The amount of tax a business pays on its profits depends on various factors, including the business structure, taxable income, and applicable tax rates.

Here’s a brief overview of how different business structures are taxed on their profits…

1. Sole Proprietorship and Partnership – In a sole proprietorship or partnership, business profits are typically passed through to the owners and reported on their personal tax returns. These businesses are not taxed at the entity level. Instead, owners pay taxes on their share of the business profits at their individual income tax rates. The tax rates for individuals vary depending on their income level and filing status, ranging from 10% to 37% for federal income tax in the United States (as of 2022).
2. Limited Liability Company (LLC) – By default, LLCs are taxed as pass-through entities, similar to sole proprietorships or partnerships. LLC profits are passed through to the owners and reported on their personal tax returns. However, LLCs also have the option to elect to be taxed as a corporation (either as a C corporation or an S corporation), which can result in different tax treatment.
3. C Corporation – C corporations are separate legal entities from their owners, and they pay corporate income tax on their profits. As of 2022, the corporate income tax rate in the United States ranges from 15% to 35%, depending on the corporation’s taxable income. When C corporations distribute profits to shareholders in the form of dividends, those dividends are subject to taxation again at the individual level.
4. S Corporation – S corporations are also pass-through entities, similar to sole proprietorships or partnerships. S corporation profits are passed through to the owners and reported on their personal tax returns. However, unlike C corporations, S corporations are not subject to corporate income tax at the entity level. Instead, owners pay taxes on their share of the business profits at their individual income tax rates.

Tax laws and rates can change over time and vary by jurisdiction. Businesses may be eligible for various deductions, credits, and incentives that can reduce their tax liability. Consulting with a tax professional or accountant can help businesses understand their tax obligations and optimize their tax strategy to minimize taxes legally and effectively.