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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Lets say that I start a business that makes $1,000,000 a year

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Let's say that I start a business that makes $1,000,000 a year (for sake of argument). Would this mean that I have to pay $350,000 in taxes a year, or would I have to pay taxes based on how much I profit, or both?
Submitted: 8 years ago.
Category: Tax
Expert:  Anne replied 8 years ago.



Thank you for using justanswer. This is a great question. To some extent, how you set up your business (Sole Proprietor, LLC, Partnership, S Corp, etc) will determine some of your tax liability. (For example, if you set up your business as a C Corporation, then you will pay taxes once at the corporate level, and once again on your personal income tax when you receive distributions in the form of dividends from the Corp)


However, in general, all businesses are taxed on their net income after expenses. Also, as a business owner, you will be responsible for paying your own social security tax, whether as an employee of the business (as in an S Corp) or by filing an SE tax form. The self employment/social security tax is 15%, and this is in addition to the tax on any profit.


The best advice I can give anybody thinking of starting their own business is to keep VERY good records. Since your business income is taxed on net, its vital you get all of your allowable deductions.


Please see below for more in depth information re: business entities. This is the place to start.


Choosing a Business Structure


I hope this helps


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