Small Business Tax Rates: What to Know
Small business taxes can be complicated, as there isn’t a single tax form or even a single tax rate that applies to all businesses. How you file your taxes and the small business tax rates you’ll pay on profits will depend on your business entity structure.
- Businesses organized as corporations pay the corporate federal tax rate, which is 21%.
- Other business structures, including sole proprietorships, partnerships and S corporations, are considered pass-through entities, and their owners pay taxes at the owner’s personal tax rate, which is 10% to 37%.
- Limited liability companies (LLCs) may either pay taxes as a corporation or as a pass-through entity.
Small business tax rates by business type
Your business entity structure determines which form you’ll use to file your federal income tax return and how much you owe to the IRS. Below, we’ll break down tax rates for small businesses for the two major groups: corporations and pass-through entities.
Business income tax rate for corporations
C corporations have paid federal income taxes at a flat rate of 21% since 2018, as a result of the Tax Cuts and Jobs Act (TCJA). Prior to 2018, C-corps paid taxes on a tiered structure, with rates ranging from 15% to 35%.
Starting in tax year 2023, the corporate alternative minimum tax (AMT), which is a 15% minimum tax for corporations, went into effect as a result of the Inflation Reduction Act of 2022. However, since the corporate AMT applies only to corporations with average adjusted financial statement income over $1 billion, the U.S. Treasury Department estimates that only around 100 large corporations pay this tax each year.
Taxes on corporate dividends
Corporations pay their shareholders dividends. Shareholders then pay taxes on those dividends on their individual tax returns. This is referred to as “double taxation” because the income is taxed twice — once at the corporate level and again when paid out as dividends.
The federal tax rate shareholders pay on those dividends depends on whether the dividends are ordinary or qualified. Ordinary dividends are taxed at the same rate as the shareholder’s other income, and rates range from 10% to 37%. Qualified dividends are taxed at lower capital gains tax rates, ranging from 0% to 20%.
Although corporations face double taxation, the flat corporate tax rate is lower than the personal income tax rate in several tax brackets.
Business income tax rate for S-corps and other pass-through entities
Pass-through entities include sole proprietorships, partnerships, S corporations and LLCs that have not elected C-corp tax status.
The term “pass-through” refers to the fact that the business doesn’t pay federal income taxes directly. Instead, business income and losses pass through to the owners and members, who pay taxes on business profits via their individual income tax returns.
On individual tax returns, business owners pay taxes on profits at the same rates as other ordinary income, such as wages from a job or interest earned from a savings account. For the 2025 tax year (tax returns filed in 2026), the federal income tax brackets are:
Personal Income Tax Rates for 2025 tax year
| Rate | Income — Single filers | Income — Married filing jointly |
|---|---|---|
| 10% | Less than or equal to $11,925 | Less than or equal to $23,850 |
| 12% | More than $11,925 | More than $23,850 |
| 22% | More than $48,475 | More than $96,950 |
| 24% | More than $103,350 | More than $206,700 |
| 32% | More than $197,300 | More than $394,600 |
| 35% | More than $250,525 | More than $501,050 |
| 37% | More than $626,350 | More than $751,600 |
At first glance, it might appear as though it would be beneficial to be taxed as a C corporation, since most corporations pay a top tax rate of 21% and individuals in the highest tax bracket pay a rate of 37% on their pass-through income. But owners of C-corps still pay individual taxes on the wages or dividends they take. Plus, when Congress lowered the corporate tax rate, it also created a new qualified business income (QBI) deduction, which started in tax year 2018.
Initially, the QBI deduction was scheduled to expire at the end of 2025, but H.R. 1, commonly known as the One Big Beautiful Bill Act (OBBBA), made it permanent. It also implemented a new minimum deduction of $400 for taxpayers with at least $1,000 in qualified business income starting in 2026.
For 2025 taxes, this 20% deduction is available to all pass-through business owners with taxable income at or below $197,300 (if single) or $394,600 (if married filing jointly). For taxpayers with income over those limits, the QBI deduction may be limited.
Tax rate for LLCs
Businesses structured as LLCs are unusual in that there are several options for how they’re taxed. The IRS may tax an LLC as a sole proprietorship or partnership, depending on how many people own the business. An LLC may also elect to pay taxes like an S-corp.
Alternatively, LLC owners may choose for the business to be taxed as a C-corp, meaning they pay taxes on profits at the corporate rate rather than the owner’s individual rates. This can be beneficial if the owners keep a substantial amount of profits in the business rather than paying them out as dividends, since retained earnings aren’t subject to double taxation the way dividends are. It can also allow LLC members to benefit from tax-advantaged fringe benefits and stock options.
However, deciding whether to have your LLC taxed like a C-corp is complicated. If you think you might benefit from electing corporate tax treatment, it’s best to discuss your options and potential tax-planning strategies with an accountant or attorney.
H.R. 1 didn’t change how small businesses calculate or pay taxes, nor did it lower existing tax rates. But it did make permanent several provisions from the TCJA, including the 20% QBI deduction.
Other changes include:
- The return of 100% bonus depreciation, which allows business owners to write off 100% of the cost of eligible business property. This is effective for property acquired after January 19, 2025.
- Allowing businesses to deduct domestic research and development expenses immediately instead of capitalizing and amortizing them over five years. This goes into effect January 1, 2025. However, small businesses with gross receipts of $31 million or less can file amended returns to apply the change retroactively to 2022 through 2024.
- Rolling back or phasing out green energy tax credits, including those for electric vehicles. Most of these credits, including the commercial clean vehicle credit, expire on September 30, 2025.
You can read more about the legislation at Congress.gov.
