What Taxes Do Small Business Owners Pay?

One of the biggest financial surprises for new business owners is how much profit goes to taxes. Unlike employees who have taxes withheld from each paycheck, business owners receive their full revenue and must set aside and pay taxes themselves.

The Main Taxes

Self-employment tax. If you are a sole proprietor or single-member LLC, you pay 15.3% SE tax on net income — 12.4% for Social Security and 2.9% for Medicare. You can deduct half from adjusted gross income.

Federal income tax. Your business profit is added to other income and taxed at your marginal rate — 10% to 37%.

State income tax. Most states tax business income. Rates vary from 0% (Texas, Florida) to over 13% (California).

Payroll taxes. If you have employees, you withhold and remit federal and state income tax, Social Security, and Medicare. You also pay the employer portion — 7.65% per employee.

A Simple Estimate

Set aside 25-30% of net profit for federal and state taxes combined. Higher earners in high-tax states: 35-40%. Actual tax depends on deductions, credits, filing status, and other income.