LLC Tax Rate Calculator: Everything You Need to Know
Corporations use the LLC tax rate calculator to determine taxes. Taxes vary depending on the business entity. 3 min read
2. Additional Taxes
3. Differences Between Paying LLC Taxes and Paying S Corporation Taxes
4. How to Calculate Corporate Tax Owed
Updated November 5, 2020:
Corporations use the LLC tax rate calculator to determine taxes. Taxes vary depending on the business entity. Estimate your corporation's taxes with Form 1120 or using the taxable income of last year. Consider additional taxes such as employment, payroll, self-employment tax, federal income tax, and accumulated earnings tax. Note differences between paying taxes for an S corporation and an LLC.
LLC Tax Rate Introduction
Creating a business entity has several advantages. The formation of a business entity provides protection for your assets, increasing your financial visibility, and making your taxes easier to handle. Selecting the right corporate entity will decrease your annual tax bill significantly. Being taxed as an S corporation is the simplest way for business owners to lower the amount of tax bills.
This is accomplished by:
- The formation of an S corporation
- The formation of a Limited Liability Company or LLC and electing to be taxed as an S corporation
In order to calculate your business's corporate tax, you need to know what the taxable income is first.
In order to estimate corporate taxable income:
- Complete Form 1120 (by either you or your tax preparer)
- As a starting point, use last year's taxable income
1. Employment, Self-Employment Tax, and Payroll
- Everyone in the business has a tax levied onto their salary, even if they are self-employed.
- The tax has two parts; one is paid by the employee and the other paid by the employer.
- As a self-employed individual you pay both parts, both the employee and the employer.
- The taxes levied across your full income are Medicare, Social Security tax, and FICA.
- As an example, you'll pay $7,500 in taxes for a $50,000 salary.
2. Federal Income Tax
- Federal income tax is paid on the profit your business makes, which is the revenue minus expenses.
- Standard deductions apply among other deductions, the total amount you pay is determined by your tax band.
- Regarding the taxes on your salary, you'll pay federal income tax and employment tax.
3. Accumulated Earnings Tax
Corporations are required to pay a 20% accumulated earnings tax if the company doesn't pay dividends or distribute-this is on top of regular corporate tax.
The accumulated earnings tax does not apply to:
- Passive foreign investment companies
- Personal holdings companies
This tax is imposed on corporations in order to prevent them from stockpiling earnings since they are not being distributed to shareholders via dividends, thereby avoiding tax on the dividends.
Differences Between Paying LLC Taxes and Paying S Corporation Taxes
If you're not taxed as an S corporation and you're taxed as an LLC instead, you'll have to pay employment tax on your full salary.
In the event that you're taxed as an S corporation, there are two ways to remove money from the business:
- Via distribution - only federal income taxes are paid
- Via salary - employment taxes must are paid as normal
The differences between these two are considerable. If you have a standard LLC and you remove $70,000 from the business, your employment taxes will total $10,710. In comparison, if your salary was $45,000 and you paid $25,000 in distributions, your employment taxes would amount to $6,885.
How to Calculate Corporate Tax Owed
There is software available to help you calculate the amount of corporate tax but it can also be done manually with this calculation:
- Let's say for example that your corporation earned $300,000.
- Look on the above table at the fourth line which represents your taxable income, this line is between $100,000 to $335,000.
- The tax on this is equal to $22,000 and you'll need to add 39% on any amount above $100,000.
- Therefore, 39% of $200,000 is equal to $78,000.
- To get the total tax amount, add $22,000 plus $78,000 which equals $100,500.
The tax rate on the schedule is 39%, but the tax rate for your corporation would be effective at a lesser amount of 33.5%.
Calculating corporate tax varies from corporation to corporation. This business duty can become tasking to complete manually and is easier to accomplish with professional help. To get experienced assistance calculating your LLC tax rate, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the upper tier of lawyers from law schools such Yale and Harvard with an average of 14 years of legal experience. Lawyers on UpCounsel work with or on behalf of companies like Airbnb, Menlo Ventures, and Google.