In this case, the business pays taxes itself the owner does not report the income on their personal taxes. Partnerships are businesses with more than one owner and the owners each individually report their income on their personal taxes.Ĭorporations are legal structures that give companies many of the rights commonly enjoyed by individuals. The owner reports business income on their personal taxes. Sole proprietorships have one owner and are not officially set up as a business with the state. Most small businesses are sole proprietorships-over 70 percent in the U.S. That said, different tax rules apply based on your business structure. Don’t worry if this number seems high! There are plenty of deductions you can claim.
In fact, 75 percent of small businesses aren’t considered corporations but something called “unincorporated pass-through entities.” This means that they pay the owner’s personal tax rate, according to the National Federation of Independent Businesses. You might be surprised to learn that most small businesses don’t pay the corporate rate for income tax. If you need income tax advice please contact an accountant in your area. NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks.