Business Taxes: A Complete Guide for Small Businesses

Business taxes are one of the most confusing parts of running a company — but the picture gets clear once you know which taxes apply to your structure. This guide covers the taxes small businesses actually pay, how much they owe, when payments are due, the main tax types, how taxes differ by business structure, a seven-step filing process, the deductions worth claiming, the tools that help, and how business taxes work in Florida. It’s part of our broader Business & Finance complete guide.

Two ground rules first: this content is educational, not tax or legal advice, tax rules change and depend on your situation, so confirm anything specific with the IRS or a licensed CPA. And because 2025 brought major federal tax changes (the One Big Beautiful Bill Act), every figure below reflects current-year rules and is sourced.

What taxes do small businesses pay?

Small businesses generally pay four layers of tax: federal income tax, self-employment (or payroll) tax, sales and use tax, and state and local taxes. Federal income tax applies to business profit — on the owner’s personal return for pass-through entities, or at the entity level for C-corporations. Self-employment tax (Social Security and Medicare) hits owners who aren’t on a payroll, while employers additionally owe payroll taxes on wages. Sales tax is collected from customers on taxable goods and services, and state and local taxes vary widely.

Which of these apply depends entirely on your business structure, whether you have employees, and what you sell. A freelance graphic designer (sole proprietor, no employees, services only) mainly deals with federal income tax and self-employment tax. A retail shop with staff adds payroll taxes and sales tax. A C-corporation faces entity-level income tax. The rest of this guide walks through each layer so you can map your own obligations.

How much do small businesses pay in taxes?

How much a small business pays in taxes depends on its structure and profit, but the building blocks are consistent. Pass-through owners (sole proprietors, most LLCs, partnerships, S-corp shareholders) pay federal income tax at their personal rate (10%–37%) plus self-employment tax of 15.3% on net earnings, per the IRS. C-corporations pay a flat 21% federal corporate rate on profits (and owners are taxed again on dividends).

That 15.3% self-employment tax breaks into 12.4% for Social Security — applied only to the first $184,500 of combined wages and net self-employment income in 2026 (the Social Security wage base, per the SSA) — plus 2.9% for Medicare, which has no cap. It’s calculated on 92.35% of your net earnings, and you can deduct half of it. Because income tax and self-employment tax stack, a common planning rule of thumb is to set aside 25–30% of net profit for taxes; this is illustrative, and your actual effective rate depends on your income, deductions, and structure. Many owners overpay or underpay simply because they never separate “revenue” from “what’s actually theirs after tax.”

When are business taxes due?

Business taxes are due on two schedules: quarterly estimated payments during the year, and an annual return after year-end. If you expect to owe $1,000 or more, the IRS requires quarterly estimated taxes, generally due April 15, June 15, September 15, and January 15 of the following year (or the next business day if that date is a weekend or holiday).

Annual return deadlines depend on structure. Partnerships (Form 1065) and S-corporations (Form 1120-S) file by March 15; C-corporations (Form 1120) and sole proprietors (Schedule C with the personal Form 1040) file by April 15 — again, shifting to the next business day when those dates fall on a weekend. Missing an estimated payment triggers an underpayment penalty (the federal short-term rate plus 3 percentage points), so calendar these dates and confirm the exact current-year dates with the IRS, since they shift annually.

What are the main types of business taxes?

The main types of business taxes are federal income tax, self-employment tax, payroll and employment taxes, sales and use tax, estimated quarterly taxes, state and local taxes, and (for some industries) excise taxes. Not every business owes all of them — the mix depends on structure, employees, location, and industry. Here’s what each one is, who pays it, and how it’s filed.

Federal income tax

Federal income tax applies to business profit, but where it’s paid depends on structure. Pass-through entities (sole proprietorships, partnerships, most LLCs, S-corporations) don’t pay income tax at the business level; profit “passes through” to the owners, who report it on their personal returns at ordinary rates (10%–37%). C-corporations are different: the corporation itself pays a flat 21% on taxable profit, and shareholders pay tax again on any dividends — the “double taxation” of C-corps. Forms vary: Schedule C for sole proprietors, Form 1065 for partnerships, 1120-S for S-corps, and 1120 for C-corps.

Self-employment tax

Self-employment tax is the Social Security and Medicare tax that self-employed people pay in place of the FICA taxes an employer would otherwise split with them. The rate is 15.3% — 12.4% Social Security (on net earnings up to the $184,500 wage base in 2026) plus 2.9% Medicare (no cap) — and you owe it if your net self-employment earnings are $400 or more. You pay both the employee and employer halves, but you deduct the employer half (effectively 50% of the tax) as an above-the-line adjustment, which lowers your income tax. It’s calculated on Schedule SE.

