There is no single small business tax rate. The rate you pay depends entirely on how your business is structured. A C-corporation pays a flat 21% federal income tax on profits. Every other common small business structure, including sole proprietorships, partnerships, S-corporations, and most LLCs, passes profits through to the owner’s personal tax return, where they’re taxed at individual income tax rates ranging from 10% to 37%. On top of income taxes, most small business owners also owe self-employment tax and potentially state taxes.
C-Corporation Tax Rate
If your business is organized as a C-corporation, it pays federal income tax at a flat rate of 21% on all taxable profits, regardless of how much the business earns. This rate applies to the corporation itself, not to you personally. When the corporation later distributes profits to you as dividends, you pay tax again on that income at your individual rate, which is why C-corp taxation is often called “double taxation.”
Most very small businesses avoid this structure for that reason. But a C-corp can make sense when the business retains most of its earnings for growth rather than distributing them, since the flat 21% rate may be lower than what the owner would pay on personal returns.
Pass-Through Business Tax Rates
The majority of small businesses are pass-through entities. This means the business itself doesn’t pay federal income tax. Instead, profits flow through to your personal tax return and are taxed at ordinary individual income tax rates. Sole proprietorships, single-member LLCs, partnerships, multi-member LLCs, and S-corporations all work this way by default.
For the 2025 tax year, federal income tax brackets for single filers are:
- 10%: $0 to $11,925
- 12%: $11,926 to $48,475
- 22%: $48,476 to $103,350
- 24%: $103,351 to $197,300
- 32%: $197,301 to $250,525
- 35%: $250,526 to $626,350
- 37%: Over $626,350
Married couples filing jointly get wider brackets. For example, the 22% bracket doesn’t kick in until $96,951 for joint filers, compared to $48,476 for single filers. These brackets are progressive, meaning only the income within each range is taxed at that range’s rate. If you’re single and your business earns $80,000 in taxable profit, you don’t pay 22% on all of it. You pay 10% on the first $11,925, 12% on the next chunk, and 22% only on the portion above $48,475.
Your effective tax rate (the average across all brackets) ends up lower than your top marginal rate. On $80,000 in taxable income, your effective federal rate would be roughly 14% to 15%, not 22%.
The Qualified Business Income Deduction
Pass-through business owners may qualify for an additional tax break called the Qualified Business Income (QBI) deduction, which lets you deduct up to 20% of your business’s net income before calculating your tax. If your business earns $100,000, this deduction could reduce your taxable business income to $80,000.
The deduction is available for tax years through December 31, 2025. Whether it will be extended beyond that is uncertain, so its availability for future years is worth watching. The full 20% deduction is available to taxpayers below certain income thresholds. Above those thresholds, limits apply based on the type of business you run, the W-2 wages your business pays, and the value of property your business holds. Service-based businesses like consulting, law, and accounting face stricter phase-outs at higher incomes.
Self-Employment Tax
Income tax isn’t the only tax on small business profits. If you’re a sole proprietor, a partner, or a member of an LLC, you also owe self-employment tax, which covers Social Security and Medicare. The combined self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. As an employee, you’d split these costs with your employer, but as a self-employed person, you pay both halves.
The Social Security portion applies only up to a wage base that adjusts annually (the 2024 base was $168,600). Once your earnings exceed that threshold, you stop paying the 12.4% Social Security portion, but the 2.9% Medicare tax continues on all earnings with no cap. If your income exceeds $200,000 as a single filer or $250,000 as a married couple filing jointly, an additional 0.9% Medicare surtax kicks in.
S-corporation owners can reduce self-employment tax by paying themselves a reasonable salary (which is subject to payroll taxes) and taking remaining profits as distributions, which are not subject to self-employment tax. This is one of the main reasons small business owners elect S-corp status once their income reaches a certain level.
State Business Taxes
Most states add their own income tax on top of federal taxes. For corporations, state corporate income tax rates range from about 2% to 11.5%, with an average top rate around 6.5%. A handful of states impose no corporate income tax at all, while some use gross receipts taxes instead, which tax total revenue rather than profit.
Pass-through business income is typically taxed on your state personal income tax return. State individual income tax rates vary widely, from zero in states with no income tax to over 13% in the highest-tax states. The state where you live and where your business operates both matter, and in some cases you may owe taxes in multiple states.
Putting It All Together
To understand your actual small business tax burden, you need to stack these layers. Consider a sole proprietor who is single and earns $100,000 in net business profit. Before the QBI deduction, here’s a rough picture:
- Federal income tax: Roughly $15,000 to $17,000, depending on other deductions
- Self-employment tax: About $14,130 (15.3% on 92.35% of net earnings, which is the standard calculation)
- State income tax: Varies, but could add another $3,000 to $10,000 depending on your state
The QBI deduction, if available, would shave roughly $4,000 off the federal income tax portion by reducing taxable income by $20,000. All told, a sole proprietor earning $100,000 could owe somewhere between $28,000 and $38,000 in combined taxes, depending on the state and available deductions. That’s an effective combined rate of roughly 28% to 38%.
An S-corp owner at the same income level could lower the self-employment tax piece by structuring part of the income as a distribution. A C-corp owner would pay 21% at the corporate level but face additional personal tax on any money taken out as salary or dividends. The right structure depends on your income level, how much you reinvest in the business, and your state’s tax rules.