These Are All the Taxes Your Business Must Pay

From federal, state, and local, to income, property, and sales tax

Two female small business owners review a shipment of a box on a tablet

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All businesses must pay several different kinds of taxes, and some are easier to understand than others. Taxes for businesses come in several varieties: federal, state, and local.

There are also different types of taxes, depending on various business activities, like selling taxable products or services, using equipment, owning business property, having employees, and of course, making a profit.

If you are just starting your business, you need to know what taxes you'll be expected to pay. If your business has changed—for example, if you have bought property or started hiring employees—you'll need to know about the taxes on these activities, too.

Key Takeaways

  • Small business owners must pay federal income taxes on their business income, and state income taxes if they are in an income-tax state.
  • Businesses with employees must contribute to Social Security and Medicare taxes and pay state and federal unemployment taxes.
  • Owners must collect and pay state sales taxes and state and federal excise taxes on certain business activities, and pay property taxes on certain business assets.
  • An important, but often overlooked, tax for small business owners is the self-employment tax, for Social Security and Medicare benefits, based on business income.

Income Taxes for Small Businesses

All businesses must pay tax on their income; that is, the business must pay tax on the profit of the company. How that tax is paid depends on the form of the business.

Most small businesses are pass-through entities, which means that the gains or losses are passed through to the owners on their personal income tax returns.


Income taxes and self-employment taxes (Social Security and Medicare tax) are based on the net income of your business for the tax year. It's the same thing as profit (income minus expenses). If you share a business with others, the net income is divided between or among the owners, based on their agreement.

Income Taxes for Sole Proprietors and Single-Member LLCs

Sole proprietors and owners of single-member limited liability companies (LLCs) pay income tax based on the net income of their business.

To determine the net income, you'll need to complete Schedule C as part of your personal tax return. The net income from Schedule C is added to your other sources of income to determine your total tax.

Income Taxes for Partners and Multiple-Member LLC Owners

Partners in partnerships and multiple-member LLC owners file a partnership business tax return for information purposes only.

The individual partners or LLC members pay income taxes for their share of the income of the business. They receive a Schedule K-1 showing their income from the business, adding this schedule to their personal tax returns.

Owners of LLCs are taxed as either sole proprietors (one owner) or partnerships (multiple owners). Some LLCs can elect to be taxed as a corporation (see below).

Income Taxes for S Corporations

S corporations are similar to partnerships. Owners of S corporations divide up the income of the business, and each owner receives a Schedule K-1 to include in their income tax return.


If your business has been hit by a federally declared disaster, you may qualify for tax extensions or other relief. If you aren't sure whether you are impacted by a disaster situation or if your area qualifies, you can check with the Internal Revenue Service (IRS).

Income Taxes for Corporations

Corporations pay income taxes as separate entities from their owners. The corporation files a tax return on IRS Form 1120 for the year. The net income from the corporation isn't taxed unless it's distributed by the company to the shareholders, usually in the form of dividends.

Self-Employment Tax on Each Owner’s Share of Business Income

Self-employment taxes are those paid by sole proprietors, partners in a partnership, and LLC owners. This tax is for Social Security and Medicare, and it’s based on the net income of the business.

You must calculate self-employment taxes using Schedule SE and add the total of this tax due to your personal tax return. If your business doesn’t have net income for a year it means no self-employment tax is due. It also means you don't get Social Security or Medicare credits for that year.


Owners of corporations are shareholders; they aren't self-employed. S corporation owners aren't considered self-employed and so they don't pay self-employment taxes.

Estimated Taxes for Business Owners

Because you are the owner of a business, no one withholds income tax and self-employment tax from the money you take out of the business. (You don't get a paycheck, remember, because you aren't an employee.)

The IRS requires that these taxes be paid throughout the year, so you must pay estimated taxes quarterly. The first payment of the year is due April 15, then again on June 15, Sept. 15, and Jan. 15 of the following year.

The estimated tax form for business owners combines business and personal income and taxes, including self-employment taxes.

Sales Tax on Products and Services Sold in Certain States

Businesses don't directly pay sales tax on products and services they sell. But if your business operates in a state that has state income tax, you must set up a system to collect sales tax from your customers and report and pay that tax to your state.

Merchants in most states are required to collect sales tax and pay it to the state's department of revenue.

Specific products and services are sales-tax eligible, depending on state laws. Money must be collected from customers, reported, and paid on a regular basis.

Don't forget sales taxes for items you sell online. A 2018 U.S. Supreme Court decision allowed states more freedom to collect sales taxes from online sellers located in their state. That means you may need to charge your out-of-state online customers sales tax and pay it on a regular basis.


Some states with online sales tax laws set a minimum level of sales per year below which the seller doesn’t have to collect these taxes. Check with your state’s department of revenue on the details of its online sales tax laws.

Property Tax on Business Property

Property tax is a local tax. If your business owns real property, like a building, it must pay property tax to the local taxing authority, which is usually the city or county where the property is located. The tax is based on assessed value, the same as for personal assets, like a house.

There are special considerations for paying federal taxes when you sell a piece of business property. You may have to pay capital gains taxes on the difference between your initial cost and the selling price.


Always get help from a tax professional before you sell business property.

Excise Taxes on Use and Consumption

Excise taxes are paid by a business for certain types of use or consumption, like fuels, or other activities, like transportation and communication. Excise taxes are paid to the IRS, either quarterly or annually, depending upon usage, using Form 720.

In addition to the federal government, all U.S. states and many local governments levy excise taxes on various products and services, including gasoline, tobacco, and gambling activities.

Employment Taxes Paid on Employee Earnings

Businesses must withhold federal income taxes and FICA taxes from employees, and contribute an equal amount to FICA taxes. You will need to report the amounts owed and paid for these taxes each quarter, and make regular payments, depending on the size of your business payroll. This includes:

Unemployment taxes are separate; they are paid entirely by employers, not employees. The amount you must pay as an employer is calculated based on a portion of the income of your employees.

Gross Receipts Tax and State Income Tax on Businesses

Most states have a state income tax for businesses; only a few states have no income tax. Most states use a graduated-rate tax, but a few have a flat tax.

Some states impose a gross receipts tax on businesses instead of, or in addition to, a state income tax.


Check with your state to see if you must pay this tax. Most small businesses pay state income tax on business income through their tax returns, similar to federal income taxes.

Dividend Tax on Corporate Shareholders

If you are an owner of a corporation, you are a shareholder. That means you pay income taxes on any income you receive from dividends. Each corporation decides when to pay dividends and how big the dividend will be.

Dividends are not considered earned income, and you must pay a special dividend tax rate on dividends you receive, through your personal tax return.

You will receive a 1099-DIV form with the amount of the dividend paid that year. You must include that information on the appropriate form, depending on the type of dividend and how long the dividend was held.

Frequently Asked Questions (FAQs)

How often do small businesses pay taxes?

Federal income taxes are due annually, but estimated taxes are due quarterly, and federal employment taxes must be paid either monthly or twice per month, based on payroll. The specific due dates for federal income taxes, estimated taxes, and employment taxes may change each year, depending on weekends and holidays. If a tax due date is on a weekend or a holiday, the date is usually the next business day. The IRS has an online tax calendar to help you determine the exact dates for the current tax year.

What happens if you don’t file business taxes?

Each type of federal tax has penalties for non-filing and non-payment, including income taxes and employment taxes. Penalties can be charged for failing to file returns and reports on time, inaccurate returns, and not paying enough tax. One common mistake small business owners make is forgetting to report and pay enough estimated tax to cover both the income taxes of the business and self-employment tax for the owner, resulting in an underpayment penalty.

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