Tax time can be stressful for small business owners. If your company hasn’t made any money yet, do you even need to file this year? Or, if you’re already turning profits, you may wonder how much you can make before you have to start paying business taxes.
The answers to these (and many other) tax questions will depend on how your business is structured, how much it has earned, and what deductions and credits you’re able to take.
Below, we break it all down to help you figure out how much you may owe in taxes for business income earned in 2024.
How to Calculate Your Small Business’ Taxable Income
Whether or not you need to file business income tax returns and how much you need to earn before you pay taxes will depend on your business structure.
Small Corporate Businesses
C corporations in the United States are subject to a flat 21% corporate tax rate under the Tax Cuts and Jobs Act. There is no minimum income you have to meet before your small corporation is taxed. Every dollar it earns (after deductions and credits are factored in) will be taxed at 21%.
Corporate tax rates also apply to limited liability companies (LLCs) who have elected to be taxed as corporations.
Unincorporated Businesses
If your business is structured as a sole proprietorship, partnership, LLC, or S corporation, it will likely be considered a “pass-through” business. That means the income it makes is “passed through” to you and is reported on your personal tax return.
This business income will be combined with any other income (such as wages from a part- or full-time job, rental income, or investment income) on your tax return.
Your filing status, potential itemized deductions, and other allowable deductions will all serve to determine your taxable income and resulting tax bracket.
A tax professional can help you consider all of these factors to estimate what your tax liability might be based upon your estimated business profit. But the following table can help you get a sense of your pass-through income tax rate in 2024:
| Tax rate | Income for single filers | Income for joint filers |
|---|---|---|
| 10% | Up to $11,600 | Up to $23,200 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 |
| 32% | $191,951 to $243,725 | $191,951 to $243,725 |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 |
| 37% | Over $609,350 | Over $731,200 |
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How Much Can a Small Business Make Before Paying Taxes?
If you operate your business as a pass-through, meaning the income is taxed as part of your personal income, then the tax-free threshold (also called the standard deduction) for 2024 income is $14,600 for individuals and $ $29,200 for married couples filing jointly.
There is no tax-free threshold for corporations — you need to pay tax on every dollar the company earns. Note that small business loans are not considered taxable income.
Zero Taxable Income
If your annual income and business expenses were equal — or, if your business didn’t generate any revenues at all — you may have no income tax liability.
Here’s an example. Let’s say you started a small enterprise in 2024 that earned $5,000 in annual sales revenue. However, you also had $5,000 in annual expenses, which included buying a new computer, advertising, and office supplies. Because these two cancel each other out, no income taxes are owed.
Net Income Formula
Net income (also sometimes referred to as net earnings or net profit) is your company’s total profits after deducting all business expenses.
To find your net income, which is what’s considered taxable, you can use a simple formula:
Gross Income – Expenses = Net Income
Let’s say you made $65,000 in annual sales and total expenses were $17,000 for the year. Your net income would be:
65,000 – 17,000 = $48,000
To lower your net income (which will lower how much you pay in taxes), it’s a good idea to keep track of and categorize business expenses throughout the year. Your business expenses might include expenses related to a home office or work space, the cost of tools or supplies, car or truck expenses, advertising costs, as well legal and accounting costs.
Net income can be positive or negative. When your company has more revenues than expenses, you have a positive net income. If your self-employed tax deductions are more than your revenues, you have a negative net income, also known as a net loss. You won’t have to pay taxes on your business income if you arrive at a negative number representing a net loss.
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Self-Employment Tax
If your business is not incorporated, you may need to file a tax return and pay the self-employment tax if your net income is $400 or more.
Self-employment tax is the equivalent of the FICA payroll taxes (Medicare and Social Security) that you would normally share with your employer if you worked for someone else. Your employer would pay half and you would pay half, but you are the employer if you own a pass-through small business, so you must pay both halves.
