Individuals who own 100% of a business may face which specific tax obligation?

Individuals who own 100% of a business, especially if it is a sole proprietorship or a single-member LLC, are subject to self-employment tax. This tax obligation arises because the owner is considered self-employed, meaning they earn income directly from the business operations.

Unlike traditional employees who have their payroll taxes withheld by their employer, self-employed individuals must calculate and pay these taxes themselves. Self-employment tax covers Social Security and Medicare taxes that would typically be split between an employer and employee. For self-employed individuals, they are responsible for the full amount of these taxes since there is no employer involved.

It’s not limited to income tax as those funds would also be subject to regular federal and possibly state income taxes, which explain why self-employment tax is a separate obligation. Corporate tax is typically applied to corporations as separate entities rather than individuals who operate businesses on their own. Gift tax is applicable only when transferring gifts above a certain threshold and does not apply to regular business income. Therefore, the specific tax obligation faced by individuals who own 100% of a business primarily falls under self-employment tax.