Business Tax Calculator
Estimate your business tax liability based on entity type — C-corp, S-corp, or sole proprietorship — after accounting for expenses, depreciation, and the 20% QBI deduction. Use this when planning quarterly payments or year-end tax strategy.
About this calculator
Business tax calculations differ significantly by entity type. C-corporations pay a flat 21% federal corporate income tax on taxable income. Pass-through entities (sole proprietorships, S-corps, partnerships) have their net income taxed at the owner's personal income tax rate. Net income = grossRevenue − businessExpenses − depreciation. If eligible, pass-through owners can deduct 20% of qualified business income (QBI) under Section 199A, reducing taxable income further: taxableIncome = netIncome × 0.80. Sole proprietors also owe self-employment tax of 15.3% on 92.35% of net profit (netIncome × 0.9235 × 0.153), which covers Social Security and Medicare contributions that employers normally split with employees.
How to use
Suppose a sole proprietor has $120,000 gross revenue, $40,000 in expenses, $5,000 depreciation, and claims the QBI deduction. Net income = $120,000 − $40,000 − $5,000 = $75,000. QBI deduction = $75,000 × 20% = $15,000. Taxable income = $75,000 − $15,000 = $60,000. Personal income tax (22% bracket) = $60,000 × 0.22 = $13,200. Self-employment tax = $75,000 × 0.9235 × 0.153 = $10,597. Total estimated tax = $13,200 + $10,597 = $23,797.
Frequently asked questions
How does the Section 199A QBI deduction reduce my small business taxes?
The Section 199A deduction allows owners of pass-through businesses — sole proprietorships, partnerships, and S-corps — to deduct up to 20% of their qualified business income before calculating income tax. For example, $80,000 of net business income becomes only $64,000 of taxable income after the deduction, potentially saving thousands in taxes. C-corporations are not eligible for this deduction. The deduction is subject to income limits and restrictions for certain service businesses above those thresholds.
What is self-employment tax and why do sole proprietors pay more than employees?
Self-employment tax is the sole proprietor's equivalent of payroll taxes — 15.3% covering Social Security (12.4%) and Medicare (2.9%). Employees only pay half (7.65%) because their employer covers the other half, but self-employed individuals pay both shares. It is calculated on 92.35% of net self-employment income to account for the employer-equivalent deduction. The IRS does allow you to deduct half of self-employment tax from gross income when calculating your income tax, partially offsetting the burden.
When does it make financial sense to switch from a sole proprietorship to an S-corp for tax purposes?
Converting to an S-corp can reduce self-employment taxes once net business profits are consistently above roughly $40,000–$50,000 per year. In an S-corp, you pay yourself a reasonable salary (subject to payroll taxes) and take remaining profits as distributions, which are not subject to self-employment tax. However, S-corps involve additional administrative costs such as payroll processing, separate business returns, and state fees. A tax professional can model the break-even point based on your specific income level and state requirements.