Small Business Taxes for Beginners: A Step-by-Step Guide

Tax planning shouldn't be a last-minute scramble or a mystery that keeps you up at night. Getting it right means more money in your pocket, fewer surprises, and one less thing to worry about. Our small business taxes for beginners guide cuts through the jargon to give you exactly what you need to stay compliant, and maybe even save some money along the way.

Sure, the forms look scary and the rules can be confusing, but with a little know-how, you can handle your small business taxes without breaking a sweat. Whether you're filing small business taxes for the first time or looking to improve a process you've used for years, we'll cover what taxes small businesses pay, how to file them, and how to avoid common and costly mistakes.

Follow these steps to take control of your business taxes once and for all.

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TL;DR: How to file small business taxes in 2026

Filing small business taxes doesn't have to be overwhelming. The key is staying organized throughout the year, understanding what's required for your specific business structure, and meeting deadlines to avoid penalties. 

Here's what you need to know:

• Identify your business structure and the required tax forms for your entity type
• Track income and expenses year-round using accounting software or organized records
• Pay estimated quarterly taxes if your business expects to owe $1,000 or more
• File the correct federal and state forms by your deadline (varies by business structure)
• Claim all eligible deductions and credits to reduce your tax bill
• Keep tax records and documentation for at least three years
• Use payroll software if you have employees to automate tax calculations and filings

What taxes does a small business pay?

Understanding small business taxes starts with knowing your obligations. If you're asking yourself, "Do small businesses pay taxes?" The answer is yes—and there are several types of taxes you'll need to understand.

Federal business taxes

The federal government requires most businesses to pay four main types of taxes:

1. Income tax

All businesses except partnerships pay income tax on their profits. Partnerships file information returns, with individual partners reporting their share of income or losses on their personal tax returns. The amount you pay depends on your business structure and profit level.

2. Self-employment tax

Self-employed individuals pay 15.3% to cover Social Security and Medicare:

• 12.4% for Social Security (on earnings up to $184,500 in 2026)
• 2.9% for Medicare (no income cap)
• Additional 0.9% Medicare tax on earnings above $200,000 (single filers)

Unlike employees who split these taxes with employers, self-employed people pay both halves themselves.

3. Employment taxes

If you have employees, you're responsible for:

• Federal income tax withholding based on each employee's W-4 form
• Social Security and Medicare taxes (you pay half, withhold half from employee wages)
• Federal unemployment tax (FUTA) which funds unemployment benefits and is generally paid only by employers

Using payroll tools can reduce filing errors, especially for federal employment tax forms like Forms 941 and 940. These forms require precise calculations, and automation helps ensure accuracy while saving time.

4. Excise taxes

Excise taxes apply to specific industries like fuel, tobacco, or alcohol. They're often included in the price of products and may be less visible than other taxes, but businesses in affected industries must report and pay them quarterly.

State & local business taxes

Beyond federal obligations, you'll need to navigate state and local tax requirements that vary significantly by location.

State income taxes

Most states collect income tax, with rates ranging from less than 5% to over 10%. Nine states don't have individual state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Sales tax

Sales tax requirements can be particularly complex. You'll need to:

• Determine which products or services are taxable in each jurisdiction
• Register for sales tax permits where required
• Collect the correct tax amount from customers
• File returns and remit payments to state and local tax authorities

Sales tax rates and rules differ dramatically not just by state, but also by city, county, and special districts.

Property tax

Property tax applies to business-owned real estate and, in many jurisdictions, to business personal property like equipment, furniture, and inventory. These taxes fund local services like schools, roads, and emergency services.

Local business taxes

Many cities and counties impose additional taxes or licensing fees:

• Local business license fees
• Gross receipts taxes
• Occupancy taxes for hospitality businesses
• Industry-specific local taxes

How to file taxes for a small business: 5 steps

Filing taxes doesn't have to be overwhelming. Follow these five steps to stay organized, meet deadlines, and avoid penalties.

Step 1: Determine your business structure

Your business structure determines which tax forms you'll file and how much you'll pay. Here's what you need to know about each type:

Sole proprietorship: The simplest structure, where all business profits are taxed at your personal income tax rate, and you'll pay self-employment tax on your net earnings.

You'll report business income and expenses using:

• Form 1040 (Individual Income Tax Return)
• Schedule C (Profit or Loss From Business)
• Schedule SE (Self-Employment Tax)

Partnership: Files Form 1065, which is an information return showing the business's income, deductions, and profit division.

Each partner receives a Schedule K-1 showing their share of income or losses to report on their personal tax returns. Partners pay self-employment tax on their portion of partnership income.

