Earning 20,000 a month, an employee and a self-employed business owner pay very different income tax. Employees are withheld under "wage income," but sole proprietors are taxed on "business income" — a 5%-35% five-bracket progressive schedule — and you first have to understand whether you're under assessed collection or deemed collection. Many small business owners overpay year after year simply because they never understood these two systems. Let's clear it up so you know exactly what you owe.
Business Income Tax: The 5%-35% Five-Bracket Progressive Schedule
Business income uses a completely different rate table from wages: taxable income = total annual revenue - costs and expenses - losses - 60,000 standard deduction. How you determine "total revenue" depends on whether you're assessed or deemed, but once you've computed taxable income, the same rate table applies to everyone.
The table has five brackets from 5% to 35%: up to 30,000 of annual taxable income is taxed at 5%; 30,000-90,000 at 10%; 90,000-300,000 at 20%; 300,000-500,000 at 30%; and above 500,000 at 35%. Each bracket has a quick deduction. Compared with employees whose top bracket is 45%, the sole-proprietor ceiling is friendlier — but remember the tax is progressive, not a flat rate.
| Annual Taxable Income | Rate | Quick Deduction | Quick Formula |
|---|---|---|---|
| Up to 30,000 | 5% | 0 | Income × 5% |
| 30,000-90,000 | 10% | 1,500 | Income × 10% - 1,500 |
| 90,000-300,000 | 20% | 10,500 | Income × 20% - 10,500 |
| 300,000-500,000 | 30% | 40,500 | Income × 30% - 40,500 |
| Above 500,000 | 35% | 65,500 | Income × 35% - 65,500 |
Formula: tax due = taxable income × applicable rate - quick deduction. To see how much you keep after subtracting costs from each sale, use the percentage calculator for cost ratios and the tax calculator to simulate your liability quickly.
Assessed vs. Deemed Collection: What's the Difference
Assessed collection is "pay on actual profit": your revenue, costs, and expenses must be supported by books and receipts, and you pay tax on whatever profit the books show. It suits proprietors with clean accounts and formal purchase invoices. The more you earn, the more you pay — but every legitimate cost reduces your tax, so staying compliant is actually the cheapest path.
Deemed collection is "pay on an estimate": the tax authority assigns a notional profit rate by industry (for example, 8% for food service and 5% for retail trade) and computes profit as revenue × deemed rate, then applies the rate table. It suits tiny vendors and stalls that can't keep formal books. The upside is a relatively stable, predictable tax burden regardless of profit; the downside is that even if you actually lose money, you still owe tax on the deemed profit.
Worked example: Wang runs a restaurant with 600,000 in annual revenue. Under assessed collection, after deducting 380,000 in rent, ingredients, and labor, taxable income = 600,000 - 380,000 - 60,000 = 160,000, which falls in the 20% bracket: 160,000 × 20% - 10,500 = 21,500. Under deemed collection (8% for food service): taxable income = 600,000 × 8% = 48,000, in the 10% bracket: 48,000 × 10% - 1,500 = 3,300. The same revenue, and deemed collection saves about 18,000 — but only because his true profit margin is well below the deemed rate.
Deductions and Filing: Three Ways a Proprietor Can Save
Sole proprietors qualify for real tax relief — don't miss it. First, the portion of annual taxable income up to 2 million is taxed at half the normal rate — the broadest current policy, and most small proprietors qualify. Second, monthly revenue below 100,000 (300,000 per quarter) is exempt from VAT — not income tax, but it materially cuts your total burden. Third, eligible small businesses can apply for fixed-amount deemed assessment, making filings far simpler.
On filing, business income is prepaid quarterly and settled annually by March 31 of the following year. Many people only file the prepayments and skip the annual settlement, losing refunds or incurring penalties for underpayment. Keep complete records of costs and expenses — white slips without invoices may not be accepted as deductible. If you're unsure your profit is right, use the salary calculator to separate personal living costs from business expenses, and the percentage calculator to lay out each cost as a share of revenue before handing the numbers to an accountant or tax software.
FAQ
Q1: Is sole-proprietor tax the same as employee income tax?
No. Employees are withheld under wage income, while sole proprietors are taxed on business income under the 5%-35% five-bracket progressive schedule with different rules and rates. Proprietors file and pay their own tax.
Q2: Which is better, deemed or assessed collection?
It depends on your books and true profit margin. Assessed collection suits businesses with high costs, complete receipts, and low actual profit; deemed collection suits those without formal books, with stable revenue, and a low industry rate. Which one applies is decided by the tax authority, not chosen freely.
Q3: Can my income tax really be halved?
Yes — the portion of annual taxable income up to 2 million is currently taxed at half the normal rate. Most small proprietors qualify, and the system applies the discount automatically when you file.
Q4: When must a sole proprietor settle annually?
Business income is prepaid quarterly and settled within three months after year-end (by March 31 of the following year), with overpayment refunded and shortfall payable. Skipping the settlement can mean lost refunds or penalties for underpayment.