What Are Small Business Taxes and What Accounting Concepts Should Small Business Owners

Photo of author

(Newswire.net — January 25, 2022) –Taxes. The word alone is enough to send shivers down the spines of business owners. There are so many aspects of taxes to worry about that it can make your head spin. For example, when you look at the federal income tax code, there are over 3.8 million words to read through. The sheer volume of information is enough to give you a headache. That’s why it’s so important to have a good tax accountant on your side.

We are used to paying taxes each year on the profits of our business, but it is also true that businesses of all different sizes pay an average tax rate of approximately 19.8 percent. Small businesses with one owner pay a 13.3 percent tax rate on average and ones with more than one owner pay 23.6 percent on average.

Understanding how the tax system works is an important part of your business. With so many tax changes going on, it can be hard to know where to turn. That is why we’ve written this blog that explains the basics of tax and how small businesses should approach it.

How do taxes work for a small business?

Taxes are a huge component of running a small business. Taxes are what help pay for the roads you drive on, the schools you send your kids to, and the fire department that protects your home. Taxes can be confusing to small business owners because of the complexity of the tax code. One of the biggest factors in taxes is the type of entity you chose for your small business. This is called the business structure. The type of business structure you choose depends on many factors, but it’s usually based on the amount of paperwork, required meetings, and other general disadvantages of a specific business structure. The Internal Revenue Service (IRS) offers a small business tax guide that can help you determine how much you have to pay in taxes and which tax forms you need to file each year.

How do business structures impact taxes?

To understand how business structures impact taxes, it helps to first know what business structures are. Business structures are the different ways businesses are legally organized. Businesses can be organized as sole proprietorships, partnerships, limited liability companies, corporations, or S corporations. Sole proprietorships, which only have one owner, are the default business structure. But, if you have more than one owner, then you need to decide how to organize your business. The decision is typically a matter of personality

Do you want to run the business alone or with partners? 

Do you want to limit the liability of business owners? 

Do you want to limit your liability for business debt? 

Businesses can’t change their business structure unless they’re a corporation that elects to convert to a limited liability company (LLC) or a limited liability partnership (LLP). But it’s smart to choose a business structure that works best for you from the beginning.

The business structure can have a big impact on the tax obligations of a small business owner. The type of business structure you choose can impact how you pay taxes and who has to pay them. Keep in mind that the same type of business structure may not be good for everyone. There’s no one-size-fits-all solution when it comes to business structures. Therefore, it’s important to sit down and make an honest assessment of your business and your goals. Here are the three most common business structures and the differences in each.

Do I have to pay taxes as a small business owner?

The answer to this question depends on the type of small business you run. Most small businesses are considered “pass-through” entities because the income is passed through the business to its owners, who report their share of profit or loss on their income tax return, according to the Internal Revenue Service. If your business is a corporation, it pays tax on its income and the shareholders pay tax on any dividends they receive. The SBA offers a simple chart that outlines the tax rates for small businesses. According to the SBA, most small businesses qualify as pass-through entities, which means they pay individual tax rates on their share of profit or loss. The IRS offers two charts that outline the tax rates for small businesses. The first highlights the tax rates for sole proprietors and partnerships, while the second shows the rates for S corporations and C corporations. 

The tax burdens that small businesses face daily.

According to a 2012 study by the National Small Business Association, an average small business owner in America pays $8,974 a year in taxes. The amount varies depending on the type of business and where it is located. For example, a small business owner who lives in a high-tax state like New York or California will pay much more than a business owner who lives in a state with low taxes. The cost also depends on the size of the business. An owner of a small business with one employee will pay more in taxes than someone who owns a small business with 50 employees. Small businesses with fewer than 10 employees pay an average of $1,622 a year in taxes, while those with 100 or more employees pay $31,814 a year in taxes. 

Many services offer to maintain the complete record of your business as a bookkeeper and these services help you pay your taxes on time. For example, Vancouver Bookkeepers keep records of the financial affairs of a business and help its customers pay taxes and other important transactions on time.    

The importance of tax planning for a small business.

Tax season is one of the busiest times of the year for any small business. Every small business owner has his or her ideas about how to get the most out of their money. But unless you’re taking advantage of all of the legal tax breaks you’re entitled to, you’re shortchanging your business’s bottom line. However, many small business owners don’t consider tax planning as one of their top priorities. In fact, according to a survey by the SBA, approximately 40 percent of small business owners don’t even file for all of the available tax deductions. That’s unfortunate because several tax breaks can help you save money, reduce your tax liability and increase the net profit of your business.


Taxes are something that all small businesses have to deal with, so don’t get overwhelmed by the idea of taxes. Try to take advantage of online tax calculators to ease your mind a little bit. A good tax expert can make the process a lot easier, especially for the self-employed.