LLC: Limited Liability Companies have flexible tax treatment. By default:

• Single-member LLCs are taxed as sole proprietorships
• Multi-member LLCs are taxed as partnerships

However, LLCs can elect to be taxed as S corporations or C corporations by filing Form 8832, which may offer tax advantages depending on your situation.

If you've added partners, hired employees, or significantly increased profits, talk to a tax professional about whether electing S corporation status could reduce your tax bill.

S Corporation: Files Form 1120-S, with shareholders reporting their share of income or losses on their personal tax returns via Schedule K-1.

The key tax advantage is that only wages paid to shareholders are subject to employment taxes, while distributions aren't—potentially saving on self-employment taxes compared to sole proprietorships or partnerships.

C Corporation: Files Form 1120 and pays corporate income tax on profits at the current corporate tax rate (21% as of 2026).

If profits are distributed as dividends, shareholders pay personal income tax on these amounts, creating "double taxation." However, C corporations can deduct fringe benefits like health insurance, which can be helpful for some businesses.

Corporations must file tax returns even if they made no money during the year. This differs from sole proprietorships and partnerships, where filing requirements depend on income thresholds.

Understanding your EIN requirements

An EIN (Employer Identification Number) is required for most businesses with employees and is used on federal and state tax forms.

You'll need an EIN if you have employees, operate as a partnership or corporation, or file excise or alcohol/tobacco/firearms tax returns. While sole proprietors without employees can use their Social Security number, getting an EIN is recommended for privacy and professionalism. 

Apply free at the IRS—the process takes just minutes and you'll receive your number immediately.

Step 2: Keep accurate financial records

Good bookkeeping protects you during tax season and audits. Here's what you need to track:

Track every transaction

Record all business income and expenses throughout the year. This means logging every transaction, no matter how small, and categorizing them correctly.

Maintain organized documentation

Keep these records for tax compliance:

• Receipts for all business purchases
• Invoices for all income
• Business mileage logs (dates, destinations, purpose)
• Bank and credit card statements
• Payroll records (if you have employees)

Use accounting software

Accounting platforms automatically categorize expenses, generate reports, and track deductions. Some business owners connect their point-of-sale tools, payroll, and accounting software to reduce manual entry and speed up tax filing.

Separate business and personal finances

Use dedicated business accounts. Mixing personal and business finances creates tax headaches and could put your personal assets at risk.

Step 3: Estimate and pay quarterly taxes

Most small business owners pay taxes four times per year instead of once. Here's how it works:

When you need to pay quarterly taxes

If your business expects to owe $1,000 or more in federal taxes, you must make estimated payments four times per year.

How quarterly payments work

The IRS uses a "pay-as-you-go" system. Here's the process:

1. Calculate your estimated annual tax liability based on projected income
2. Divide by four to determine quarterly payment amounts
3. Submit payments using Form 1040-ES by these due dates:
   
   • April 15 for income earned January 1 – March 31
   • June 15 for income earned April 1 – May 31
   • September 15 for income earned June 1 – August 31
   • January 15 (following year) for income earned September 1 – December 31

Note: If you file your annual tax return by January 31 and pay the full balance, the January payment may not be required. These dates shift slightly if they fall on weekends or holidays.

Tax Calculation Example:

How to calculate quarterly taxes for your small business

Let's walk through a fictional example to show you exactly how to calculate your quarterly tax payments:

Example: Sarah's Solo Marketing Business

Sarah runs a sole proprietorship and expects to earn $80,000 in net profit this year (after business expenses). Here's how she calculates her quarterly taxes:

1. Calculate self-employment tax

• Net profit: $80,000
• Self-employment tax rate: 15.3%
• Self-employment tax: $80,000 × 0.9235 × 0.153 = $11,304

2. Calculate income tax

• Net profit: $80,000
• Less: Half of self-employment tax deduction: -$5,652
• Adjusted gross income: $74,348
• Less: Standard deduction (2026): -$16,100
• Taxable income: $58,248

3. Using 2026 tax brackets for single filers:

• First $12,400 at 10% = $1,240
• Remaining $45,848 at 12% = $5,502
• Total income tax: $6,742

4. Total annual tax liability

• Self-employment tax: $11,304
• Income tax: $6,742
• Total taxes owed: $18,046

5. Quarterly payment amount

• $18,046 ÷ 4 = $4,512 per quarter

This means Sarah should pay approximately $4,512 by each quarterly deadline to avoid penalties. If her actual income differs from her estimate, she can adjust future quarterly payments accordingly.

How much should you set aside?

Most small businesses set aside 25-30% of net income to cover federal, state, and self-employment taxes. Your actual percentage depends on your tax bracket, business structure, and location.

Money-Saving Strategy:

Transfer tax money to a separate savings account when you get paid to avoid accidentally spending it. This simple habit ensures you'll have the cash available when quarterly deadlines arrive, eliminating the stress of scrambling for tax money.

