How does an entrepreneur pay taxes?

[Shaha Noor]

How does an entrepreneur pay taxes?
By Sean Ross
An the United States, tax policy neither officially defines nor makes special rules for entrepreneurs. Certain types of entrepreneurial activities carry tax benefits, such as subsidies or write-offs, but these do not uniformly apply to all entrepreneurs in the economy. An entrepreneur only pays taxes in accordance with his business activity. All other aspects of tax payment—from filing to withholding to receiving a refund—are the same for those considered entrepreneurs as those who are not.
Entrepreneurial Activity and Taxes
Economists at the National Bureau of Economic Research published a paper in 2002 titled "Taxes and Entrepreneurial Activity: Theory and Evidence in the U.S." The paper provided a theoretical proof that taxes affect economic activity and change the incentive structure for existing and potential entrepreneurs. Their research focused on the differences in tax rates between business income and wage income, and how profits and losses are treated. It concluded by reinforcing the intuitive notion that tax laws change human behavior in meaningful ways.

This type of research shows taxes change the scope of entrepreneurial activity in the U.S., even though entrepreneurs are not taxed differently. Ostensibly, tax laws affect where entrepreneurs attempt to make changes in the economy and alter the types of external benefits or costs that entrepreneurs produce.
Entrepreneurs and Business Taxes
The notion of an entrepreneur is normally associated with new startup businesses. The tax rules for businesses are very different than the tax laws for individuals. However, all taxpayers, entrepreneurs or not, are incentivized to pay as few taxes as possible to maximize their economic gains, whether they file income through businesses or as individuals.

To that extent, it is a misnomer to suggest entrepreneurs are faced with different tax consequences than non-entrepreneurs. The same goes for individuals and businesses. It may very well be that entrepreneurs are more likely (on average) to pursue a minimum-tax strategy, but the underlying principles and methods are no different.


Source: INVESTOPIA