses. Businesses generally pay a percentage of the total in-state sales, with few or no deductions. 

Franchise and net worth taxes often apply to business equity or asset value. Your tax bill may represent a percentage of your outstanding corporate stock or the net value of in-state business property.

How to Reduce Your Business Income Taxes

You can lower your business tax bill by taking advantage of business tax deductions and credits. Consider the following strategies to reduce your federal income taxes.

Business Tax Deductions

Business tax deductions lower your business's taxable income and can help you save money on taxes. Whether you’re a sole proprietor or C corp owner, you can deduct many of your operating costs. We recommend implementing a bookkeeping solution so you can accurately determine your business expenses. 

Common business tax deductions include the following:

• Home office deduction: Self-employed individuals who operate a business primarily from a home office can deduct certain home expenses.
  
• Business-related travel costs, mileage, and vehicle expenses
  
• Technology costs of maintaining software, website, and security systems
  
• Office expenses, such as supplies and postage
  
• Continuing education and industry-related training supporting your business operations
• Bad debts: If you determine you have outstanding receivables your customers will never pay, your business can write off the amounts as bad debt expenses.
  
• Self-employed health insurance deduction: Self-employed individuals without employer-sponsored health insurance can deduct the costs of purchasing self-employed coverage.

Individual Tax Deductions

Small business owners can benefit from individual income tax deductions. Your federal income tax return allows you to take the standard deduction or itemize your tax deductions. 

Standard Deduction

The standard deduction is available to all individual taxpayers. The IRS adjusts the deduction annually for inflation. 

The following list includes the 2023 standard deduction amounts for each filing status.

• $13,580 for single taxpayers and married individuals filing separately ($14,600 in 2024)
  
• $27,700 for married couples filing jointly ($29,200 in 2024)
  
• $20,800 for heads of households ($21,900 in 2024)

Itemized Deductions

Itemizing deductions often benefits homeowners whose mortgage interest and property tax deductions exceed the standard deduction. If you itemize your deductions, you cannot take the standard deduction. 

The following list includes common itemized deductions for individuals.

• Medical expenses you incurred that were not reimbursed or covered by insurance and which exceed 7.5% of your adjusted gross income (AGI)
  
• State and local property, real estate, and income or sales taxes
  
• Home mortgage interest you paid toward the loan for your primary or second residence
  
• Charitable contributions to eligible organizations

Your tax advisor can help you review your personal expenses to maximize your deductions.

Qualified Business Income Deduction

Sole proprietors and owners of partnerships or S corporations can take the qualified business income deduction. Individual taxpayers can deduct 20% of qualified business income (QBI), regardless of whether they take standard or itemized deductions.

Your 2023 taxable income before the QBI deduction must be less than $182,100 ($364,200 for married couples filing jointly). Your QBI deduction could be limited if you have a higher income.

Tax Credits

Tax credits reduce your tax liability dollar-for-dollar, meaning each dollar of tax credit reduces your tax liability by one dollar. 

Refundable credits grant taxpayers a refund if the credit reduces their tax liability below zero. Nonrefundable credits can reduce your liability to zero but cannot generate a tax refund.

The following list includes common tax credits for businesses and individuals.

Business Tax Credits

• Work Opportunity Tax Credit: Employers that hire individuals from specified socioeconomic groups, such as qualified veterans or long-term unemployment recipients, can obtain a credit for wages paid.
  
• Foreign tax credit: Businesses can obtain credits for taxes paid to foreign countries.
  
• Research and development (R&D) credit: Businesses conducting qualified research can generate a tax credit for their investment. The research must relate to new or improved business development and meet IRS credit eligibility criteria.

Individual Income Tax Credits

• Earned Income Credit: Low-income taxpayers may qualify for a refundable Earned Income Tax Credit.
  
• Child and dependent care credit: Individuals who paid for the care of their children or other qualifying dependents can claim a tax credit for their expenses.
  
• American opportunity credit and lifetime learning credit: Individuals with higher education costs can claim a credit for eligible expenses.

Tax Planning

Tax professionals can help you identify strategies to reduce your small business taxes. Consult tax advisors to learn about planning options for your business. 

Common planning strategies include the following:

• Business entity restructuring or tax elections
  
• Changing business locations
  
• Delaying or accelerating large business purchases
  
• Depreciation elections

How To Pay Taxes as a Small Business Owner

Your small business filing requirement depends on your structure. Your business entity type determines your tax form and its due date.

