Is Your Small Business Tax Rate Fair?

Your small business tax rate depends on the type of business you operate and how profitable you are on a yearly basis. The tax rate is similar to an income tax; the more you earn, the higher percentage of your income will go to the state and federal government. That said, though, some businesses are taxed much higher than others.

Business Classifications

You may qualify for tax deductions based on the type of business you operate. For example, a green technology business may receive several tax deduction incentives, whereas a manufacturing company may see the opposite. Non profit organizations are even tax exempt. Talk to your accountant about licensing and incentives you may be able to discover for your business class.

Proportional Taxes

Unfortunately, small businesses often get stuck paying a higher burden per employee than larger companies. This is the law of diminishing returns; the cost of adding one more employee when you have 200 is much lower than the cost of adding one more employee when you only have 20. To reduce the burden you pay, consider outsourcing a number of the services you require instead of hiring a full-time employee. This will keep your payroll tax low, and you can deduct the expense you pay out to a third party.