Small Business Tax Calculator

Small businesses represent over 99% of all enterprises in the United States. Unlike publicly traded conglomerates, the vast majority of small businesses are structured as pass-through entities—including sole proprietorships, partnerships, Limited Liability Companies (LLCs), and S-Corporations. Under pass-through rules, the business entity itself pays $0 in federal corporate income tax; instead, net profits or losses flow through directly to the business owners' personal income tax returns (IRS Form 1040).

For pass-through business owners, taxation encompasses two distinct layers: Ordinary Income Tax (taxed at personal marginal rates from 10% to 37%) and Self-Employment Tax (15.3% covering Social Security and Medicare on Schedule SE). However, S-Corporations allow active owner-employees to split earnings between a "reasonable W-2 salary" (subject to FICA payroll tax) and shareholder dividend distributions (which are exempt from self-employment tax).

Furthermore, under Section 199A of the Internal Revenue Code, eligible pass-through small business owners can claim the Qualified Business Income (QBI) Deduction, which deducts up to 20% of qualified business profit from individual taxable income, providing significant parity with the 21% flat C-Corporation rate. Explore our companion Business Entities Comparison Guide, review self-employment write-offs in our US 1099 Self-Employment Tax Guide, and inspect payroll withholding in our S-Corp Payroll Strategy Guide.

Compare entity taxation and estimate your business tax obligations:

1. Enter Net Business Taxable Income: Input your annual net business profit (gross revenue minus cost of goods sold, rent, software, advertising, contractor fees, and equipment write-offs) in US Dollars ($).
2. Select Your Business Entity Structure:
   • C-Corporation: Calculates entity-level tax at the 21% flat corporate rate.
   • S-Corporation / LLC: Demonstrates pass-through taxation where entity-level corporate tax is $0, passing income directly to owners' personal tax returns.
3. Click Calculate: Instantly inspect entity-level liabilities, effective tax percentages, and after-tax retained business capital.

The calculation output provides an itemized summary of your entity tax profile:

Small business taxation follows two divergent paths under the Internal Revenue Code:

Examine three realistic small business profit scenarios evaluating C-Corp vs pass-through choices:

• Section 199A 20% Deduction: Allows qualifying pass-through small business owners to deduct 20% of net business income, reducing effective individual federal tax rates.
• S-Corp Self-Employment Tax Shield: Dividing net earnings between reasonable salary and dividend distributions legally avoids the 15.3% self-employment tax on the distribution portion.
• Section 179 Immediate Expensing: Allows small businesses to immediately deduct up to $1,220,000 in qualifying business equipment, computers, machinery, and vehicles in the year purchased.
• Home Office & Vehicle Write-Offs: Sole proprietors and single-member LLCs can deduct actual home office space, mileage ($0.67/mile), cell phones, and professional development expenses.

• QBI Phase-Outs for Specified Service Trades (SSTB): Doctors, lawyers, accountants, financial advisors, and consultants face phase-out of the 20% QBI deduction once taxable personal income exceeds statutory thresholds.
• S-Corporation Strict Ownership Rules: S-Corporations cannot have more than 100 shareholders, cannot have non-resident alien shareholders, and cannot issue multiple classes of stock.
• State Franchise & Minimum Taxes: Many states impose mandatory entity franchise taxes on LLCs and corporations regardless of profitability (e.g., California's $800 annual minimum franchise tax).

Comparison of primary tax characteristics across small business organizational forms:

• Paying Zero Officer Salary in an S-Corp: The IRS aggressively audits S-Corporations taking 100% distributions with $0 W-2 salary, reclassifying distributions as wages with retroactive penalties.
• Commingling Business and Personal Funds: Paying personal living expenses from a business bank account can "pierce the corporate veil," destroying limited liability protection and triggering disallowed deductions.
• Missing Quarterly Estimated Tax Deadlines: Small business owners must remit quarterly estimated taxes (Form 1040-ES) on April 15, June 15, September 15, and January 15 to avoid underpayment penalties.

• IRS Small Business and Self-Employed Tax Center — Official Filing Resources
• IRS Qualified Business Income Deduction (Section 199A) — Statutory Rules
• U.S. Small Business Administration (SBA) — Federal Business Guides & Capital Programs