How Much Income Can a Small Business Make Without Paying Taxes?

One of the first questions that comes up for many new entrepreneurs is: “How much can I earn from my small business before I have to pay taxes?” The key isn’t only calculating how much revenue your business generates but also how much net income you make after deductions. Even if your business is a side hustle, you may owe taxes once your earnings hit as little as $400.

Understanding how small businesses are taxed, what income is considered taxable, and how much you can earn tax-free will help you keep as much as possible. Work with a tax professional to set up your business in the most tax-favorable way as you grow.

Minimum Tax Thresholds for Small Businesses

The minimum tax threshold for paying tax in your small business will primarily depend on your business structure. This table shows how your business structure impacts your minimum tax threshold:

Business Type	Income Threshold	Taxes Due
Sole Proprietor / Freelancer	$400 net income	Self-employment tax
C Corporation	$1 (no minimum)	21% corporate tax
Pass-Through (LLC, Partnership, S Corp)	$1 (no minimum)	Personal income tax

Self-Employed Individuals

Individuals with non-incorporated businesses must file a tax return and pay self-employment tax when their net income hits $400 or more. Net earnings are calculated by subtracting business deductions from your business income. Self-employment tax includes Social Security and Medicare taxes and is charged at a flat 15.3% rate.

Entrepreneurs must file tax returns even if they don't reach the minimum threshold. Not doing so is one of the top IRS audit triggers and could lead to costly penalties or fines. If you're a freelancer, taxes are not withheld from your income like a traditional employee. You'll be required to make quarterly estimated tax payments or have a small business accounting professional make them on your behalf. 

Small Corporate Businesses

C corporations pay a flat 21% corporate income tax rate in the United States. There's no minimum income threshold to pay this amount. Rather, every dollar earned in your business (after tax deductions and credits are taken off) is taxed at this 21% rate. Remember, you must file an income tax return even if your business operated at a loss.

Limited liability companies that elect to pay tax as a corporation are also subject to the same conditions.

Pass-Through Businesses

Pass-through business income (sole proprietorships, partnerships, some LLCs, and S corporations) is reported on the business owners' personal tax return. This means your business income is combined with any other income sources you have—like wages from other jobs, rental income, or investment income—and reported on your tax return.

Your total income will then be subject to ordinary income tax rates. The minimum tax rate of 10% applies to small businesses that earn up to $11,925 (or $23,850 for joint filers).

Aim to Minimize Your Small Business Tax Burden

Paying zero tax isn’t a realistic aim for most businesses as their income far exceeds the minimum threshold. As your business grows, your focus should turn to using the tools available to minimize your tax burden. A tax professional will help you implement the strategies you need to keep your tax liability as low as possible. 

Understanding Taxable Income vs. Gross Income

It’s essential to understand the difference between gross income and taxable income, as the IRS does not tax your total earnings; only what remains after allowable deductions. An expert in tax planning services has the knowledge and experience to reduce your taxable income and keep as much of your hard-earned money in your business as possible.

Gross Income: Your Total Earnings

Your business’s gross income is the total revenue it earns before you claim business expenses or other deductions. It could include income from sales, services rendered, or any other source.

Taxable Income: What You Actually Pay Taxes On

Taxable income is what’s left after subtracting allowable deductions (including business expenses, depreciation, and other tax write-offs) from your gross income. This is the amount the IRS uses to calculate your tax liability.

For example, if you earn $50,000 gross income but spend $20,000 on business expenses, you’re only taxed on $30,000.

The Role of Business Expenses

Deducting business expenses is one of the best ways to reduce your SMB's tax burden. Common business expense tax categories include:

• Financial expenses: Including credit and collection fees and bank fees

• Employee-related expenses: Wages, employee benefits, and training costs

• Office expenses: These include office supplies, utilities, and rent

• Business trips and meals

• Depreciation of equipment and property

Deducting these costs from your gross income lowers your taxable income. In turn, you’ll also reduce the amount of tax you owe.

Other Factors That Reduce Business Tax Liability

Many resources exist to help small business owners keep as much money as possible in their business. A knowledgeable tax professional will advise you on how to use the following tools to your advantage:

Filing Status

Your filing status plays a major role in determining how much tax you pay, even as a business owner. It affects your standard deduction, tax brackets, and eligibility for credits and deductions. 

For example, someone filing as Head of Household gets a larger standard deduction than someone filing as Single, which directly reduces taxable income. Married couples filing jointly often benefit from wider tax brackets, meaning more of their income is taxed at lower rates. This is a big advantage if both spouses contribute to the business.

Business Tax Credits

Business tax credits are incentives that reduce a business’s tax bill. Common business tax credits that could reduce your taxable income include:

• Work Opportunity Tax Credit 

• Disabled Access Credit

• Energy-Efficient Commercial Buildings Deduction 

• Small Business Health Care Tax Credit

Qualified Business Income Deduction

The Qualified Business Income (QBI) deduction allows eligible small business owners to deduct up to 20% of their qualified business income from pass-through entities like sole proprietorships, partnerships, S corporations, and certain LLCs. This deduction applies to the net income your business generates (after expenses), and it’s claimed directly on your personal tax return. Be aware that this deduction may be phased out after 2025.

State and Local Tax Considerations

Your business's location impacts how much you can make before paying taxes. This is because your business is subject to the state and local tax rules that apply where you operate.

For example, while some states have relatively high thresholds, others (like Florida) don't charge any income tax at all. Always stay on top of local laws that impact your tax liability.

What Happens If You Don’t Pay the Taxes You Owe?

The IRS has the power to impose penalties, interest, and take collection actions such as liens, levies, or wage garnishments if you don’t pay the taxes your business owes. The longer the tax remains unpaid, the more the debt grows due to accumulating interest and failure-to-pay penalties.

In serious cases, continued nonpayment may lead to legal consequences, including asset seizure or even criminal charges for tax evasion. It's critical to address any unpaid taxes promptly by working with a tax professional to resolve the issue.

Take Control of Your Small Business Taxes

Understanding when you owe taxes—and how much—is essential to running a compliant and financially healthy business. Deductions, credits, and choosing the right business structure are just some of the ways to reduce your tax burden. 

Paying zero taxes isn’t possible for most businesses, but it’s possible to minimize your tax bill with professional help. Consult a qualified tax advisor early in your business journey to avoid unpleasant surprises and keep more of what you earn.