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Get to Know the Basics of Small Business Taxes to Run Your Business Smoothly!

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Whenever one hears the word taxes, they feel a certain dread that they are unaware of. One cannot avoid it, but one has to go through the grueling process too. To run a business smoothly, one has to sort out one monetary concern. Therefore, knowing about small business taxes is very important.

What Are Small Business Taxes?

Small business owner taxes are normally three in number, that one needs to know about. Your taxing rates will depend on how large your business is.

  • The Income Tax rate: An annual income tax return is required by all companies. All other companies are called “pass-through” entities that are charged at the private rate, while C firms pay the corporate rate.

The Estimated tax rates: Taxes must be calculated and paid regularly by freelancers, professional contractors, and small business owners who plan to owe at least $1,000 in taxes. Whether you don’t reimburse them, or if you don’t pay enough, you might face fines and interest, as well as a slew of other problems. As a result, you must ensure that you are aware of the estimate’s due dates and payment amount. Small business owner taxes also have to fall under this category.

  • The employment tax rates: Self-employed people must pay self-employment fees, which include Social Security and Medicare contributions. When you are self-employed, you must pay self-employment taxes if you work with a church or a registered church-controlled agency that has voted for a Social Security and Medicare tax exemption.

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How Are Tax Rates for Small Businesses Calculated?

Small business tax rates depend on the way a business is built. As there are two variations namely the C corporations and pass-through entities. Each has to pay a different small business tax rate to the government.

The Tax Cuts and Jobs Act of 2018, also known as the tax overhaul package, lowered the corporate income tax rate to a flat 21% for all companies organized as C corporations. But there are other criteria that one has to fulfill to be recognized as a C corporation.

For Pass-through entities, the rate of taxation is the same as the rate of taxation for the owner’s personal property. The AMT only extends to a small number of high-paid taxpayers who would otherwise be able to stop paying any personal income taxes. Small businesses come under the flag of pass-through entities and have different small business tax rates.

There are different categories such as – sole proprietorship, partnership, limited liability company, and the S corporation. These pay different small business taxes and have different laws governing them.

This is all you need to know about small business taxes and their rates if you are planning to open one soon.