Planning ahead for your income tax liability is one of your most important responsibilities as a small business owner. It’s a good idea to estimate your annual income taxes several times per year, especially if your taxable income varies significantly.
This calculator helps you quickly estimate your federal tax liability on taxable income, including pass-through income that qualifies for the pass-through credit. The calculator does not include estimated self-employment tax, which you are required to pay with your federal income taxes.
Select your filing status as Single, Married filing Jointly or Separately, or Head of Household. You can also choose to estimate your tax liability as a Trust.
Enter the total contributions you have made or expect to make for the year. For 2023, your total contributions to all traditional and Roth IRAs cannot exceed $6,500 per filer ($7,000 per filer if age 50 or older). Your total IRA contributions also cannot exceed your taxable compensation for the year.
Enter the number of dependent children you had who were under age 17 at the end of the year and qualify for the child tax credit.
Enter the number of dependents you had who were either your children age 17 or older at the end of the year, or qualified dependents who are not your children.
Qualified dividends, long-term capital gains, and certain other investment income is generally taxed at a lower rate than ordinary income. Enter income that qualifies for the investment income rate here.
Enter wages, ordinary dividends (not “qualified dividends), short-term capital gains, and other income subject to ordinary income tax rates. Do not include income from pass-through organizations here, such as sole proprietorships or an LLC.
Enter your total itemized deductions, including qualified mortgage interest, charitable contributions, and nonbusiness property taxes. Your total deductible taxes (state/local and property) cannot exceed $10,000.
Enter net income after expenses from a Sole Proprietorship, LLC, Partnership, or other pass-through entity. Enter 100% of the entity’s income, even if you only own a partial interest in the entity.
Estimate the total company assets that will be reported on the partnership or other entity return for the end of the tax year. For a Sole Proprietorship, leave this blank.
Enter your interest in the company (0% to 100%). The total company pass-through income will be multiplied by this percentage.
Enter the total wages the company paid or will pay for the year.
This is the estimated amount of federal income tax you expect to owe for the year, before any tax withholding or estimated payments.
You may also owe self-employment tax, which is not included in this estimator. Self-employment tax must be paid with quarterly estimated taxes and reported on your income tax return. To estimate your self-employment tax, use the self-employment tax calculator.
As a basic rule, the more money you make, the more federal income tax you will owe. If you earn a lower level of income, you may not owe any income taxes at all. As your income rises, it is taxed at higher percentages until your income tax may consume a significant portion of your earnings.
It is always better to make more money, even if it results in higher taxes. The marginal tax rate is always less than 100%, meaning you always keep part of each additional dollar you earn.
The primary factors that influence your federal income tax on a given amount of income are your filing status, deductions, and credits:
Choose the most advantageous filing status for which you qualify. For example, if you are single but may qualify to file as Head of Household, you will pay less tax by doing so.
Business deductions not only reduce your federal income tax, but your self-employment tax as well. As a small business owner, you may deduct self-employed health insurance premiums and 50% of your self-employment tax.
You may also be able to itemize deductions, such as mortgage interest and charitable contributions.
You may qualify for credits based on certain expenses, such as how many dependent children you have, or child care expenses. You may also qualify for credits if you spent money on activities the federal government encourages, such as energy conservation, or if you already paid taxes on certain income elsewhere.
You don’t pay a flat rate on your total taxable income. Instead, you pay different tax rates on the income in each of your tax brackets. As a result, the percentage of tax you pay on each additional dollar of income (marginal rate) is higher than the overall percentage of tax you pay on your total taxable income (effective tax rate).
For example, if a married taxpayer with $162,300 in taxable income (after deductions) owes $26,321 in federal income tax, their effective tax rate is 16.2.0% ($26,321 / 162,300 = 16.2%). Their marginal tax rate on each additional dollar they earn is 22.0%.
Tax deductions, tax exemptions, and tax credits are all methods used to reduce individual tax liabilities.
Tax exemptions were a flat amount used for years to reduce taxable income, based on yourself, your spouse, your dependents, and other factors. Tax exemptions were replaced by other tax provisions in 2017 tax reform.
Tax deductions are items for which you are allowed to reduce your taxable income. For example, a business deduction directly reduces your net business income, and therefore your income. Your total itemized deductions reduce your taxable income if they exceed the standard deduction for the year. Otherwise, your taxable income is reduced by the standard deduction ($13,850 in 2023, or $27,700 if filing jointly).
Tax credits directly reduce your income tax liability dollar for dollar. For example, the Child Tax Credit for one qualifying child in 2023 is $2,000. If you owe $3,000 in federal income tax, the credit reduces your tax liability to $1,000 ($3,000 – $2,000 = $1,000).