How much do small businesses pay in taxes?

The IRS says the form of business you operate determines what taxes you must pay and how you pay them. It lists five general categories of business taxes: income tax, estimated tax, self-employment tax, employment taxes, and excise tax. That alone is why there is no single “average small-business tax bill” that fits everyone.

For a sole proprietor or self-employed individual, the IRS says you generally must file an annual income-tax return and pay estimated taxes quarterly. The IRS also says self-employed individuals generally must pay self-employment tax as well as income tax, and the self-employment tax rate is 15.3%. The IRS further says you generally must pay self-employment tax if your net earnings from self-employment are $400 or more, and estimated tax is generally required for individuals such as sole proprietors, partners, and S corporation shareholders if they expect to owe $1,000 or more when filing.

For a partnership, the IRS says the partnership itself generally files an annual information return, but it does not pay income tax. Instead, profits and losses pass through to the partners, and each partner reports their share on their own personal return.

For an S corporation, the IRS says income, losses, deductions, and credits generally pass through to shareholders, who report them on their personal returns and are taxed at individual rates. The IRS also says S corporation shareholder-employees must be paid reasonable compensation before non-wage distributions are made, which is important because wage compensation brings employment-tax consequences.

For a C corporation, the IRS says the corporation is a separate taxpaying entity. It pays tax on its profits, and if those profits are later distributed as dividends, the shareholders may be taxed on them too, which the IRS describes as double tax.

So the real answer is that a small business might pay very little federal tax in a low-profit year, or a great deal in a profitable year with payroll and additional taxes. The amount turns on net profit, entity type, owner compensation, payroll, deductions, credits, and whether excise or state taxes apply, not on a single flat small-business rate.