How to pay

Pay electronically through the IRS Electronic Federal Tax Payment System (EFTPS) for confirmation and payment history, or mail payments with payment vouchers (though electronic payment is faster and creates better documentation).

Avoid penalties

Underpaying estimated taxes results in penalties. Consult a tax professional when determining your quarterly amounts, especially in your first year or if your income fluctuates significantly.

Step 4: File your tax return and submit payments

When tax season arrives, you'll file annual returns that reconcile your quarterly payments against your actual tax liability.

Gather your documentation

Collect all financial records from the year:

• Income records (sales receipts, invoices, 1099 forms)
• Expense receipts organized by category
• Asset purchase information
• Mileage logs
• Home office measurements and expenses (if applicable)
• Records of quarterly tax payments already made

Complete the right tax forms

Your business structure determines which forms you'll file:

• Sole proprietors: Schedule C attached to Form 1040
• Partnerships: Form 1065 and Schedule K-1 for each partner
• S Corporations: Form 1120-S and Schedule K-1 for each shareholder
• C Corporations: Form 1120

EIN on tax forms:

An EIN (Employer Identification Number) is required for most businesses with employees and appears on federal and state tax forms.

File electronically

Most small businesses benefit from e-filing, which offers:

• Faster processing
• Automatic error checking
• Quicker refunds
• Confirmation of receipt
• Reduced paperwork

Pay any additional taxes owed

If you owe additional taxes beyond your quarterly payments, pay by the filing deadline to avoid interest and penalties. Payment options include:

• Direct debit from your bank account
• Credit or debit card (with processing fees)
• Electronic Federal Tax Payment System (EFTPS)

Step 5: Pay your taxes and keep records

Tax compliance requires keeping detailed documentation of all income, expenses, and business transactions. The IRS and state tax agencies can request these records during audits, and having organized, accessible documentation proves your tax filings are accurate and defensible.

Set up reminders

Create calendar reminders or recurring to-dos for quarterly payments and year-end filings. Missing tax deadlines results in penalties and interest charges that add up quickly.

Store your records

Keep copies of your tax returns and supporting documentation for at least three years. The IRS can audit returns from the past three years in most cases (longer if they suspect fraud or substantial underreporting).

Why organized records matter for tax compliance

Good record-keeping isn't just smart business—it's essential for tax compliance and protecting yourself during audits. Maintaining accurate records helps you:

• Prepare future tax returns more efficiently
• Track business growth and expenses over time
• Respond quickly to any IRS questions
• Support your deductions if audited
• Stay compliant with federal and state record-keeping requirements

Tax planning strategies that help save money year-round

Smart tax planning for small business happens throughout the year, not just at filing time. These tax strategies for small business owners can significantly reduce your tax bill while keeping you compliant.

Review your business structure annually

Your business structure directly affects your tax bill. What made sense when you started might cost you money now that your business has grown. Consider these tax planning strategies:

When to consider S corporation election: If you're a sole proprietor or LLC earning more than $60,000-$80,000 annually, electing S corporation status could save thousands in self-employment taxes. S corps let you split income between salary (subject to employment taxes) and distributions (not subject to self-employment tax).

Partnership vs. LLC considerations: Multi-member businesses should evaluate whether partnership or LLC taxation offers better protection and tax benefits based on profit distribution and liability concerns.

Consult a tax professional: Changes in your revenue, employee count, or business operations might make a different structure more tax-efficient. Review your structure annually to ensure you're not overpaying.

Time income and expenses strategically

One of the simplest tax strategies involves controlling when you receive payments and make purchases:

Defer income to lower-tax years: If you expect lower income next year, consider delaying invoices or customer payments until January to push that income into the following tax year.

Accelerate deductible expenses: Planning a major equipment purchase? Buying before December 31 means you can deduct it in the current tax year instead of waiting another 12 months.

Manage your tax bracket: If you're close to a higher tax bracket threshold, timing decisions about when to recognize income or take deductions can keep you in a lower bracket.

Maximize retirement contributions

Self-employed retirement plans are powerful tools for tax planning and building your future:

SEP-IRA contributions: Contribute up to 25% of net self-employment earnings (up to $72,000 for 2026). Contributions are tax-deductible and reduce your current year's taxable income significantly.

Solo 401(k) benefits: Self-employed individuals can contribute both as employee and employer, potentially contributing more than with a SEP-IRA. For 2026, you can contribute up to $72,000 (or $80,500 if age 50-59, or $83,750 if age 60-63).

Make contributions before tax deadlines: You generally have until your tax filing deadline (including extensions) to make retirement contributions for the previous year, giving you flexibility in tax planning.

