Small business tax rates and brackets in 2026

Small business tax rates vary based on your business structure, income level, and location. In NFIB's 2024 Tax Survey, 90% of small business owners used a tax professional, and 88% of those owners said they did so because the tax code is too complex.

Whether you operate as a sole proprietorship, partnership, LLC, S corporation, or C corporation, your structure determines how your income is taxed.

What is the small business tax rate?

The small business tax rate is the percentage of your business income that goes to taxes. This rate depends on your business structure and where your company operates.

C corporations are taxed at a flat 21% corporate tax rate. Pass-through entities, such as sole proprietorships, LLCs, and S corporations, are generally taxed at the owner's personal income tax rate.

For example, if you're a sole proprietor earning $100,000, your federal income tax will be calculated based on your personal tax bracket. This could range from 10% to 37% in 2026, depending on your taxable income.

How much do small businesses pay in taxes?

What you pay in small business taxes depends on your structure, your marginal bracket, and the other taxes stacked on top of income tax. Your effective rate is usually lower than your top bracket.

Two rates matter when you estimate taxes for small business owners:

For example, a single sole proprietor with $100,000 of 2026 taxable income owes $16,712 in federal income tax. That works out to an effective federal income tax rate of about 16.7%, even though the top bracket is 22%:

Effective tax rate = $16,712 / $100,000 = 16.7%

Self-employment tax and state income tax come on top of that figure, so your total small business taxes will be higher than your federal income tax alone.

Small business tax by structure

Your business structure determines how much you pay in taxes and how you file. The IRS treats each entity type differently, so understanding these distinctions helps you plan effectively and avoid overpaying.

C corporations

C corporations pay a flat 21% federal tax on all corporate profits. If you distribute those after-tax profits as dividends, shareholders pay tax again at their individual dividend rate (0%–20%), creating double taxation.

This structure can make sense if you plan to reinvest most profits back into the business. Retained earnings aren't subject to the second layer of tax until you distribute them, which can support long-term growth.

Sole proprietorships

Sole proprietors don't file a separate business tax return. Instead, your business profit flows directly to your personal tax return via Schedule C, which attaches to Form 1040. You pay federal income tax at your individual rate on net business income, plus self-employment tax of 15.3% for Social Security and Medicare.

Partnerships

A partnership doesn't pay income tax at the entity level. Instead, it files Form 1065 and issues a Schedule K-1 to each partner, outlining their share of income, deductions, and credits.

You report that income on your personal return and pay tax at your individual rate on your allocated share.

Limited liability companies

LLCs don't have their own tax brackets. They're taxed based on how they're classified by the IRS.

By default, a single-member LLC is taxed like a sole proprietorship, and a multi-member LLC is taxed like a partnership. However, LLCs can elect C corp or S corp tax treatment by filing the appropriate IRS forms.

Many LLC owners elect S corp status to reduce self-employment tax exposure. As an S corp, you pay yourself a reasonable salary subject to payroll taxes and take remaining profits as distributions, which aren't subject to self-employment tax.

S corporations

S corporations pass income through to shareholders, who report it on their personal returns and pay tax at their individual rates. This avoids the double taxation that applies to C corps.

However, the IRS requires owner-employees to pay themselves a reasonable salary for the work they perform. You can't take all profits as distributions to avoid payroll taxes. S corps are also limited to 100 shareholders, all of whom must be U.S. citizens or residents.

Federal income tax brackets for pass-through entities

Many small businesses are pass-through entities, meaning business income is taxed at your individual income tax rates. These rates are marginal, so your income is taxed in tiers rather than at a single flat rate.

Here are the official 2026 federal income tax brackets for single filers and married couples filing jointly, according to the IRS:

Source: IRS tax year 2026 inflation adjustments

How marginal tax rates work

Landing in a higher tax bracket doesn't mean all your income is taxed at that rate. Only the portion of income within each bracket is taxed at that bracket's percentage.

For example, if you're a single filer earning $60,000, you pay:

• 10% on the first $12,400
• 12% on the next $38,000
• 22% only on the remaining $9,600

Your top bracket is 22%, but your effective tax rate is lower because not all income is taxed at 22%.

Corporate tax rate for C corporations

C corporations pay a flat 21% federal income tax rate on all taxable corporate income. Unlike individual income tax, there are no graduated brackets. A C corp earning $50,000 pays the same rate as one earning $5 million.

