Tax time: This year's rate for small businesses
Even with recent changes to tax laws, the tax for small businesses remain the same.
(FORTUNE Small Business) -- Dear FSB: What is the 2008 small business tax rate? Is it 15%, or has it dropped?
- Raymond Sinclair, Hampton, N.H.
Dear Raymond: Despite changes to tax law in recent years, the tax rate for small businesses remains unchanged for 2008.
The self-employment tax is a social security and Medicare tax for individuals who work for themselves. As such, the IRS considers small business owners self employed, regardless of whether they are the sole proprietor or part of a partnership. It also doesn't matter if the business is a part-time or full-time occupation.
The tax is not split equally between Social Security and Medicare. In fact, 12.4% is for Social Security, which includes old-age, survivors, and disability insurance, while only 2.9% goes towards Medicare. For 2008, the maximum amount of self-employment income subject to Social Security taxes is $102,000.
Generally, small businesses should reduce their tax burden by deducting any "ordinary, necessary, and reasonable" expenses that arose during the year. The IRS defines this as anything that's "helpful and appropriate," such as buying a computer for the office or store.
Don't forget, if you have employees, you are responsible for employment taxes. Federal income tax, Social Security, and Medicare are withheld from employee paychecks. You also report and pay the federal unemployment tax out of your own funds and not from their paychecks. This tax goes towards paying unemployment compensation to workers who lose their jobs.