Additional small business taxes
Federal income taxes aren’t the only taxes small businesses must pay. Some others include:
Payroll tax
Payroll taxes include Social Security and Medicare (collectively referred to as “FICA” taxes, as they were established by the Federal Insurance Contributions Act) and federal unemployment taxes. For businesses with employees, the FICA tax rate is 15.3% of the employee’s gross wages — 12.4% for Social Security and 2.9% for Medicare. Employers withhold half of that FICA rate from the employee’s wages and pay the remainder out of their own pocket.
Only the employer pays federal unemployment (FUTA) taxes—they don’t withhold them from the employee’s wages. The FUTA tax rate is 6% of the first $7,000 paid to each employee per year. However, employers may also qualify for a tax credit of up to 5.4%, which can bring their FUTA tax rate as low as 0.6%.
Many pass-through business owners don’t have employees, but they have to pay self-employment taxes, the self-employed version of FICA taxes. The self-employment tax rate is 15.3%.
Excise tax
Businesses pay excise taxes if they do any of the following:
- Sell or manufacture designated products, such as alcohol, tobacco and firearms
- Operate certain types of businesses, such as sports wagering companies
- Use various items or types of equipment, facilities or products, such as aircraft or heavy-duty trucks
- Receive payments for particular services, such as indoor tanning or telecommunications services
The cost of these taxes can vary widely depending on the good or service involved. For example, in 2025, the federal tax rate for international air travel is $22.90 per passenger for flights that start or end in the continental U.S., and the federal tax rate for exported gasoline is 18.4 cents per gallon.
Although businesses pay excise taxes, the cost of these taxes is usually embedded in the price of products and services and passed through to consumers.
You can find more information about how to file and what you should pay by reading through the instructions for IRS Form 720.
State and local taxes
Business owners may also be subject to taxes in the states where they do business.
State corporate income tax
As of 2025, 44 states levy a corporate income tax, with rates ranging from 2.25% (North Carolina) to 11.5% (New Jersey).
Owners of pass-through businesses in states with a state income tax on individuals also pay taxes on their share of business profits on their state income tax returns. Individual income taxes are levied in 42 states, although Washington only taxes capital gains of high-income taxpayers. Top marginal tax rates range from 2.5% (Arizona and North Dakota) to 13.3% (California).
Sales tax
Some small businesses are required to charge sales taxes. Forty-five states, the District of Columbia and many localities levy a sales tax. Each state and local taxing authority has its own rules, exemptions and tax rates.
Navigating those rules and exemptions can be confusing, so it’s a good idea to work with an accountant, especially if you sell products or services to out-of-state customers. You may need to register, collect and remit sales taxes in more than one state or local jurisdiction.
Property tax
Businesses may also pay property taxes if they own land, buildings or vehicles, or maintain business inventories. Many state and local jurisdictions collect real estate and personal property taxes.
How to pay taxes as a small business owner
How you pay taxes as a small business owner depends on your business structure:
- C-corps and LLCs taxed like C-corps report business income and expenses on Form 1120.
- S-corps and LLCs that elect S-corp tax status report business income and expenses on Form 1120-S, then issue a Schedule K-1 to each shareholder reporting their share of profits or losses.
- Partnerships and LLCs with more than one member report business income and expenses on Form 1065. The completed Form 1065 includes a Schedule K-1 for each shareholder, which they’ll need to report their share of profits or losses on their individual tax return.
- Sole proprietorships and LLCs with only one member report business income and expenses on Schedule C, and file it along with the owner’s individual tax return, Form 1040.
When to file your small business taxes
Corporations must make estimated tax payments on the 15th day of the fourth, sixth, ninth and 12th months of their fiscal years. For C corporations that use a calendar year, those dates are April 15, June 15, September 15, and December 15 (or the next business day if one or more of those dates fall on a weekend or legal holiday).
Owners of pass-through businesses are usually required to make estimated tax payments, which are generally due April 15, June 15, September 15 and January 15 of the following year. If any of those dates fall on a weekend or legal holiday, the due date moves to the following business day.
Some payroll, accounting or tax preparation software will estimate the business’s tax liability and send estimated tax payments to the IRS on the business’s behalf. Just make sure to regularly set money aside for taxes so it’s available when payments are due.
Frequently asked questions
The percentage that a small business pays in taxes depends on how much the business makes and whether it’s a corporation or pass-through entity. Corporations pay a flat tax of 21% on business profits, while pass-through businesses pay taxes at the owner’s income-based marginal tax rate, ranging from 10% to 37%.
To calculate small business taxes, a C-corp simply applies the corporate tax rate of 21% to its taxable income. For example, if the company has taxable income of $100,000, the tax due would be $21,000 ($100,000 x 21%).
For pass-through businesses, small business tax rates aren’t quite as simple. Pass-through business owners pay tax on all their taxable income, including their share of business profits. Federal income tax rates for individuals are progressive, meaning the higher your income, the higher your marginal tax rate will be.
For example, using the 2025 tax brackets above, if a single taxpayer had total taxable income of $100,000, they would pay:
- 10% on the first $11,925 = $1,193
- 12% on the next $36,550 = $4,386
- 22% on the last $51,525 = $11,336
Their total federal income tax liability would be $16,915.
Keep in mind that not all of your income will count as taxable income. You may be able to deduct business expenses or take the standard deduction, which will lower your taxable income — and subsequently, how much you pay.
Small businesses can reduce taxable income by taking advantage of tax deductions. Businesses can deduct ordinary and necessary costs of running the company, such as advertising, salaries and wages, interest expense and insurance. You can find more information on deductible business expenses in IRS Publication 535.
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