• Federal rate: Flat 21% on all taxable corporate income
• No graduated brackets: The rate does not increase as profits rise.
• State taxes additional: State corporate income taxes apply on top of the 21% federal rate.

This rate has been in place since the Tax Cuts and Jobs Act (TCJA) was enacted in 2017. For very large corporations with average annual adjusted financial statement income exceeding $1 billion, a 15% corporate alternative minimum tax (CAMT) may also apply. Most small businesses won't meet this threshold.

State income taxes for small businesses

State income taxes can significantly change your total small business tax rate. Two businesses with identical income can owe very different amounts depending on where they operate.

Forty-four states levy a corporate income tax, with 2026 top state corporate tax rates ranging from a 2% flat rate in North Carolina to 11.5% in New Jersey.

Some states impose no income tax, while others apply flat or graduated rates on corporate or personal income. Understanding your state's structure helps you estimate your true effective tax rate.

States with no business income tax

Several states impose no personal income tax, which directly benefits pass-through business owners. These include Alaska, Florida, Nevada, New Hampshire (no tax on wages, though it levies a business profits tax), South Dakota, Tennessee, Texas, Washington, and Wyoming.

No income tax doesn't mean no business taxes. Many of these states rely on franchise or gross receipts taxes instead. For example, Texas imposes a franchise (margin) tax on businesses above certain revenue thresholds.

Washington charges a business and occupation (B&O) tax on gross receipts rather than net income, which can add up quickly for high-revenue, low-margin businesses. These alternative taxes can still be significant, so "no income tax" doesn't always mean a lower total tax burden.

States with flat corporate tax rates

Some states apply a single flat rate on corporate income, similar to the federal 21% approach. Rates vary widely. North Carolina's corporate rate is 2%, while Illinois charges 9.5% when you include its personal property replacement tax.

If you operate as a C corporation, your state's corporate rate is added on top of the 21% federal rate.

States with graduated tax rates

Other states use graduated income tax brackets, similar to the federal system. Higher income is taxed at progressively higher rates.

California, for example, applies personal income tax rates ranging from 1% to 13.3%. This primarily affects pass-through business owners because their business income is taxed at their individual state rate.

What other taxes do small businesses pay?

Income tax is only part of your total tax obligation. Depending on your structure and operations, you may owe several additional federal and state taxes throughout the year.

Understanding these obligations helps you avoid penalties and better forecast cash flow.

Self-employment tax

Self-employment tax covers your Social Security and Medicare contributions if you work for yourself. If you're a sole proprietor, partner, or LLC member, you pay 15.3% on net earnings: 12.4% for Social Security (up to the annual wage base) and 2.9% for Medicare.

For 2026, the 12.4% Social Security portion applies only to the first $184,500 of combined wages and net self-employment earnings, while Medicare's 2.9% has no cap. You owe self-employment tax and must file once your net self-employment earnings reach $400 for the year.

An additional 0.9% Medicare surtax applies to income above $200,000 for single filers ($250,000 for married filing jointly). You can deduct half of your self-employment tax on your income tax return, which reduces your taxable income. These taxes are calculated using Schedule SE (Form 1040).

Payroll taxes

If you have employees, you must withhold federal income tax and pay the employer portion of FICA taxes (7.65% for Social Security and Medicare combined). You're also responsible for federal unemployment tax (FUTA) and state unemployment tax (SUTA).

Missing payroll deposits can trigger IRS failure-to-deposit penalties. Using tools like payroll automation can help reduce compliance risk and manual errors.

Sales and use taxes

If you sell taxable goods or services, you may need to collect and remit sales tax to state and local authorities. Rules vary widely by jurisdiction, and nexus laws can require collection even if you don't have a physical presence in the state.

Use tax applies when you purchase business items without paying sales tax, such as equipment bought from an out-of-state vendor. You're generally required to self-report and remit use tax to your state.

Capital gains tax

When you sell a business asset like equipment, vehicles, real estate, or investments for more than you paid, the profit is a capital gain. You'll pay your ordinary income tax rate on short-term gains from assets held 1 year or less. For assets held longer than 1 year, long-term gains qualify for preferential rates of 0%, 15%, or 20%, depending on your taxable income.

Capital gains tax applies regardless of business structure. If you're planning to sell significant business assets, factor this into your tax planning to avoid an unexpected bill.

Estimated quarterly taxes

If taxes aren't withheld from your income, you're typically required to make estimated tax payments quarterly. Individuals use Form 1040-ES. Corporations generally must pay estimated tax if they expect to owe $500 or more for the year. The IRS has retired Form 1120-W, so corporations now figure installments using the worksheet in IRS Publication 542.

