From the blog Small Business Tax Rates: 2019 Guide to Tax Season

There’s a lot that goes into small business taxes. Tax rates vary depending on your business, the state you operate in, and your industry. Plus, there was a complete overhaul of small business taxes in 2019 that awarded tax breaks for many small business owners.

So do you qualify for any of these tax cuts?

First, you need to be aware of your business entity’s tax rate, what you can write off, and what taxes you’re required to pay. We’re here to help.

In this article, we’ll go aover the tax rates for each type of business, five different taxes you should be aware of and a few ways to save on taxes.

Tax Rates for Small Businesses

Business tax rates vary depending on the type of business you operate. Here are the business tax rates in 2019.

Beyond the standard tax rate for each business entity, there are five different tax rates that you should be familiar with. They include income, payroll, sales, excise and property taxes.

Let’s go over each type.

1. Income Taxes

Every person in the United States must pay income taxes. Businesses are no different.

All businesses have to pay some level of income taxes. Businesses pay taxes on their net income—that is, how much money they made after subtracting business expenses.

Your income tax rate will depend on what type of business you operate. Sole proprietorships, partnerships, limited liability companies (LLCs) and S corporations are all pass-through business entities. This means that you avoid double taxation and your business income is passed to your personal tax return. You’ll only be required to pay business taxes on a personal level and not the business level.

You should note that not all income follows the same tax rates. Income derived from dividends will have a different tax rate than standard business income.

C-Corporations Tax Rates

C corporations pay a flat tax rate of 21% on all net business income. Shareholders of C corporations must also pay taxes on dividends.

Tax rates for dividends vary depending on if they’re qualified or unqualified dividends. You have a qualified dividend if you’ve held the stock for at least 60 days. Taxes on qualified dividends depend on how much you earn per year. If you make under $38,601 per year, then you’ll pay a 0% tax rate. But if you make more than $425,800 per year, you’ll pay a 20% tax rate on dividends.

Unqualified stocks are those you’ve held for under 60 days. Unqualified dividends will fall under the same tax rate as the shareholder’s personal income tax rate.

Pass-Through Entities Tax Rates

Pass-through business entities don’t have a set tax rate. All business income is passed along to each owner’s personal income tax, so business income will follow each individual’s personal income tax rate.

With recent changes in tax laws, small business owners of pass-through entities can deduct 20% of business income before the IRS calculates their tax rate.

2. Payroll Tax

Payroll taxes—or employment taxes—are taxes you have to pay for employing your workers. These taxes are a percentage of the wages you’ve paid your employees. There are a few different types of payroll taxes you should be prepared for. You’ll need to pay social security taxes, Medicare taxes, and unemployment taxes at the federal and state level.

Payroll Tax Rates

The Social Security tax rate is 12.4% for wages paid up to $132,900. As an employer, you’ll be responsible for paying half of this amount: 6.2%. Employees pay the remaining balance through wage deductions. You’ll also be responsible for your own employment taxes and pay the full amount on your individual tax return.

The Medicare Tax rate is 2.9% of all wages paid. This tax burden is also split between you and your employees. The only exception is for employees who are paid over $200,000 per year. Employees in this pay bracket will encounter additional withholding requirements.

The Federal Unemployment Tax rate is 6.2% for the first $7,000 paid to an employee. If you’re qualified, you can apply a tax credit to reduce this rate to as low as 0.6%.

State Unemployment Tax rates vary from state to state. Your state’s unemployment tax rate is based on the size of your company, how long you’ve been in business, your employee turnover rate, and how many of your employees have filed for unemployment in the past.

3. Sales Tax

The United States doesn’t enforce a federal tax, but you will need to be prepared for state sales tax in a majority of states. Exceptions include Alaska, Oregon, Montana, New Hampshire and Delaware. You’ll report sales taxes on everything you sell. Customers will pay the taxes, but it’s your job to track, file and report these transactions.

Sales Tax Rates

Sales taxes can be tricky. The amount of sales taxes you’ll be responsible for will depend on which state your business operates in. When it comes to sales tax, there are two categories of states—origin-based or destination-based states.

Origin-based states will charge the sales tax rate of the state in which the business operates. For destination-based tax rates, you use the tax rate of the state in which the customer is located. There may be some variability depending on which industry you’re in and which products you’re selling.

4. Excise Tax

Excise taxes are applied to certain industries and products like tobacco, alcohol and fuel. Excise taxes aren’t necessarily paid by consumers. They’re baked into the price of certain products. Taxes are then paid by the business rather than the consumer.

Excise Tax Rates

Excise taxes will vary depending on the product and industry you’re in. If you deal in one of these industries, you’ll be subject to excise taxes. If you don’t deal with these products, then you likely don’t have anything to worry about.

For more information, check out the IRS website.

5. Property Tax

If your business owns property, then you’ll be required to pay property taxes. This includes property, land or a brick-and-mortar location you own. Taxes will be based on your property’s assessed value rather than the purchase price.

Property Tax Rates

Property taxes will vary depending on the state and county your business is located in. Your local authorities will send you all the information you need come tax season.

How to Save on Small Business Taxes

There are several ways you can save on your taxes. They include paying on a quarterly basis, taking advantage of business tax deductions and finding lucrative write-offs.

Take advantage of tax deductions. For example, there are several operational expenses you can deduct. If you’ve spent money on utilities, machinery, equipment, vehicles, wages, rent or insurance, then there’s a good chance you can deduct these expenses off your taxes. You can even enjoy a home office deduction if you work from home.

For business owners in their first year of operation, there is often a wider range of startup costs you can write off. These include office space rental, business cards, website fees, employee training and supplies.

Navigating Tax Season

Small business taxes are a tricky subject. There are so many moving parts that can make it hard to stay up-to-date.

If you’re too busy to handle your taxes on your own or just want a second pair of eyes, then you can turn to a certified tax professional or CPA. They can guide you through tax season and find deductions you never knew you had access to. However, there are things you can do throughout the year that will keep you ahead of the game when tax time comes.

If you set aside just 10 minutes a week, you can be ready for tax season all year round.

The more you’re prepared with smart record keeping, the easier it will be to submit your taxes and move on to growing your business.

Are you ready to grow together?