US Business Income Tax Rate Guidance (2025)
How Business Income is Taxed in the U.S.
The way your business income is taxed depends on your business's legal structure:
- Pass-Through Entities (Sole Proprietorship, Partnership, S-Corporation): The business itself typically does not pay federal income tax. Instead, the net income or loss is "passed through" to the owners' personal tax returns (Form 1040). The business income is combined with the owner's other income (like wages, interest, etc.) and taxed at the owner's individual income tax rates.
- C-Corporation: The C-Corporation is taxed as a separate entity. It pays corporate income tax on its profits using corporate tax rates. If profits are then distributed to shareholders as dividends, those dividends are generally taxed again at the shareholder's individual level (this is sometimes called "double taxation").
Therefore, understanding your business's tax rate requires knowing how the income flows and which tax rates apply at the entity or individual level.
This guide provides an overview of U.S. federal income tax rates for the 2025 tax year. State income tax rates also apply and vary significantly.
2025 Federal Individual Income Tax Brackets
If your business is a Sole Proprietorship, Partnership, or S-Corporation, your business profit is taxed at these individual rates. Your business income is added to your other personal income to determine your total taxable income, which then falls into these brackets.
Select your filing status to see the 2025 federal income tax brackets:
Your income tax is calculated based on these marginal brackets. Only the portion of your income that falls within a specific bracket is taxed at that rate. This is not a flat tax on your total income. Tax brackets and rates can change annually.
2025 Federal Corporate Income Tax Rate
If your business is structured as a C-Corporation, its profits are taxed at the federal corporate income tax rate at the entity level.
For the 2025 tax year, the U.S. federal corporate income tax rate is a flat rate:
Federal Corporate Income Tax Rate (2025)
21%
This rate applies to the C-Corporation's taxable income. Remember that if the corporation then distributes profits to shareholders as dividends, those dividends are generally taxed again at the individual shareholder's level (qualified dividends have preferential tax rates).
This is the federal rate. State corporate income tax rates also apply and vary significantly.
Important Considerations:
- Pass-Through Income: For Sole Proprietors, Partnerships, and S-Corps, your business income from Schedule C or K-1 is reported on your personal Form 1040 and taxed at *your individual income tax rates*, along with your other income.
- Taxable Income: The tax brackets apply to your *taxable income*, which is your Adjusted Gross Income (AGI) minus your deductions (Standard or Itemized). Business expenses on Schedule C reduce your Net Earnings before they contribute to your AGI.
- Self-Employment Tax: In addition to income tax, Sole Proprietors and Partners (and sometimes S-Corp shareholders) generally owe Self-Employment tax (Social Security and Medicare taxes) on their business earnings. This is separate from income tax.
- State Taxes: Most states also have income tax (individual and/or corporate) with their own sets of rates and brackets. These are not included in this federal guide.
- Tax Laws Change: Tax rates, brackets, and rules can change annually due to legislation and inflation adjustments. The information here is for the 2025 tax year.
Consult a Tax Professional
Tax situations are highly individual. This guide provides general information. For advice specific to your business structure, income, expenses, and overall financial situation, it is always recommended to consult with a qualified tax professional or CPA.
Understanding your business's tax liability requires considering your overall financial picture and relevant tax laws beyond just the business's gross income.
This tool provides educational information on U.S. federal income tax rates for the 2025 tax year. It is not tax advice. Consult a professional for personalized guidance.