Pass-Through Businesses

• Sole proprietorships, partnerships and limited liability companies (LLCs) are "pass-through" entities, meaning that profits and losses pass through to the owners or partners, who must report the earnings on their individual income tax returns.
  
  

Corporations

• Incorporated businesses pay the corporate income tax. The term is misleading because the amount taxed is not the corporation's actual income but rather its gross profits -- income minus expenses.
  
  

Marginal Tax Rates

• Corporate income tax rates are "marginal" rates, meaning each successive rate kicks in at a certain income level and applies only to taxable earnings above that level.
  
  

Rate Structure

• Business tax rates and tax brackets are subject to change from year to year. For the 2010 tax year, the tax brackets and rates were as follows:
  
  All income up to $50,000: 15 percent
  
  From $50,000 to $75,000: 25 percent
  
  From $75,000 to $100,000: 34 percent
  
  From $100,000 to $335,000: 39 percent
  
  From $335,000 to $10 million: 34 percent
  
  From $10 million to $15 million: 35 percent
  
  From $15 million to $18.33 million: 38 percent
  
  All income over $18.33 million: 35 percent
  
  

Purpose

• The variable rates that apply above $100,000 of gross profits are designed so that businesses with more than $18.33 million in taxable earnings will pay a flat rate of 35 percent on their entire taxable income.