Question by Onesisthe: Are small businesses taxed at a different percentage then regular jobs taxes?
I know jobs you pay by how much you make. 15% if you make 8-32 thousand, 25% if you make 32-78 thousand etc.
Is there a set rate for small business or does it work the same?
Answer by Carpenter Charlie
Good question! I can try to help.
If you are truly a “small business” then you will operate as a “sole proprietorship”. Any profits from your business would be reported and paid for as personal income and yes you would pay the same tax rate.
You will file a schedule C “profit and loss statement” along with your 1040 tax form. The business income or loss will be the difference between how much your company had in expenses verse how much your company had in income.
If your company made any money after operating expenses then this will be reported on your 1040 form as “net business income” and added to your adjusted gross income along with any w-2 income.
The combined income from your schedule C and your W-2′s with be taxed at the appropriate personal income tax rate.
If your business is a succeeds, you may wish to become a Corporation. This involves a lot of record keeping and tax filings. However the benefits are that you could take the income from your business as “investment” income also known as “dividends”. The advantage is that dividends are not considered “earned income” and you will not be required to pay social security taxes, Medicaid taxes, or unemployment taxes on these dollars.
This is just a little about the subject. If you are really interested in this topic then you should read the “rich dad, poor dad” series on business.
Just remember, don’t give up. You may fail the first few times. This is how you learn to be better at your business. “Fail forward”!
Add your own answer in the comments!