How to file Small Business Taxes, Types, and Deductions

Small business taxes are filed by determining your business structure, calculating your income and expenses, choosing the correct IRS forms, paying quarterly estimated taxes if required, and then submitting your annual return by the IRS deadline.

How to File Small Business Taxes

To file small business taxes, you must:

1. Identify your business structure (sole proprietorship, LLC, partnership, S-Corp, C-Corp)

2. Determine which taxes apply (income tax, self-employment tax, payroll tax, sales tax, etc)

3. Gather income & expense records (invoices, receipts, payroll reports, bank statements)

4. Complete the right tax forms (e.g., Schedule C, Form 1065, Form 1120, etc.).

5. Make quarterly estimated tax payments (if required)

6. Claim deductions & credits to reduce your tax liability.

7. Submit your return by the deadline (usually April 15 for most small business owners)

Types of Small Business Taxes

a. Income Tax

Every business must file an annual income tax return.

Pass-through entities (sole proprietors, LLCs, S-Corps, partnerships) don’t pay tax at the business level income passes to the owner’s personal return.

b. Self-Employment Tax (15.3%)

Self-employed individuals including sole proprietors and partners pay 15.3% on net earnings:

• 12.4% Social Security

• 2.9% Medicare

Half of this tax is deductible on your return.

Example: If your net income is $60,000, your self-employment tax is approx. $9,180.

c. Payroll Tax

If you have employees, you must:

• Withhold income tax

• Withhold employee Social Security & Medicare

• Pay employer’s share of Social Security & Medicare

• File Form W-2 for employees & Form 941 quarterly

Mistakes in payroll taxes are one of the biggest IRS penalty areas, so using payroll software helps.

d. Sales Tax

If your state requires sales tax:

• You must collect it

• Hold it separately

• File and remit it to the state on scheduled dates

Sales tax rules vary widely by state.

e. Estimated Taxes

Most business owners must pay taxes quarterly to avoid penalties (April, June, September, January).

f. Excise Tax

If you sell regulated products like:

• Fuel

• Alcohol

• Tobacco

You must file applicable excise tax forms.

g. State & Local Business Taxes

Depending on your state, you may owe:

• State income tax

• Franchise tax

• Property tax on equipment/real estate

• Gross receipts tax (in states like WA or TX)

Small Business Tax Deductions

Deductions reduce your taxable income.
Here are the most common ones:

Home Office Deduction

If you use a space in your home exclusively for business, you can deduct a portion of:

• Rent

• Utilities

• Internet

• Repairs

The IRS offers a simplified method ($5 per sq. ft.) or the regular method (percentage of home).

Vehicle Expenses

Two choices:

• Standard mileage rate (simple), or

• Actual expenses (gas, repairs, insurance, depreciation)

Choose the method that saves more keep a mileage log.

Equipment, Supplies & Section 179

You can deduct:

• Computers

• Office equipment

• Tools

• Furniture

• Software

Section 179 allows you to deduct the full cost in the same year.

Travel & Meals

Deductible business expenses include:

• Flights

• Hotels

• Rental cars

• 50% of business meals

Keep receipts and note the business purpose.

Rent & Utilities

If you rent office space, you can deduct:

• Rent payments

• Electricity

• Internet

• Phone

• Security services

Important Tax Forms for Small Businesses

Schedule C (Form 1040)

Used by sole proprietors to report income & expenses.

Form 1065

Used by partnerships. Each partner receives a Schedule K-1.

Form 1120 or 1120-S

• 1120 (C corporations)

• 1120-S (S corporations)

Form W-2 and 1099-NEC

• W-2 (for employees)

• 1099-NEC (for freelancers earning $600+)

Filing Deadlines For Small Business Owners

Filing Extensions

You can request:

• Form 4868 (personal return)

• Form 7004 (business returns)

Remember: Extension to file is NOT an extension to pay.

How to Reduce Small Business Taxes

1. Contribute to Retirement Plans

SEP IRA or Solo 401(k) can reduce taxable income significantly.

2. Accelerate Expenses

Buy equipment or prepay expenses before year-end to lower taxable income.

3. Defer Income

Delay invoices until the next year if your income will be lower.

4. Claim Tax Credits

Popular credits include:

• Small Business Health Care Tax Credit

• Work Opportunity Tax Credit (WOTC)

5. Track Carryovers

Unused credits or deductions can sometimes carry to the next year.

When to Hire a Tax Professional

A CPA can help:

• Reduce your tax bill

• Audit-proof your return

• File correctly

• Set up payroll & bookkeeping

• Avoid penalties

Conclusion

Understanding small business taxes becomes easier once you know the types of taxes, the forms you file, and the deductions you can claim. Stay organized, plan ahead, and use the right strategy to reduce your tax burden. With the right approach or a trusted CPA you’ll be ready for every tax season with confidence.

FAQs

1. What is a deductible business expense?

Any cost that is ordinary, necessary, and directly related to running your business like supplies, software, rent, travel, and equipment.

2. Do I need to pay quarterly taxes?

Yes, if you expect to owe at least $1,000 in taxes for the year. Most sole proprietors, LLC owners, and freelancers must pay quarterly.

3. Can I claim a home office deduction?

Yes, if you use a part of your home exclusively and regularly for business. You can use either the simplified method or actual expenses.

4. How much should I save for taxes?

Most small businesses save 25–30% of their income, but your amount may vary based on deductions and business structure.

5. What happens if I miss a tax deadline?

You may face penalties and interest. Filing an extension gives you more time to file, but not more time to pay.

6. Do I need a CPA to file taxes?

Not required, but helpful if your business is growing, has employees, or you want to avoid mistakes and maximize deductions.

7. Which forms do small businesses file?

• Schedule C for sole proprietors

• Form 1065 for partnerships

• 1120/1120-S for corporations

• W-2/1099-NEC for employees and contractors

8. How can I reduce my tax bill?

Track expenses, claim deductions, use retirement contributions, and pick the right business structure.

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