Business tax brackets in 2023-2024 explained

If you own a business or otherwise work in the United States, you’ll need to pay federal income taxes. This is a percentage of your taxable income that you pay to the IRS to help cover the cost of things like government, schooling, and infrastructure across the country.

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As is the case for employed taxpayers, small business owners rely on tax brackets that determine what percentage of their income they must pay for federal income tax. Read on to learn more about business taxes and the tax brackets that determine how much you must pay.

Small business tax brackets

Small business taxes are taxes you must pay as a percentage of your small business earnings. In the United States, that depends on the type of business you operate. In 2018, tax cuts as part of the JOBS Act set a 21% flat-rate tax on corporations. However, most business structures are pass-throughs. These are sole proprietorships, partnerships, or S corporations that report income on the individual tax returns of the business owner and are taxed at individual income tax rates.

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As a result, their corporate income tax rates depend on the individual income tax brackets of the business owners. These range from 10% to 37% depending on how much personal income you generate.

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• Corporation (C Corp): 21% Flat Rate
• Sole proprietorships: 10%–37%
• Partnerships: 10%–37%
• Limited liability corporations (LLCs): 10%–37%
• S corporations: 10%–37%

Business tax brackets by state

Although everyone must pay federal income tax, filers in some states may also be required to pay local taxes. For example, filers in states like Alaska, Florida, Indiana, Montana, Nevada, and New Hampshire pay fewer taxes than filers in states like California, Iowa, Louisiana, Maryland, Minnesota, New York, and Vermont. Research your local tax code to determine your local tax rates, if any exist.

Business taxes based on business type

When you file a federal income tax return, your business structure makes a difference. That’s because pass-through businesses are taxed at different rates than corporations. Learn more about each business structure below.

Sole proprietor

If you’re the sole owner of a company that’s not incorporated, you’re a sole proprietor. As such, you’ll pay business taxes based on your personal tax rate.

Partnership

If you’re an owner in a partnership, you will be taxed based on your personal income tax bracket as it relates to your share of business income. All other owners will pay their own share of the partnership’s taxes.

LLC

Limited liability companies are also pass-through corporations for tax purposes. As a result, the LLC business tax rate is equal to the owner’s personal tax rate. If you have partners in your LLC, you’ll pay taxes as a partnership following the guidelines above.

Corporation

C corporations receive special tax treatment as part of the tax cuts that took place following the JOBS Act. Since 2018, corporations have paid a flat 21% corporate tax rate.

S corporation

S corporations are taxed as pass-throughs based on the owner’s personal income tax rate. If you have partners, your company will be taxed as a partnership. However, there are some unique S corporation tax benefits, like savings on self-employment taxes.

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Additional business taxes to consider

Federal income taxes aren’t the only tax burdens you’ll face as a business owner. In fact, there are several taxes you’ll need to consider to stay in the good graces of state and federal regulators. Find the details of these taxes below.

Payroll taxes

You’ll need to set aside a portion of the income your employees earn to cover payroll taxes. As a business owner, you’re also required to contribute FICA taxes to help cover the cost of Social Security and Medicare benefits for those who receive them or may need them in the future.

Self-employment taxes

Self-employment taxes, also known as FICA taxes, pay for services like Social Security and Medicaid. Salaried employees pay half of this tax, while their employers pay the other half. As a business owner, you’ll be responsible for your entire FICA tax burden, framed as a self-employment tax.

Capital gains taxes

If your company produces income through investments, you’ll be required to pay capital gains taxes on that income. Capital gains taxes are lower than federal income taxes, ranging from 0% to 20% depending on your overall income.

Property taxes

As is the case for individuals, if your company owns real estate or other taxable property, you’ll need to pay property taxes to your local tax collector.

Dividend taxes

Many companies pay their owners and other shareholders dividends. These dividend payments are subject to either 0%, 15%, or 20% tax rates based on your overall personal income.

Sales taxes

In the U.S., 38 states require business owners to pay sales taxes, each with its own list of rates and exceptions. Be sure to look into sales tax requirements in the states in which you sell goods.

Excise taxes

Excise taxes are taxes placed on specific goods like alcohol, gasoline, and firearms. If you operate a business that sells these or similar goods, you’ll be required to pay excise taxes based on sales.
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When to file your small business taxes

The business tax deadline for 2024 is April 15th. However, payroll taxes are paid at least quarterly, and other taxes (like sales tax) may require monthly payments.

What about foreign business dealings?

As a United States-based company operating globally, you’ll be required to pay your federal and local income taxes. However, it’s also important to consider global tax requirements. Be sure you understand the tax burdens associated with each country you either ship goods to or provide services to. If you’re a non-resident doing business in the United States, your income will be taxed at a flat 30% rate.

What about ecommerce business taxes?

As an ecommerce business owner, you likely operate across state lines and may operate internationally. If so, it’s important to consider the tax regulations associated with the areas you ship products to or provide services to. For example, if you ship products to Florida, you’ll be required to pay Florida’s sales taxes.

Business tax filing do’s and don’ts

As with any process, there are do’s and don’ts you should consider as you prepare and file your company’s taxes. Find the details of these below.

Do’s

• File on time: If you file your taxes late, you’ll have to pay IRS penalties.
• Keep track: Don’t just focus on your taxes at the end of the year. Keep track of your finances and have your records ready at all times.
• Be accurate: Write-offs reduce your tax burden, but inaccurately deducting items can result in significant penalties.  
• Reduce your burden: Take advantage of any deductions you and your business qualify for to reduce your tax burden.

Don’ts

• Use round numbers: Never round numbers on tax documents. All information must be accurate to the penny.
• Wait until the end of the year: As mentioned above, accounting is a year-round process and it’s important to have your records available at all times.

How Ramp can help with business taxes

As a business owner, you shouldn’t have to spend a significant amount of time tracking expenses, maintaining financial records, and looking for tax deductions or ways to reduce corporate taxes. When you have adequate tools like Ramp, you can spend your time focusing on things you can do to grow your business. Here are a few ways Ramp helps with business taxes:

• Vendor tax information management: Keep tabs on your vendor tax information and export reports so you have everything you need when it’s time to file for the year.
• Expense tracking: Track every dollar your company spends and generate detailed, categorized expense reports for accurate small business tax deductions.
• Integrations: Connect your Ramp account to accounts at QuickBooks, Xero, Net Suite, and more.

Stop wasting your time and start taking advantage of automation in your accounting for better results at tax time with Ramp.

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