Businesses are required to pay a number of different types of taxes to the Federal Government including income taxes, self-employment taxes, employer taxes and excise taxes. Self-employment taxes are paid by sole proprietors. Employer taxes are paid by businesses with employees. Excise taxes are paid on the production or sale of certain goods and services. Income taxes are divided into income brackets and increase as income increases.
Sole proprietors pay taxes on income as an individual taxpayer and are required to file a Form 1040. There are six tax brackets. Taxes are paid for the income earned within each bracket at the rate for that bracket.
Income between $0 and $8,350 is taxed at 10%.
Income between $8,351 and $33,950 is taxed at 15%.
Income between $33,951 and $82,250 is taxed at 25%.
Income between $82,251 and $171,550 is taxed at 28%.
Income between $171,551 and $372,950 is taxed at 33%.
Income over $372,950 is taxed at 35%.
Partnerships and S Corporations
Partnerships and S Corporations pass income through the business to the partners or the shareholders respectively. These business entities do not pay taxes but are still required to file returns with the IRS. Partnerships must file a Form 1065 and S Corporations must file a Form 1120S to report the income that was passed through the business and to the partners or shareholders. The partners or shareholders are taxed on the income they earn according to the individual tax rates listed above.
Corporations are taxed on income according to corporate tax rates that fall into eight income brackets. The tax rate is applied to the income earned within each bracket so income earned within the first bracket will be taxed at the rate for that bracket while income earned within the second bracket will be taxed based on the rate for that bracket. Corporations must file a Form 1120.
Corporate income between $0 and $50,000 is taxed at 15%.
Corporate income between $50,001 and $75,000 is taxed at 25%.
Corporate income between $75,001 and $100,000 is taxed at 34%.
Corporate income between $100,001 and $335,000 is taxed at 39%.
Corporate income between $335,001 and $10,000,000 is taxed at 34%.
Corporate income between $10,000,001 and $15,000,000 is taxed at 35%.
Corporate income between $15,000,001 and $18,333,333 is taxed at 38%.
Corporate income between over $18,333,333 is taxed at 35%.
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