The Ultimate Guide to Small Business Taxes in the U.S.

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Let’s face it: taxes are one of the least exciting parts of running a business. But ignoring them? That’s a surefire way to rack up penalties, miss deductions, and stress yourself out at year-end.

In this post, we’re breaking down the major types of taxes small businesses may owe in the U.S. so you know what to plan for, track, and talk to your tax advisor about.

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🔹 1. Federal Income Tax

All businesses in the U.S. are required to pay federal income tax — but how you pay depends on your business structure.

• Sole Proprietorships & Single-Member LLCs report income on your personal return (Form 1040, Schedule C).
• Partnerships & Multi-Member LLCs file Form 1065. Profits “pass through” to partners’ personal returns.
• S Corporations file Form 1120-S, with income passed through to shareholders.
• C Corporations pay corporate income tax directly on Form 1120.

💡 Tip: Even if your business doesn’t owe income tax, you still have to file.

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🔹 2. Self-Employment Tax

If you’re self-employed, you’re responsible for both the employer and employee portions of Social Security and Medicare — this adds up to 15.3% of your net earnings.

This applies to:

• Sole proprietors
• Partners in a partnership
• LLC members (unless taxed as a corporation)

File with Schedule SE as part of your personal tax return.

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🔹 3. State Income Tax

Most states also collect income tax on business profits, with rates and rules that vary widely.

• Some states (like Texas, Washington, and Florida) don’t have personal income tax but may impose other business taxes (more on that below).
• Corporations may also owe state corporate income tax separate from personal taxes.

Check your state’s Department of Revenue website to confirm your filing requirements.

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🔹 4. Sales Tax

If you sell taxable goods or services, you may need to collect and remit sales tax to your state (and sometimes local) tax authority.

• This varies a lot by state — not all states tax services, digital products, or even shipping.
• You typically need to register for a sales tax permit before you begin collecting.
• Once registered, you’ll file sales tax returns monthly, quarterly, or annually depending on your sales volume.

📦 If you sell online, you may be required to collect sales tax in multiple states under economic nexus laws.

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🔹 5. Use Tax

Use tax is a lesser-known cousin to sales tax. It applies when you buy goods for use in your business without paying sales tax, especially from out-of-state vendors.

Example: You buy office furniture online from a vendor that doesn’t charge your state’s sales tax. Your state expects you to report and pay use tax on that purchase.

Most states include a line for this on their sales tax returns.

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🔹 6. Excise Tax

Excise taxes are imposed on specific goods and services — think:

• Fuel
• Tobacco
• Alcohol
• Heavy trucks
• Indoor tanning (yes, really)

You’ll typically owe these only if you’re in a niche industry, and they’re reported on IRS Form 720.

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🔹 7. Franchise Tax

Despite the name, franchise taxes aren’t just for franchises — they’re often charged by states simply for the privilege of doing business there.

• States like Delaware, Texas, and California charge franchise or margin taxes to LLCs and corporations.
• These are usually based on your revenue, assets, or capital — not your income.

Check your state’s business tax requirements even if you didn’t turn a profit.

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🔹 8. Payroll Taxes

If you have employees, you’re responsible for:

• Withholding federal income tax
• Withholding and matching Social Security & Medicare taxes
• Paying Federal Unemployment Tax (FUTA)
• State income tax withholding (in most states)
• State unemployment tax (SUTA)

These are reported on:

• Form 941 (Quarterly Federal Tax Return)
• Form 940 (Annual FUTA Return)
• State-specific payroll filings

💡 Even if you use a payroll service, you’re still legally responsible for making sure it’s done correctly.

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🔹 9. Local Business Taxes

Cities and counties may impose additional taxes or fees:

• Gross receipts taxes
• Local sales tax add-ons
• Business licenses or privilege taxes

Always check with your city and county when registering your business — and whenever you expand to a new location.

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🔹 Stay Ahead with Smart Bookkeeping

The best way to stay on top of taxes? Stay on top of your books. When your income, expenses, and payroll are organized and up-to-date, tax time becomes a whole lot less painful.

Here’s what to do:

• Set aside money regularly for estimated taxes
• Keep business and personal finances separate
• Track tax-deductible expenses carefully
• File on time — or file extensions to avoid penalties

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🧾 Final Thoughts

Taxes can feel overwhelming, but you don’t have to tackle them alone. Talk to a qualified tax professional to make sure you’re covering all your bases — and staying compliant in every state where you do business.

Here at The Profit Ledger, we’re all about giving you the tools to stay confident and in control of your business finances — taxes included.

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👉 Need help tracking all your tax obligations?
Download our free Small Business Tax Checklist to stay organized year-round.

You run the business. We’ll help you make sense of the numbers.