Have you recently become a business owner? Over 600,000 businesses get started each year in the US. But many businesses get started organically. The founder doesn’t set out to start a business, but their project naturally evolves into one.
If that’s you, then you are likely surprised at the fact that the taxman is knocking at your door. OF course, everything we do in our great nation leads to paying taxes in one way or another, and business is no exception.
So how much do businesses pay in taxes? Wondering how to determine how to pay small business taxes, and how much you are going to owe?
We answer that question in more down below, so keep reading for everything you need to know about filing taxes as a new business.
How Are Businesses Taxed?
Businesses are taxed in much the same way that individuals are as employees. When you earn an income, you owe the state a portion of your money. This money, of course, goes to fund our governments, both at the federal and state level, as well as locally.
While it’s frustrating to pay taxes, it’s those funds that eventually pay for roads to be built and maintained, schools to run, and many other services we depend on every day.
Individuals pay taxes at a different rate, based on how much they make per year. The more they make, the more taxes they pay.
Business taxes generally follow the same model. But it depends on if businesses are taxed as a corporation or a pass-through entity. Most small businesses are managed as a sole-proprietorship. This means the business doesn’t pay taxes, but the owner reports business profits as their personal income tax.
Many small businesses form an LLC, which can be set up as a sole proprietorship or as a corporation for tax reporting purposes.
How Much Do Businesses Pay In Taxes?
When run as a pass-through entity, business owners will pay taxes based on their income level. Those who make between $41,775 and $89,075 will pay 22% in taxes on any amount above $41,775.
Tax rates increase as income increases, but the rate is only applicable to the amount above the threshold. So if you made $100,000, you would pay 22% on the income between $41,775 and $89,075, and 24% on the income above $89,075.
If taxed as a corporation, the business will pay the corporate tax rate of 21%, which is much lower than the previous 37%.
While it may seem daunting to start a business with so much to pay in taxes, remember that businesses or business owners get to write off a lot of their expenses.
There are many deductions you can take, lowering your effective tax burden. Working with a business accountant is one of the best ways to maximize tax savings to keep more of your money either in your pocket or in your business.
Check out this website to learn more about how accounting and bookkeeping services can benefit your business.
Don’t Let Taxes Slow You Down
So how much do businesses pay in taxes? There’s no singular answer, but an average is around 20%. Many factors determine the effective tax rate, and the number of deductions available to businesses can help them lower the amount they have to pay.
Looking for other helpful business tips to ensure you continue growing your new company? Head over to our blog now to keep reading.