Your Guide to Small Business Taxes for Beginners
Understanding how small business taxes work makes running your business a lot easier. Tax rules are often tricky, especially when you’re just starting. Below, we’ll walk you through the basics. This way, you can plan ahead, stay organized, and avoid surprises during tax season.
What Taxes Do Business Owners Pay?
If you have a business, you might be paying a few types of taxes. These can vary based on your setup. However, most small business owners deal with some combination of income tax, self-employment tax, employment tax, and sales tax.
Tax Rates and Filing Requirements by Entity Types
Your tax situation depends mostly on how your business is set up. Each type of business entity has its own forms, deadlines, and rules. Below is a breakdown of how taxes work for common setups.
Sole Proprietorships and Single-Member LLCs
If you’re a sole proprietor or a single-member LLC, your business income gets reported on your personal tax return. You’ll use Schedule C (Form 1040) to report your income and expenses. Since the business isn’t separate from you, the IRS sees it as “flow-through” income. This means profits flow directly to your personal return.
Partnerships and Multi-Member LLCs
Partnerships and Multi-member LLCs need to file Form 1065 each year. This is an information return that shows the IRS what your business earned. Each partner receives a Schedule K-1, which shows their share of the profits or losses. You’ll use this to report income on your personal return. One thing to remember: Form 1065 is due March 15th, not in April like individual returns.
S Corporations and C Corporations
S corporations file Form 1120S, and each shareholder gets a K-1 to report their share of the income on their personal return. S Corps don’t typically pay income tax at the business level. It flows through to the shareholders. C corporations, on the other hand, file Form 1120 and pay taxes at the corporate level. If you take money out as a dividend, it could be taxed again on your personal return.
When and How to Pay Business Taxes
Most small business owners don’t just pay taxes once a year. They often make payments throughout the year. If you expect to owe $1,000 or more in taxes, you’ll likely need to make quarterly estimated tax payments.
These are due four times a year:
- April 15th
- June 15th
- September 15th
- January 15th (of the following year)
Based on your business structure, you’ll also file an annual return once a year. For example, sole proprietors and single-member LLCs file their business income with their personal return by April 15th. Partnerships and S Corps file by March 15th.
To make payments, you can use the IRS Electronic Federal Tax Payment System (EFTPS), or you can pay online through IRS.gov.
Tax Deductions for Small Businesses
Business deductions can lower the amount of income you’re taxed on. The key is knowing what counts as a business expense and keeping track of those costs throughout the year. Below are some of the most common deductions you can make.
Operational Expenses
Most of your everyday costs can be deducted. These include:
- Office supplies like pens, paper, and printer ink
- Business software subscriptions
- Advertising and marketing costs
- Professional services like bookkeeping or legal help
As long as these expenses are ordinary and necessary for your business, they typically count.
Property and Insurance Deductions
If you buy equipment or other business property, you might be able to deduct part or all the cost.
- Section 179 lets you deduct the full cost of some equipment in the year you buy it
- Bonus depreciation can also apply to certain large purchases
- Business insurances, like general liability or professional coverage, is also deductible
Home Office & Utilities
If you work from home, you may qualify for the home office deduction. To claim it, the space must be used frequently, and only for your business. You can also deduct a portion of utilities like electricity, internet, and rent or mortgage interest (if you own a home).
LLC Fees & Startup Costs
Getting your business up and running costs money. However, many of those costs are deductible.
- LLC formation fees
- State business licenses
- Legal and consulting fees
- Startup costs like market research or promotional materials
You can usually deduct up to $5,000 of startup costs in your first year.
Tax Refunds and Losses: What Happens if You Don’t Profit?
Not every business turns a profit in its first year. That’s okay. If your expenses are higher than your income, you might be able to report a net operating loss (NOL). This means your business lost money after all deductions were accounted for. You won’t owe income tax if you didn’t make a profit, but you still need to file your return. In some cases, you may even be able to carry that loss forward to offset income in later years.
How Much Should I Set Aside for Taxes?
One of the best things you can do as a small business owner is set aside money for taxes throughout the year. A good rule is saving around 25% to 30% of your net income to cover your income tax and self-employment tax. If you’re making estimated quarterly payments, this money can go towards those deadlines. If you’re not sure how much you should save, consulting a tax professional can give you a better idea on your earnings and expenses.
New Regulations and Reporting Requirements
Tax rules can change every year, so it’s important to stay current. Some changes might be federal, but many come from your state. This is especially true regarding sales tax or business registration requirements. For example, some states now require online sellers or service providers to collect sales tax, even if they don’t have a physical location there. Others may have new rules about how you report income or track expenses. Because these requirements vary so much by location, check with your state’s tax agency or work with a local tax professional who knows your area’s rules.
Free Tools and Resources for Small Business Tax Planning
You don’t have to figure it all out on your own. Plenty of free tools and resources can make tax planning easier. The IRS Small Business and Self-Employed Tax Center is a great place to start. It offers guides, videos, and tools to help you understand your tax responsibilities. You can also use calculators to estimate deductions or credits. For example, Small Business 401(k) Tax Credit Calculator helps you see if you qualify for certain retirement plan tax credits. Taking a few minutes to explore these resources now can save you time and money later.
Plan Ahead to Save More
Staying on top of your taxes is easier when you plan in advance. Keeping good records, setting aside money regularly, and knowing your deadlines can make a big difference at tax time. Even if you’re just getting started, it’s worth building good habits now. And if things feel unclear, talking with an advisor can help you sort through your options and ensure you’re on the right track. Want to start planning ahead now? Find your wealth manager today!
As a CERTIFIED FINANCIAL PLANNER™ professional and an Enrolled Agent authorized to represent taxpayers before the Internal Revenue Service, Frank provides tax guidance to clients as part of his advisory relationship. Frank Remund grew up in southwest Washington as the youngest of three children in a highly competitive family. From a young age, he learned that knowledge, planning, and hard work are the keys to success and that listening is crucial. Frank's interest in investing was kindled as a child when he was gifted a few shares of stock. This initial curiosity has since matured into a lifelong passion. After graduating from high school, Frank was accepted into the University of Washington. There, he pursued his Bachelor of Science degree in Economics while also competing on the Huskies’ track and field team as a high jumper and serving as the team captain. The fundamental lessons that Frank learned during his upbringing have been instrumental throughout his professional journey. They have enabled him to establish strong, personal relationships with his clients, understand their priorities, and develop personalized financial plans that secure their financial success. Frank has had the privilege of teaching the rigorous Retirement Income tax course for H&R Block tax professionals, as well as courses on Employee Stock Plan Compensation, Restricted Stock Units, Employee Stock Purchase Plans, and Non-Qualified Options.
Material prepared herein has been created for informational purposes only and should not be considered investment advice, tax advice, legal advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).
Works Cited
1.The Small Buisness Tax Rate Explained
2.Biggest Tax Changes Impacting Small Buisnesses in 2025
3.2025 Tax Outlook for Businesses and Their Owners
4.Tax Changes Impacting Small Businesses
5.Simplifying Taxes: A 2025 Roadmap for Small Business Owners
7.Small Business Taxes for Beginners
