The percentage you owe in taxes for your small business depends on the level of your sales, the amount it costs you to make these sales and the amounts you pay your employees. Small businesses are responsible for a variety of taxes. These include taxes on gross sales as well as taxes on net sales, or the amounts left over after you subtract your expenses from your gross income. In addition, you must pay employment taxes to state and federal agencies based on the total amount of your payroll.
Federal and state income taxes depend on your net income -- the profit your business earns after you subtract your business expenses from your business revenue. Income tax percentages are usually scaled relative to the amount that you earn, so if you earn a higher income from your business and other work-related activities, you are liable to pay a higher percentage in income tax. Business income from rent and royalties is taxed at 15 percent as of 2011, regardless of how much you earn from these investments.
Social Security and Medicare Taxes
Social Security and Medicare taxes are also based on your net income. As of 2011, employees of your company pay 5.65 percent in Social Security tax and 1.45 percent in Medicare, which you must supplement with 7.65 percent in Social Security tax and a matching amount for Medicare. As a self-employed individual, you are both your own employer and your own employee, so you are responsible for both the employer's and employee's shares of Social Security and Medicare taxes, or 13.3 percent combined as of 2011. The earnings amount on which you must pay Social Security tax is capped at $106,800 per year as of 2011, although there is no cap on the annual amount on which you must pay Medicare tax.
Revenue taxes are based on the total volume of business that your company transacts, otherwise known as your sales receipts. State and local taxes tend to be revenue taxes, and they vary according to your locale. The percentages that your business owes in revenue tax tend to be quite small, because revenue taxes do not represent your actual business income but rather the amount of money that your company handles.
Your small business must also pay percentages of your payroll in employment taxes to both the state and federal governments. State employment taxes include unemployment insurance and industrial insurance, and federal employment taxes include federal unemployment taxes as well as Social Security and Medicare taxes. State employment tax rates vary from state to state, while an employer's share of Social Security and Medicare taxes is the same in every state. The federal unemployment tax rate of .8 percent of each employee's wages up to $7,000 per year per employee as of 2011 is consistent in every state as well.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.