• C corporations and LLCs with a C corp tax election: Report your business taxable income and tax liability using IRS Form 1120, U.S. Corporation Income Tax Return. 

• C corps must make quarterly estimated tax payments. Submit outstanding tax liabilities before your business return due date to avoid penalties and interest.
  

• S corporations and entities with an S corp tax election: Report your business income and ownership information using IRS Form 1120-S, U.S. Income Tax Return for an S Corporation. Provide a Schedule K-1 to each S corp shareholder, detailing the member’s share of income and deductions. Shareholders must report their business income on their individual income tax returns.
  
• Partnerships, multi-member LLCs, and entities with a partnership tax election: Report your business income and ownership information using IRS Form 1065, U.S. Return of Partnership Income. Issue a Schedule K-1 to each partner, detailing each member’s share of income and deductions. Partners must report their business income on their individual income tax returns.
  
• Sole proprietorships and single-member LLCs: Report your business income using IRS Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship). Calculate your self-employment tax liability on Form 1040, Schedule SE. Include Schedule C and Schedule SE with your IRS Form 1040.
  
  • Self-employed individuals must make quarterly estimated tax payments. Submit outstanding tax liabilities before your tax return deadline to avoid penalties and interest.

When to File Your Small Business Taxes

The below list includes standard due dates for business tax returns, individual income tax forms, and quarterly estimated tax payments. If a deadline falls on a holiday or weekend, the due date shifts to the next business day. 

Fiscal year taxpayers (having a year-end other than December 31st) should consult tax professionals to determine their tax deadlines.

Business Tax Deadlines

• March 15th:
  
  • Form 1065 for partnerships, multi-member LLCs, and LLCs with a partnership tax election
    
  • Form 1120-S for S corporations and entities with an S corp tax election
    
  • Form 7004 for requesting an extension of time to file a pass-through entity return

• April 15th:
  
  • Form 1120 for C corporations and LLCs with a C corp tax election
    
  • Form 7004 for requesting an extension of time to file a C corp tax return
    
  • First quarter estimated tax payments
    
• June 15th: Second quarter estimated tax payments
  
• September 15th:
  
  • Extended Forms 1065 and 1120-S
    
  • Third quarter estimated tax payments
    
• October 15th: Extended Form 1120
  
• December 15th: Fourth quarter estimated tax payments

Individual Income Tax Deadlines

• April 15th:
  
  • Form 1040 for individuals
    
  • Form 4868 for requesting an extension of time to file an individual income tax return
    
  • First quarter estimated tax payments
    
• June 15th: Second quarter estimated tax payments
  
• September 15th: Third quarter estimated tax payments
  
• October 15th: Extended Form 1040
  
• January 15th: Fourth quarter estimated tax payments

How Much Should Your Small Business Pay in Taxes?

In summary, your small business tax liability represents the total of the following components. Multiple state and local taxes could apply, depending on your business location:

• Federal income tax, including the following, if applicable:
  
  • Self-employment tax
  • Capital gains tax
• State and local income tax
  
• Payroll tax
  
• Excise tax
  
• State and local non-income taxes:
  
  • Sales tax
    
  • Property tax
    
  • Other taxes, such as gross receipts or net worth taxes

Lower Your Small Business Tax Bill with 1-800Accountant

Small businesses generally pay income taxes of 20-30% of net earnings, but you can partner with professionals to identify tax planning strategies. 1-800Accountant offers numerous affordable services to help you maximize deductions, lower your tax bill, and save money on professional fees.

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Small business tax services support your operations with year-round professional guidance. 1-800Accountant CPAs offer timely responses to your questions and help minimize your tax burden. Find business tax savings with 1-800Accountant’s payroll tax advisory, sales tax support, and numerous other small business tax services. 

Professional Tax Advisory

Tax advisory professionals support your business with tax and financial planning, entity restructuring, and ongoing tax compliance. Reduce your tax burden and avoid errors with small business tax advisory services. Professional CPAs monitor due dates and tax rule changes so you can feel confident about your business tax compliance.

Outsourced Bookkeeping

Professional accountants and bookkeepers help you maintain accurate and timely records throughout the year. 1-800Accountant offers done-for-you bookkeeping services that track spending, categorize transactions and reconcile accounts. Accurate financial statements support your tax compliance and help you monitor your profitability.

Schedule a Free Tax Savings Consultation

Save money on professional accounting services and lower your small business taxes. Schedule a free consultation with 1-800Accountant and learn how tax professionals can support your business.