Business Tax (2)
If I own a small business, do I have to pay both corporate tax and income tax even though all my income comes from my small business?
You are not actually being taxed twice on the same income. You refer to corporate tax; if your business is a corporation, then the corporation is taxed on its earnings, but the salary that is paid to you (and which is what you are taxed on) is a deduction. So that salary is only taxed once.
If your business is an S-corporation, the corporation itself doesn’t pay tax; everything is passed through to your individual return. So, again, no double tax. If you didn’t mean to refer to “corporate tax”, and your business is a sole proprietorship or a single-member LLC, again everything just appears on your individual return — the business is not a separate taxpayer. (If the business were a partnership or multiple-member LLC, you probably would not have said: “I own a small business”, so I’m ignoring those. But there would be no double taxation, either. I am also assuming that you would not elect to have an LLC taxed as a corporation — which you could do — but if you did, the same treatment described above would apply.)
There is one situation when there is double taxation — a corporate dividend is taxable to you but is not deductible by the corporation. So if you have a corporation (not a sub-S) and you receive a distribution as a dividend, then tax would be paid twice (but it is once by the corporation and once by you). That may not seem fair, but (i) you probably won’t be receiving dividends, and (ii) that’s the way dividends work for individuals in the US.
There are many tax deductions available, but there are a few that are frequently overlooked by business owners. Here’s a brief breakdown of commonly missed tax breaks:
- Equipment pieces for your business (purchases like 3D printers and industrial kitchen supplies) are deductible up to $500,000. You can also potentially deduct the amount the equipment depreciated in value during the first year that you owned the item.
- You are able to deduct the fees for online services that you use to run your business. This would include services like online bookkeeping, or a Dropbox subscription.
- Taxes such as sales tax, employment tax, and real estate tax may qualify as deductions for your small business.
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