Business Structure & Taxes
Your business structure determines how you're taxed. Most small businesses are "pass-through" entities — business income flows through to your personal tax return.
| Structure | Tax Treatment | SE Tax? |
|---|---|---|
| Sole Proprietorship | Schedule C on personal return | Yes (15.3%) |
| Single-Member LLC | Same as sole prop (default) | Yes |
| Partnership / Multi-Member LLC | Form 1065, K-1s to partners | Yes (on active income) |
| S-Corp | Form 1120-S, K-1s to shareholders | On salary only (not distributions) |
| C-Corp | Corporate tax (21%), double-taxed on dividends | No (but corporate tax applies) |
The S-Corp election can save significant self-employment tax once your business earns $60K+. You pay yourself a reasonable salary (subject to FICA) and take the rest as distributions (not subject to SE tax). Consult a CPA before electing.
Common Deductible Expenses
- Home office: Simplified method ($5/sq ft, up to $1,500) or actual expenses
- Vehicle: $0.70/mile (2025) or actual costs with business-use percentage
- Equipment: Section 179 lets you deduct the full cost of equipment in the year purchased (up to $1,220,000)
- Health insurance: 100% deductible for self-employed (above the line)
- Retirement: SEP-IRA (up to 25% of net income) or Solo 401(k)
- Software, subscriptions, professional services, marketing, travel, education
Calculate the true cost of your employees including tax.
Open Employee Cost Calculator →Quarterly Estimated Tax Payments
If you expect to owe $1,000+ in tax, the IRS requires quarterly payments. Due dates: April 15, June 16, September 15, January 15. Pay at least 100% of last year's tax (110% if income above $150K) to avoid penalties.
Common Tax Mistakes
- Not separating business and personal finances. Get a business bank account and credit card. Co-mingling makes bookkeeping a nightmare and weakens your liability protection.
- Missing deductions. Many owners don't track mileage, home office costs, or small purchases. These add up to thousands per year.
- Not making quarterly payments. The underpayment penalty is essentially an interest charge on what you should have paid throughout the year.
- Ignoring the S-Corp election. Once profitable, the SE tax savings from an S-Corp can be $5K–$15K+ per year. Talk to a CPA.
Calculate your profit margins to understand taxable income.
Open Profit Margin Calculator →