Qualified Business Income (QBI) Deduction
In addition to small business tax deductions, the IRS has another little gift for owners of pass-through businesses: the qualified business income, or QBI, deduction. The QBI deduction allows you to deduct up to 20% of your qualified business income on your taxes. Note that sole proprietors, S corporations, and partnerships can’t claim the QBI deduction after 2025 unless Congress extends Section 199A of the federal tax code.
Tax Credit
Another tax tip for small businesses is to look for tax credits you might qualify for. Tax credits are different from tax deductions. Tax credits directly reduce how much tax a business owes dollar for dollar. Tax deductions, on the other hand, are business expenses that decrease how much of a business’s income is taxable. Translation: Tax credits are worth more.
There are a variety of tax credits available for businesses to take advantage of, ranging from providing employees paid family and medical leave, to increasing access for people with disabilities. You can claim business tax credits by filling out the appropriate forms for the credits for which your business qualifies.
If you’re filing as a pass-through business, it’s also key to look into any and all personal tax credits you may qualify for, such as the Child Tax Credit.
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How to File Income Tax With a “Doing Business As” (DBA) Name
When choosing a business structure, you may also decide to create a name for your business other than your legal name. If that’s the case, you may need to file a “doing business as” form with your city or state registering your DBA trade name, also known as a fictitious business name.
You can identify your legal name and DBA in the appropriate fields when filing tax returns. A sole proprietorship on Schedule C, for example, may need to include the name of the proprietor, the proprietor’s Social Security number, the business trade name (if applicable), and the employer identification number.
Penalties for Failing to File Corporate Tax Return
No matter how your small business is structured, if you do not file your tax return by the date it’s due, the IRS may enforce a penalty fee. This fee is typically 5% of the taxes you did not pay on time for each month or partial month that your return is late. Generally, this fee will not exceed 25% of your unpaid taxes.
The IRS may also charge interest on penalties, which increases the amount you owe until you pay your balance in full.
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5 Tax Breaks for Small Businesses
Here are some small business tax breaks you can explore:
1. Business Loan Interest Tax Deduction
When filing taxes, you can check whether your business qualifies for a business loan interest tax deduction. If you’ve taken out loans for business purposes, including lines of credit and mortgages on business real estate, or if you’ve used business credit cards, the interest you pay on those liabilities may be tax-deductible.
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2. Charitable Contribution Tax Deduction
Small business owners who donate money to a qualified charitable organization may qualify for a tax deduction. To claim a deduction for charitable donations on your taxes, you must have donated to an IRS-recognized charity and received nothing in return for your gift.
3. Small Business Cell Phone Deduction
If you use a cell phone for business purposes, you may qualify for a deduction of your cell phone expenses when filing your tax returns. This can include expenses related to making domestic and international phone calls for business purposes.
4. Business Travel Tax Deduction
Small business owners who travel as part of their enterprise duties may deduct eligible travel expenses from their taxable income. This can include business-related transportation expenses, such as flights, rental cars, train fare, parking rates, and tolls.
5. Advertising and Marketing Tax Deduction
Ordinary advertising and marketing costs your business incurs may qualify for an income tax deduction. This can include expenses related to optimizing your company’s website or sponsoring an event.
The Takeaway
How much your small business can make before paying taxes will depend on whether your business is structured as a pass-through entity or a corporation. How much your business earned and spent during the year can also affect the equation. If you’re a small business owner, you may qualify for certain tax breaks that can minimize your tax burden.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
How much money does a small business have to make before filing taxes?
If your small business is not incorporated, you may need to file a tax return and pay the self-employment tax if your net income is $400 or more.
What is a taxable income for a small business?
Taxable income for a small business can include any revenue the business collects, such as fees collected from selling goods or services. In addition to gross receipts or sales, the revenue you collect from interest, rent, royalties, and capital gains may also qualify as taxable income.
How much can a side business make before paying taxes?
Individuals who have earned at least $400 in annual side hustle income may have to report that income to the IRS on Schedule SE. Self-employment taxes may apply if you’ve had net earnings of at least $400 from self-employment during the 2024 tax year.
Photo credit: iStock/amenic181
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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