2022 Business Tax Rate

Now that we know what kinds of taxes businesses pay, what are the rates? Well, it depends on how you set your business up. There are basically two ways of doing this.

1. Business Tax Rate for C Corporations

This one is easy-peasy (sort of). The Tax Cuts and Jobs Act of 2018—aka the tax reform bill—cut the income tax rate to a flat 21% for all businesses that are set up as C corporations. Simple enough, right?Keep in mind that if the corporation pays dividends, shareholders must pay taxes on their personal tax returns. In this case, C corporation profits are taxed twice. (Boo!)

2. Business Tax Rate for Pass-Through Entities

The tax rate for pass-through entities is the same as the owner’s personal income tax rate.4 If your small-business falls into any of the types listed below, you’re considered a pass-through entity.

• Sole ProprietorshipPartnership (Limited and Limited Liability)

• Limited Liability Company (LLC)

• S Corporation

There’s also an alternative minimum tax (AMT). But the this tax only applies to certain high-income owners. The AMT basically limits some of the tax breaks they get. This makes sure they at least pay a minimum amount of income taxes.

What Is an Employer Identification Number (EIN)?

An employer identification number (EIN) is also referred to as a federal tax identification number. Essentially, this number is used by the federal government to identify a business entity. There are certain qualifications your business must meet to require an EIN.

If you answer yes to any of the following questions from the IRS, you should apply for an EIN.
Do you have employees? Do you operate your business as a corporation or a partnership?

Do you file any of these tax returns:

• Employment, Excise, or Alcohol, Tobacco and Firearms?

• Do you withhold taxes on income, other than wages, paid to a non-resident alien?

• Do you have a Keogh plan?

• Are you involved with any of the following types of organizations?

  • Trusts, IRAs, Exempt Organization Business Income Tax Returns

  • Estates

  • Real estate mortgage investment conduits

  • Farmers’ cooperativesPlan administrators

Small-Business Tax Deductions

Now that you know all about the types of taxes you might have to pay, you’d probably like to hear about your tax breaks, right? Fortunately, there are many small-business tax deductions (or tax write-offs). Deciding which ones are right for your company can be a lot to figure out. And unfortunately, the IRS isn’t a lot of help on this since they don’t provide a clear list of small-business deductions you can refer to. (What else is new?) But we can make a few assumptions based on their definition.

What Is a Business Tax Deduction?

The IRS says a tax deduction is any expense that’s “ordinary and necessary” to running your business. Products or services your business pays for that are necessary for the survival of your business fall into this category.

Examples of Tax Deductions

Here are examples of common tax deductions for small businesses to get you started.

• Home offices and suppliesUtilities

• Commercial rent

• Marketing and advertising

• Business travel

• Salaries and employee benefits

These are just a few potential expenses you can write off this year. But keep in mind that every industry will have its own unique expenses and deductions.

Energy Tax Incentives

The federal government offers special tax incentives for businesses that use sustainable energy sources in their daily operations. You should definitely learn about these tax breaks—they often have cash rebates and other financial perks.

For example, if you plan to or have had solar panels installed on your commercial property this year, you might qualify for the Solar Investment Tax Credit (ITC). This credit helps offset the cost of solar panel installation through a dollar-for-dollar reduction on your income tax bill. The percentage currently sits at 26% for installations that began or begin construction in 2022. So, if you spend $10,000 on solar panels, you’ll get $2,600 (26%) knocked off your next tax bill.

Cha-ching!

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