Is there any difference in tax rates between self employment and small business tax?

Question: I have my own small business. I’m the only employee and a sole proprietor. I am a little bit confused about the difference between self-employment tax and small business tax. Is there a difference and which one do I have to pay?

Response: The difference between self-employment tax and small business tax depends on the structure of your business. If you are a sole proprietor and you are the only employee, in most cases there is essentially no difference between self-employment tax and small business tax. Any income that you make from your business is simply self-employment or miscellaneous income. You are required to file estimated quarterly taxes on that income four times per year, and failure to do so may result in collection of late fees or penalties.

If your business was structured as an S-corporation or a C-corporation, and/or if you had employees, then there would be some significant differences between self employment tax and small business tax as corporations have a different tax structure and employers are generally required to pay a portion of their employee’s social security taxes, as well as to withhold FICA and other taxes from employee paychecks.

In your situation, it would be best to speak with a lawyer and perhaps an account that has experience with self-employment or small business taxes to understand your legal obligations and avoid any potential IRS penalties.

Answered by Christy Rakoczy

Additional Resource: Filing Business Taxes

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