Payroll and employment taxes

Payroll and employment taxes apply once you have employees. As an employer, you must withhold income tax and the employee’s share of FICA (Social Security and Medicare) from wages, pay the matching employer share of FICA, and pay federal unemployment tax (FUTA) plus state unemployment tax. These are trust-fund taxes the IRS takes seriously — deposit them on schedule, because penalties for late or missed payroll deposits are steep. For the full employer playbook, see our guide to payroll and HR basics.

Sales and use tax

Sales and use tax is collected from customers on taxable goods (and some services) and remitted to the state. You must collect it wherever your business has “nexus” — a physical presence like a store or warehouse, or, since the 2018 Wayfair decision, enough economic activity (sales volume) in a state. Rules, rates, and what’s taxable vary by state and even county. Use tax is the mirror image, owed on taxable items bought without sales tax. For the Florida specifics, see our Florida sales tax guide.

Estimated quarterly taxes

Estimated quarterly taxes are how the self-employed and business owners pay tax throughout the year, since no employer is withholding for them. You must pay them if you expect to owe $1,000 or more, and the IRS sets a “safe harbor” to avoid penalties: pay at least 90% of the current year’s tax, or 100% of last year’s (110% if your prior-year AGI topped $150,000), in four installments. Use Form 1040-ES to calculate them. Underpaying — or skipping a quarter — triggers a penalty even if you pay in full at filing.

State and local business taxes

State and local business taxes vary enormously by location. Depending on the state, a business may owe corporate income tax, a franchise or gross-receipts tax, or local business taxes and license fees; a handful of states (including Florida) levy no personal income tax at all. Because the range is so wide — from no-income-tax states to high-tax states with multiple layers — check your specific state’s Department of Revenue and city rules rather than assuming. This is one of the biggest reasons two identical businesses can have very different tax bills.

Excise taxes

Excise taxes are industry-specific taxes on particular goods, services, or activities — fuel, alcohol, tobacco, air travel, heavy trucks, indoor tanning, and certain manufacturing, among others. Most small businesses never touch them, but if you operate in an affected industry you may need to file Form 720 (quarterly federal excise tax) or specific state equivalents. If you’re unsure whether excise taxes apply to your business, the IRS excise-tax pages list the covered categories — a quick check worth doing at startup.

How business taxes differ by business structure

Business structure is the single biggest driver of how you’re taxed. Sole proprietorships and partnerships are pass-through by default; LLCs are pass-through unless they elect corporate treatment; S-corporations are pass-through but can reduce self-employment tax; and C-corporations are taxed at the entity level at 21%. The table summarizes how each works.

The practical takeaway: most small businesses start as sole proprietors or LLCs (simple, pass-through), and some elect S-corp status once profits are high enough that the self-employment-tax savings outweigh the added payroll and compliance cost. To choose well, compare the options in our guide to LLC vs S-corp vs sole proprietorship — and remember the right structure is situation-specific, so weigh it with a CPA.

How to file small business taxes in 7 steps

You can file small business taxes in seven steps: determine your obligations by structure, get an EIN and register, track income and expenses, identify deductions and credits, calculate and pay estimated taxes, file the right forms, and plan ahead. This mirrors the workflow that keeps filing calm instead of chaotic — and it starts long before April. If you’re still setting the business up, pair this with our step-by-step guide to starting a business.

Step 1: Determine your tax obligations by structure

Start by mapping your structure to the taxes and forms you owe, using the table above. A single-member LLC files Schedule C and pays self-employment tax; a partnership files Form 1065; an S-corp files 1120-S and runs payroll for the owner; a C-corp files 1120. Knowing exactly which taxes apply — income, SE, payroll, sales — before the year gets going prevents the most common surprise: discovering an obligation you never planned for.

Step 2: Get an EIN and register for taxes

Get an Employer Identification Number (EIN) — it’s free directly from the IRS and takes minutes online (avoid third-party sites that charge for it). You’ll need it to open a business bank account, run payroll, and file business returns. Then register with your state for any taxes you’ll collect or owe: a sales-tax permit if you sell taxable goods, and a state withholding/unemployment account if you’ll have employees. Registering up front keeps you compliant from your first sale.

Step 3: Track income and expenses

Track every dollar of income and expense from day one, in a dedicated business bank account separate from personal money. Clean books are what make deductions defensible and filing fast; messy books cost you money in missed write-offs and accountant hours. Use accounting software (QuickBooks, Wave, Xero, or FreshBooks) to categorize transactions automatically and keep digital receipts.

