The small business tax structure is designed by the government to encourage small industries in the country. Hence small businesses may enjoy a number of tax deductions unlike other businesses. A small business owner can thus save a huge amount of money from the small business tax deductions.
The government also offers some deductions for the home based business establishments. The small business tax rates are lesser than the usual business tax rates. A small business may be of the various types. The Internal Revenue Service (IRS) has different tax schemes and tax forms for the different small business types.
Here are the types of the small businesses.
Limited Liability Corporation/Partnership
Tax Structure for Corporation Small Business
While forming a corporation small business, the shareholders exchange property, money or even both to build the capital stock of the corporation. The tax deductions implemented for a corporation are generally same the sole proprietorship. Some special deductions are also designed for corporations. When a corporation earns profit it is taxed to the corporation. It is then taxed to the shareholders when the profit is distributed as the dividends. The corporation small businesses may be liable to pay income tax, estimated tax, employment tax and excise tax.
Tax Structure for Partnership Small Business
A partnership small business stands on the relationship between two or more persons who unite to form a business. According to the IRS law, a partnership business has to file the annual information return in order to report the gains, income, losses and deductions. Each partner of the business includes his share of the income or loss on his tax return. The partnership small businesses may be liable for annual return of income, employment taxes and excise taxes.
Tax Structure for S Corporation Small Business
The corporation businesses can avoid double taxation by acting as S corporation. The S corporations enjoy exemptions from federal income taxes but are liable to pay certain capital gains taxes and passive income taxes. The shareholders of the S corporation business prepare their tax returns with their share of the corporation and by separately stating the income, loss, deduction and credit. The S corporation small businesses may be liable for income tax, estimated tax, employment tax and excise tax.
Tax Structure for Sole Proprietor Small Business
The sole proprietor owns the business by himself or herself. The tax structure for sole proprietors is different from other types of small businesses. A sole proprietor may be liable for paying the income tax, self-employment tax, estimated tax, social security and Medicare taxes and income tax withholding, Federal unemployment tax, excise tax, etc.
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Last Updated on : 29th July 2013