Business Taxes.

You're taxed on profit, not what comes in

This is the whole game. Tax isn't on every dollar that hits your account — it's on what's left after your real business expenses. Bring in $80,000, spend $30,000 to run the business, and you're taxed on the $50,000 profit. That's why tracking expenses isn't busywork — every honest dollar of expense is a dollar you don't pay tax on.

And for most small businesses (sole proprietor, single-member LLC, partnership, S-corp), the business itself doesn't pay income tax — the profit "passes through" to your personal 1040 and you pay there. The exception is a C-corp, which pays its own tax. You'll deal with two taxes: regular income tax, and self-employment tax. Here's each piece.

Which form your business files

• Sole proprietor / single-member LLC — you file Schedule C attached to your personal 1040. The LLC by itself changes nothing about the taxes here; it's the same form. Simplest setup.
• Partnership / multi-member LLC — files Form 1065, then hands each owner a Schedule K-1 showing their share, which they report on their own 1040.
• S-corp (an election, not an entity) — files Form 1120-S and issues K-1s. Owners take a reasonable W-2 salary plus distributions; this is where some owners save on self-employment tax once profit is high enough to justify payroll.
• C-corp — files Form 1120 and pays its own corporate tax; owners are taxed again on what they take out. Usually only worth it at scale or for outside investors.

Self-employment tax — the one that surprises people

When you had a job, your employer quietly paid half of your Social Security and Medicare and withheld the rest. On your own, you're both halves. That's self-employment tax: 15.3% of your net profit — 12.4% Social Security (up to an annual wage cap) plus 2.9% Medicare (no cap).

This is on top of income tax, and it's the bill that blindsides new owners: clear $50,000 profit and you can owe roughly $7,000 in SE tax before income tax even starts. It's figured on Schedule SE. One mercy — you get to deduct half of it on your return.

Pay as you go: quarterly estimated taxes

Nobody's withholding from your checks anymore, but the IRS still wants its money through the year — not in one lump in April. So you send estimated payments four times a year using Form 1040-ES:

• Q1 — April 15  ·  Q2 — June 15  ·  Q3 — September 15  ·  Q4 — January 15 (of the next year)

Skip them and you can owe an underpayment penalty even if you pay in full in April. The simple safe habit: set aside 25–30% of every payment you collect in a separate account, and send a chunk each quarter. A common "safe harbor" is paying in at least 100% of last year's tax (110% if you're a higher earner) — do that and you avoid the penalty even if you owe more at filing.

Deductions — what lowers the bill

A deduction is just a legitimate business expense that shrinks your taxable profit. You don't get the money "back" — you just don't pay tax on what you spent to operate. Common ones:

• Supplies, materials, inventory
• Phone, internet, software, subscriptions (the business share)
• Advertising, website, business cards, fees and licenses
• Contractor and professional fees (the tax preparer counts)
• Mileage — for 2026 the IRS rate is 72.5¢ per business mile. 10,000 business miles = a $7,250 deduction. You must keep a log (date, miles, where, why).
• Home office — a real, regular-use work area; simplified method is $5/sq ft.
• Equipment — big purchases can often be fully written off the first year under Section 179 instead of slowly depreciating.
• Half your self-employment tax, and often your health insurance premiums if self-employed.

1099s and W-9s — and what changed for 2026

This trips everyone up, and the rules just changed, so ignore the old "$600" number you'll see all over the internet.

When you PAY someone

Hire a contractor (not an employee) and pay them $2,000 or more in the year? Get a Form W-9 from them up front (it has their name and tax ID), and file a Form 1099-NEC after year-end — a copy to them, a copy to the IRS. For 2026 that threshold rose from $600 to $2,000 (it adjusts for inflation going forward).

When you GET paid

• 1099-NEC — a client may send you one for services they paid you (same $2,000 threshold).
• 1099-K — from card processors and apps (PayPal, Square, Stripe, etc.). For 2026 this only triggers at more than $20,000 AND more than 200 transactions — back up from the briefly-planned $600. Note: direct card payments can still generate one with no minimum, and some states set lower thresholds.

Employees vs. contractors — don't guess

The minute you bring on help, this matters, because it decides who pays the payroll taxes.

• W-2 employee — you control how/when/where they work. You withhold their taxes, pay the employer share of Social Security/Medicare, file payroll forms (like the 941) and unemployment, and issue a W-2.
• 1099 contractor — runs their own show, sets their own hours, serves other clients. They handle their own taxes; you just issue the 1099-NEC.

What to hand your tax preparer

A good preparer is cheaper and faster — and your return is more accurate — when you walk in organized. Bring:

• Total income for the year, plus any 1099s you received
• Expense totals by category (from your books or a simple spreadsheet)
• Your mileage log and any vehicle info
• Receipts for equipment/asset purchases
• Records of any contractors you paid (and 1099s you issued) or payroll if you have employees
• Estimated payments you already made during the year
• Last year's tax return
• Business bank and credit card statements

The habits that keep taxes boring

Separate account → set aside 25–30% → bookkeep monthly → pay quarterly → keep your logs and receipts → get a pro once you're profitable. Do those six things and tax season stops being a fire drill. You'll know roughly what you owe before you ever sit down to file.

Note: This is general educational information for 2026, not tax advice. Thresholds, rates, and forms change, and your situation may differ — confirm specifics with a qualified tax professional or the IRS before you file.