How is my SMB taxed? – CPA In Houston
Evans Sternau CPA is a CPA in Houston that provides tax planning and tax advisory services to help you navigate taxes as a small, or midsize, business owner.
Self-Employment Tax
In general, any person that carries on a trade or business as a sole proprietorship, independent contractor, a member of an LLC taxed as a partnership, or a member of an LLC that is disregarded, is subject to self-employment tax on their earnings. This includes owners of SMB’s.This article is written by a CPA in Houston and will provide insight into how your SMB is taxed.
Owners of corporations and S corporations are not subject to self-employment tax on the earnings of their business. However, the owners of corporations and S corporations are subject to employment taxes on the wages paid to them by the corporation or S corporation. Because the earnings of a corporation (namely S corporation) are not subject to employment taxes, a reasonable wage must be paid by the corporation to the shareholder employee. A CPA in Houston with experience tax planning can help you determine your reasonable wage.
The self-employment tax rate is 15.3%, this includes 12.4% for Social Security and 2.9% for Medicare. However, in 2023, the 12.4% Social Security tax only applies to the first $160,200 of earnings. The 2.9% Medicare tax applies to all your earnings.
Income Tax
In addition to self-employment tax, an owner of an SMB LLC will owe income tax on the profits of their SMB and any other income they earn. The income tax rates for 2023 start at 10% and increase to 37%. Your tax rate depends on the amount of income you earn and your filing status (married filing jointly or single).
Tax Planning to Minimize Taxes
An owner of an SMB LLC should work with a Houston LLC CPA to make sure that they are utilizing all of the deductions available to them. For new business owners, the self-employment tax can come as a unexpected surprise. Proactive tax planning and making estimated tax payments can help reduce the burden of making a large tax payment in April.
About The Author
Christopher Sternau, CFP®, CPA
Partner – Evans Sternau CPA LLC
Christopher Sternau is a Certified Public Accountant and Certified Financial Planner with over a decade of experience providing comprehensive tax and financial planning services to several of the wealthiest families in the United States. He focuses his practice on complex individual and closely held business tax planning and preparation. His clients have business interests in a wide range of industries including oil and gas, mining, real estate, cattle ranching, retail, technology and many others.
Chris is the founding member of Evans Sternau CPA LLC. Prior to founding Evans Sternau CPA LLC, Chris led the tax department for a family office in Houston, Texas. He also spent several years as a Tax Manager at Andersen.
About Evans Sternau CPA LLC
Evans Sternau CPA is seeking reform in an industry where responsiveness and availability are the exceptions – not the norm.
Our global network of committed CPAs and accountants places proactive thinking at the forefront of our work. With robust service offerings and client support strategies, we are always searching for opportunities to serve your best interests.
While our philosophy is rooted in tried and trusted methods, our execution surpasses the norm and redefines the standard.
Evans Sternau CPA provides proactive tax, accounting, and advisory services for business owners, entrepreneurs and individuals with complex tax challenges. Evans Sternau CPA is for those that want year round support, not just during tax season.
