How Much Small Businesses May Owe in 2025 Taxes

Many small business owners reach tax season with the same concern — how much they might owe. 

The rules are not always straightforward because the IRS does not tax every business the same way. Each business structure follows its own tax system, and that system influences how your earnings are treated, how your final tax bill is calculated, and how your planning decisions may affect what you pay. 

This is one reason many owners try to understand the basics before the year ends. Even simple choices, like how you pay yourself or how your business is classified, could shift your overall tax picture.

If you want a clearer view of how your business entity fits into the federal tax rules, this guide explains how each main business type is taxed in 2025.

Tax Rates by Business Entity

Business taxes generally depend on how the IRS treats your structure. Each entity follows its own rules for reporting income and determining how the owners are taxed. The summaries below explain how the major business types are taxed in 2025.

Sole Proprietorship

A sole proprietorship is treated as part of the owner’s individual tax return. Earnings are reported on Schedule C and taxed at ordinary income rates that range from 10% to 37%. Owners also pay self-employment tax on net earnings to cover both the Social Security and Medicare portions that employers and employees normally split. This combination often makes the total tax bill feel higher for many sole proprietors.

📝 Note: Self-employment tax is separate from income tax, and both may apply at the same time.

Partnership

A partnership does not pay federal income tax at the entity level. It reports activity on Form 1065 and provides each partner a Schedule K-1. The K-1 shows each partner’s share of income, deductions, and other items. 

Partners then report this information on their own returns and pay ordinary income tax between 10% and 37%. The profit-sharing arrangement outlined in the partnership agreement generally determines what each partner reports.

LLC (Limited Liability Company)

An LLC can choose how it is taxed. A single-member LLC is treated like a sole proprietorship unless it elects a different status. A multi-member LLC is treated like a partnership unless it files an election to be taxed as a corporation. If the LLC remains a pass-through entity, owners pay ordinary income tax at rates between 10% and 37%. If it elects corporate taxation, the LLC pays the 21% corporate tax rate.

📝 Note: Electing corporate taxation may benefit certain owners depending on income levels and long-term planning objectives.

S Corporation

An S corporation is also a pass-through entity. It files Form 1120-S but does not pay federal income tax at the corporate level. Each shareholder receives a Schedule K-1 that reports their share of income, deductions, and credits. Shareholders include those amounts in their own returns and pay ordinary income tax between 10% and 37%. Many S corporation owners receive both wages and a share of the business income, and each type of income follows different tax rules.

📝 Note: The mix of wages and pass-through earnings often affects both income tax and payroll tax outcomes.

C Corporation

C corporations are one of the few business structures taxed directly at the corporate level. Although S corporations are technically corporate entities, they do not pay corporate tax because they are treated as pass-through businesses. The same applies to LLCs that elect S corporation status. Only C corporations and LLCs that choose to be taxed as C corporations fall under the corporate tax system.

For 2025, C corporations pay a flat 21% federal corporate tax rate. This tax applies to the company’s taxable income before any distributions are made to shareholders.

Pass-Through Business Taxes

Pass-through businesses do not pay federal income tax at the entity level. Instead, their income and losses flow directly to the owners, who report the results on their individual tax returns. This means the business’s taxable income is generally taxed at the owner’s individual rate, which ranges from 10% to 37% depending on overall income. Some owners may also owe self-employment tax, and certain types of income may qualify for the qualified business income (QBI) deduction.

Sole proprietorships, partnerships, S corporations, and LLCs that choose pass-through taxation are all treated this way under federal rules.

📌 Also read: Tax Brackets & Federal Income Tax Rates 2025

2025 Individual Tax Rates

Tax bracket	Taxes owed
Under $11,925	10% of taxable income
Over $11,925 but not over $48,475	$1,192.50 plus 12% of the excess over $11,925
Over $48,475 but not over $103,350	$5,578.50 plus 22% of the excess over $48,475
Over $103,350 but not over $197,300	$17,651 plus 24% of the excess over $103,350
Over $197,300 but not over $250,525	$40,199 plus 32% of the excess over $197,300
Over $250,525 but not over $626,350	$57,231 plus 35% of the excess over $250,525
Over $626,350	$188,769.75 plus 37% of the excess over $626,350

📌 Source: Federal Individual Income Tax Brackets, Standard Deduction, and Personal Exemption: 1988 to 2025 — Congressional Research Service

How Is an LLC Taxed?

An LLC can choose its federal tax classification, which gives it more flexibility than other business structures. It may be taxed as a sole proprietorship, partnership, C corporation, or S corporation, depending on the number of members and the election the owners make with the IRS.

Tax Rates for Corporate Dividends

Some corporations distribute profits to shareholders through dividends. When that happens, the corporation does not deduct these payments. Instead, shareholders report the dividends on their personal tax returns and pay tax based on how the dividends are classified.

Ordinary vs. Qualified Dividends

Dividend tax rates depend on whether the payment is treated as an ordinary dividend or a qualified dividend. Ordinary dividends are taxed at the shareholder’s regular income tax rate, which generally falls between 10% and 37%. Qualified dividends receive more favorable treatment and are taxed at the long-term capital gains rates, which range from 0% to 20%, depending on taxable income.

📝 Note: Qualified dividend status requires meeting specific holding period and issuer rules, so not all dividends automatically qualify for the lower rate.

2025 Long-Term Capital Gains Tax Rates

Filing status	0% tax rate	15% tax rate	20% tax rate
Single	$0 to $48,350	$48,351 to $533,400	$533,401 or more
Married, filing jointly	$0 to $96,700	$96,701 to $600,050	$600,051 or more
Married, filing separately	$0 to $48,350	$48,351 to $300,000	$300,001 or more
Head of household	$0 to $64,750	$64,751 to $566,700	$566,701 or more

📌 Sources: 

What Makes a Dividend “Qualified”?

For dividends to qualify for the lower tax rate, the shareholder must meet a minimum holding period requirement. In most cases, the stock must be held for more than 60 days within the 121-day window that starts 60 days before the ex-dividend date. Meeting this condition allows dividends from common stock to be treated as qualified dividends.

However, not every dividend meets these criteria. Payments from real estate investment trusts (REITs), mutual funds, and employee stock options usually do not qualify and are instead taxed as ordinary income.

📝 Note: The holding period requirement ensures that only investors with meaningful ownership, not short-term traders, benefit from the lower qualified dividend tax rates.

Wrapping It Up

Knowing how your business is taxed can make preparing for the year a bit less stressful. Each type of business handles income and reporting differently, and those differences may affect your overall tax outcome. 

So, take a moment to review your current structure to determine if it still fits your goals. Keep clear records of earnings, expenses, payroll, and any dividends or distributions. If your business income is changing or you are thinking about a different structure, revisit your tax approach early to help you plan more effectively and avoid surprises later in the year.

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