The IRS generally expects you to pay at least 90% of your current-year tax liability or 100% of the prior year's liability (110% of the prior year's liability if your prior-year AGI was more than $150,000) through withholding and estimated payments. Underpayment can result in penalties, even if you pay the full balance when filing.

The four quarterly business tax deadlines for 2026 are:

• April 15, 2026
• June 15, 2026
• September 15, 2026
• January 15, 2027

If you underpay any quarter, the IRS calculates a penalty on each missed installment separately, so catching up later doesn't erase earlier shortfalls.

If you're in your first year of self-employment, it's easy to underestimate quarterly obligations. Start setting aside a portion of each payment you receive, based on your estimated tax rate, to avoid a surprise bill at filing time.

How to calculate your small business taxes

To calculate your small business tax liability, you need to determine your structure, taxable income, and applicable rates. Once you know those inputs, you can estimate your federal, state, and self-employment obligations before you file your business taxes.

1. Determine your business structure: Your entity type determines which tax rates and forms apply: C corporation, S corporation, LLC, sole proprietorship, or partnership.
2. Calculate gross income: Add up total revenue from all business activities before deductions.
3. Subtract business deductions: Reduce gross income by eligible business expenses such as wages, rent, software, and equipment.
4. Apply the appropriate tax rate: Use the 21% corporate rate for C corporations or your individual income tax brackets for pass-through income.
5. Add self-employment and other taxes: Include self-employment tax (15.3% for sole proprietors and many LLC members), state income tax, and any other applicable taxes.
6. Apply credits and additional deductions: Reduce your final tax bill with credits and deductions such as the QBI deduction or retirement contributions.

Tax calculation example

For a sole proprietor with $100,000 in taxable income in 2026 (single filer), federal income tax would be calculated as follows:

• 10% on the first $12,400 = $1,240.00
• 12% on the next $38,000 ($50,400 – $12,400) = $4,560.00
• 22% on the remaining $49,600 ($100,000 – $50,400) = $10,912.00

Total federal income tax = $1,240.00 + $4,560.00 + $10,912.00 = $16,712.00, plus self-employment tax and any applicable state taxes.

How to reduce your small business tax rate

You can't change federal tax brackets, but you can lower your taxable income and claim credits to reduce what you actually owe. Strong recordkeeping makes it easier to identify small business tax savings opportunities and avoid leaving money on the table.

Qualified business income deduction

The qualified business income (QBI) deduction allows eligible pass-through entities, including sole proprietorships, S corporations, partnerships, and many LLCs, to deduct up to 20% of qualified business income. This can significantly reduce your effective federal tax rate.

Income limits and phaseouts apply, especially for specified service trades or businesses such as law, accounting, consulting, and healthcare. If your taxable income exceeds IRS thresholds, the deduction may be reduced or eliminated.

The One Big Beautiful Bill Act, signed July 4, 2025, made the QBI deduction permanent at 20%. Starting in 2026, the phase-in range widens to $75,000 for single filers and $150,000 for joint filers, and active owners with at least $1,000 of QBI get a minimum $400 deduction.

Common business tax deductions

Deductions reduce your taxable income, lowering the amount of tax you owe. Common deductions include:

• Home office deduction: Deduct a portion of housing expenses if you use part of your home exclusively for business.
• Vehicle expenses: Deduct business mileage or actual vehicle expenses with proper documentation.
• Equipment and supplies: Deduct qualifying purchases such as computers, software, and office furniture.
• Professional services: Deduct fees paid to accountants, attorneys, and consultants.
• Health insurance premiums: Self-employed individuals can often deduct health insurance costs.
• Retirement contributions: Contributions to a SEP-IRA, SIMPLE IRA, or solo 401(k) may be deductible.

Tracking expenses consistently throughout the year helps you maximize deductions and stay prepared in case of an IRS audit.

Tax credits for small businesses

Tax credits reduce your tax bill dollar-for-dollar, making them more valuable than deductions. A $1,000 credit lowers your tax liability by the full $1,000.

Common small business credits include the research and development (R&D) credit, the work opportunity tax credit (WOTC) for hiring from targeted groups, and the small employer health insurance credit. The WOTC is currently lapsed for employees hired after December 31, 2025, unless Congress renews it. Each credit has specific eligibility rules, so consult a tax professional to determine what applies to your business.

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