Small Business Tax Rates, Deductions and Credits

According to a new report issued by the Office of Advocacy of the US Small Business Administration, the effective federal income tax rate—the actual amount of taxes paid by a firm as a percent of its net income—faced by small businesses varies according to the business' legal form of organization. Overall, small businesses of all types pay an estimated average effective tax rate of 19.8%. Sole proprietorships face a 13.3% rate, small partnerships face 23.6%, and small S corporations face 26.9%. While not directly comparable, the rate faced by small C corporations is 17.5%.Now, this is different from the normal statutory tax rates. There is an element of progressivity at work in these differences. Firms with less income face a lower statutory rate. Nearly 60% of small sole proprietorships have a net income of less than $10,000, while only 3.1% have a net income of at least $100,000. On the other hand, more than 18% of small S corporations have a net income of at least $100,000. T... [Read Full Article]