Small Business Taxation in the United States

Small businesses are vital to the sustainability and development of the U.S. economy and social sector (Hatten, 2015). Although the United States is home to many world-famous, large corporations, it would be wrong to undermine the importance of small businesses in providing working places and contributing a significant share of tax revenues. Statistics show that companies with assets less than $250 million pay more than three quarters of the total corporate tax revenue (Kimmons, 2017).

It is important to note that all small businesses in America pay taxes on the similar basis; however, they differ much in the process. This short essay aims at analyzing how these small companies pay their taxes and what challenges they face in this relation.

Before discussing taxation differences, it is important to determine the types of small companies existing in the USA. As noted by Kimmons (2017), small businesses are defined by the number of workers they employ and revenues they generate. Small businesses, according to the U.S. standards, are independent companies that do not occupy a dominant position in their sector (Daft & Marcic, 2010). Interestingly, criteria for small companies differ considerably; for example, a small company in manufacturing can employ from 500 to 1500 workers while a small company engaged in wholesaling can have no more than 500 employees. Furthermore, small businesses vary depending on their structure. Scholars generally distinguish the following types of companies: S corporations, corporations, sole proprietorships, LLCs, and partnerships (Stokes & Wilson, 2006). These companies differ in the way they run their businesses, keep records, and manage taxation.

The latter point should be discussed in more detail. Thus, small businesses are required to pay corporate income tax, which is the tax paid by a company on the profits it earns annually. This type of tax is levied on both federal and state levels, with former being equal for all small companies across the country. The level of corporate income tax is calculated depending on the annual revenues. For instance, a company that earned no more than $50,000 pays 15% while bigger companies are taxed higher. Estimated tax is another thing to consider by those planning to establish a small business. Unlike income tax, this type of tax is paid throughout the year. Notably, because small businesses are owned by independent employers, these people pay both for the company’s revenues and their personal sources of income.

Despite these similarities, small businesses somewhat differ in the way they pay taxes. For example, LLC are not included in the tax entities list; therefore, their owners are taxed as sole proprietors (Murray, 2017). Furthermore, sole proprietors and LLCs with a single member pay taxes by using a Schedule C, while owners of partnerships and LLCs with several members pay depending on their share of the income. As seen, there are many things to consider before starting a small business. Differences in taxation processes may be too complicated for entrepreneurs and even deter them from running their own business. If any challenges in this aspect arise, it is strongly recommended to hire an experienced accountant or obtain professional support from accounting firms.

To summarize, one may note that running a small business in the USA is associated with certain taxation challenges. The types of small companies in this country differ, and so do taxation regulations they need to comply with. To establish a successful and sustainable business, it is critically important to be aware of all similarities and differences that small companies have when it comes to paying taxes. Eventually, managing these complex requirements makes it easier to create business plans and run profitable businesses.


Daft, R. L., & Marcic, D. (2010). Understanding management. Boston, MA: Cengage Learning.
Hatten, T. S. (2011). Small business management: Entrepreneurship and beyond. Boston, MA: Cengage Learning.
Kimmons, R. (2017). How much tax revenue do small businesses generate? Chron. Retrieved from
Murray, J. (2017). How business types pay business income tax. The Balance. Retrieved from
Stokes, D., & Wilson, N. (2006). Small business management and entrepreneurship. Boston, MA: Cengage Learning EMEA.

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