Small Business Effective Federal Income Tax Rates Calculated

By McDowell, John | The Small Business Advocate, April 2009 | Go to article overview

Small Business Effective Federal Income Tax Rates Calculated


McDowell, John, The Small Business Advocate


New research from the Office of Advocacy shows that the average effective federal income tax rate faced by small businesses varies by the legal form of organization. Average rates range from 13.3 percent for sole proprietorships to 26.9 percent for S corporations. (The effective tax rate is the actual amount of taxes paid by a firm as a percent of its net income.)

Exceptions to the normal statutory tax rates, such as deductions, exclusions, and credits, have the effect of lowering the tax rates paid by firms. The result is a difference between the statutory rate and the actual or effective rate paid by the business or its owners.

Overall, small businesses of all types pay an estimated effective tax rate of 19.8 percent. Sole proprietorships have a rate of 13.3 percent; small partnerships, 23.6 percent; and small S corporations, 26.9 percent. While not directly comparable, the rate for small C corporations is 17.5 percent. …

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