Plan major purchases around tax benefits

Strategic timing of business purchases can create substantial tax savings:

Section 179 deduction: Immediately deduct up to $2,560,000 (2026 limit) for qualifying equipment purchases instead of depreciating them over several years. This includes vehicles, machinery, computers, and office furniture.

Bonus depreciation: For assets that don't qualify for Section 179 or exceed the limit, bonus depreciation lets you deduct a significant percentage of the cost in the first year.

Document business use percentage: For assets used partially for business (like vehicles), carefully track and document business use percentage to maximize legitimate deductions.

Work with a tax professional for advanced strategies

As your business grows, professional tax planning becomes increasingly valuable:

Quarterly tax planning meetings: Meet with your accountant each quarter to review estimated payments, discuss tax-saving opportunities, and adjust strategies based on actual performance.

Industry-specific deductions: Tax professionals familiar with your industry know deductions you might miss, from specialized equipment to industry-specific credits.

Multi-state tax planning: If you operate in multiple states, professional guidance helps you navigate complex nexus rules and minimize overall tax liability.

Audit protection: Having a tax professional prepare your returns and maintain documentation provides protection and expertise if you're ever audited.

Small business tax tips to remember year-round

Keep these tax tips in mind as you run your business:

• Track everything immediately: Don't wait to record expenses or save receipts. Use apps that let you photograph receipts and categorize expenses in real-time.
• Review your withholding and estimates quarterly: Your income and expenses change throughout the year. Adjust estimated payments to avoid penalties and surprise tax bills.
• Separate personal and business expenses completely: This simple habit prevents disallowed deductions and makes tax preparation dramatically easier.

How Homebase helps with small business taxes

While Homebase Payroll isn't accounting software, it's designed to work alongside tools like QuickBooks. While your accounting software handles the big picture, Homebase takes care of the payroll details: calculating wages, tracking hours, filing taxes, and syncing everything directly to QuickBooks so your records stay accurate and organized.

Here's how Homebase simplifies the tax filing process:

• Automatically calculates hours, breaks, overtime, PTO, and wages so you don't have to
• Handles payroll tax calculations and files payroll taxes with federal and state agencies
• Generates and distributes W-2s and 1099s automatically each year
• Stores payroll records in compliance with tax regulations for easy access during tax season
• Integrates with QuickBooks to sync payroll data with your accounting software
• Reduces tax filing errors with automated calculations and built-in compliance checks

Try Homebase free and see how much easier tax season can be when your payroll runs itself.

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FAQs about small business taxes for beginners

How much does a small business have to make to file taxes?

Small businesses must file a tax return regardless of how much they make. Even if you operate at a loss, filing is mandatory and helps you—those losses can offset future profits, reducing your tax bill later. Sole proprietors must file if net earnings were $400 or more.

What are the biggest tax mistakes business owners make?

The biggest tax mistakes business owners make include:

• Missing quarterly estimated tax payments
• Mixing personal and business expenses
• Losing receipts and documentation
• Waiting until the last minute to organize records
• Misclassifying workers as independent contractors when they should be employees

Do I need an EIN?

You need an EIN (Employer Identification Number) if you have employees, operate as a partnership or corporation, or file excise or alcohol/tobacco/firearms tax returns. Sole proprietors without employees can use their Social Security number, but getting an EIN is recommended for privacy and professionalism. Apply free at IRS.gov.

How do I pay taxes if I own a small business?

Small business tax payments happen in two stages: quarterly estimated payments and an annual return. Make quarterly payments using Form 1040-ES (due April 15, June 15, September 15, and January 15). Then file your annual return based on your business structure. Pay electronically through EFTPS for faster processing and better records.

How much should a small business put away for taxes?

Small businesses should put away 25-30% of profit for taxes to cover federal income tax, self-employment tax (15.3%), and state taxes. Your actual rate depends on your tax bracket, business structure, and location. Transfer tax money to a separate savings account when you get paid to avoid accidentally spending it.

When are small business taxes due?

Small business tax deadlines vary by structure:

Quarterly estimated taxes:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 (following year)

Annual returns:

• Partnerships/S-corps: March 15
• Sole proprietorships/C-corps: April 15
• Payroll tax deadlines and W-2/1099 forms: January 31

Can I do small business taxes myself?

Yes, you can do small business taxes yourself if your finances are straightforward. DIY filing works well when you're organized, operate in one state, and don't have employees. However, as your business grows more complex—adding employees or multiple locations—working with a CPA often pays for itself through tax savings.

Are business meals deductible?

Business meals are 50% deductible when they involve a business contact, aren't lavish, and you're present. Keep records showing amount, date, location, business purpose, and attendees. Company-wide events like holiday parties qualify for 100% deduction. Entertainment expenses remain non-deductible, though separately purchased food may qualify for the 50% deduction.