Step 4: Identify deductions and credits

Identify every deduction and credit you legitimately qualify for — this is where good records pay off. Ordinary and necessary business expenses (supplies, software, marketing, professional fees, travel) reduce taxable income directly, and bigger items like the home-office deduction, vehicle mileage, and the QBI deduction can add up fast. Keep documentation for everything; the rule is “ordinary and necessary,” and the burden of proof is on you. The deductions section below covers the major ones in detail.

Step 5: Calculate and pay estimated taxes

Calculate and pay quarterly estimated taxes so you’re not hit with a large bill and a penalty at filing. Estimate your expected annual tax (income tax plus self-employment tax), divide into four payments, and use the safe-harbor rule (100% of last year’s tax, or 110% if your AGI exceeded $150,000) as a floor. Pay via IRS Direct Pay or EFTPS by each quarterly deadline. Setting aside a fixed percentage of each payment you receive makes this painless.

Step 6: File the right forms

File the correct return for your structure by its deadline: Schedule C (with Form 1040) for sole proprietors and single-member LLCs, Form 1065 for partnerships, Form 1120-S for S-corporations, and Form 1120 for C-corporations. Attach the supporting schedules (Schedule SE for self-employment tax, Form 8829 for the home office, Form 4562 for depreciation). File electronically for speed and confirmation, and request an extension if you need one — but note an extension to file is not an extension to pay.

Step 7: Plan ahead and keep records

Plan taxes year-round, not just in April, and keep your records. Review your profit and estimated taxes each quarter, make retirement contributions (which cut taxable income), and consider structure changes as you grow. Keep tax records for at least three years (longer for property and payroll records) in case of an audit. Year-round planning — not last-minute scrambling — is what turns taxes from a threat into a manageable, predictable cost.

What business tax deductions can you claim?

You can claim any “ordinary and necessary” business expense as a deduction, plus several high-value specific deductions. The biggest ones for small businesses: the home-office deduction, vehicle and mileage costs, startup costs, equipment and depreciation, the Qualified Business Income (QBI) deduction, retirement contributions, and self-employed health insurance. Here’s how the major deductions work:

• Home office: the simplified method allows $5 per square foot up to 300 square feet (max $1,500) for space used regularly and exclusively for business; or deduct actual expenses.
• Vehicle/mileage: the standard mileage rate is 70 cents per mile for business driving (2025–2026), or you can deduct actual vehicle costs.
• Startup costs: deduct up to $5,000 of startup costs in your first year (reduced if total startup costs exceed $50,000), and amortize the rest over 15 years.
• Equipment/depreciation: expense qualifying equipment immediately under Section 179 and 100% bonus depreciation — both expanded under the 2025 law.
• QBI deduction: the Qualified Business Income deduction lets eligible pass-through owners deduct up to 20% of qualified business income; the 2025 law made it permanent and added a $400 minimum for smaller businesses. It reduces income tax only, not SE tax, and phases out for higher-income service businesses.
• Retirement & health: contributions to a SEP-IRA or Solo 401(k) lower taxable income, and the self-employed can deduct 100% of their health-insurance premiums.

Deductions reduce taxable income, not your tax bill dollar-for-dollar — but they’re the single most effective way to lower what you owe. For how these interact with your personal return, see our personal taxes guide.

Do LLCs pay taxes?

LLCs pay taxes, but usually not at the business level. By default an LLC is a pass-through: a single-member LLC is taxed like a sole proprietor (Schedule C) and a multi-member LLC like a partnership (Form 1065), with profit reported on the owners’ personal returns and subject to self-employment tax. An LLC can also elect to be taxed as an S-corp or C-corp if that’s more favorable.

Can you write off business startup costs?

Yes, you can write off business startup costs, within limits. The IRS lets you deduct up to $5,000 of qualifying startup costs (and up to $5,000 of organizational costs) in your first year of business, with the remainder amortized over 15 years. The first-year deduction phases out if your total startup costs exceed $50,000. Qualifying costs include market research, advertising, and professional fees before opening.

Does an S-corp save on taxes?

An S-corp can save on taxes, sometimes. By paying the owner a “reasonable salary” (subject to payroll tax) and taking remaining profit as distributions (not subject to self-employment tax), an S-corp can reduce the 15.3% SE tax on part of the profit. The savings only outweigh the added payroll and compliance costs above roughly $80,000–$100,000 of steady profit — so it’s situation-specific.

Accounting and tax tools

The right tools make small-business taxes far less painful. Here are the categories worth using:

• Bookkeeping/accounting: QuickBooks Online, Xero, Wave (free tier), or FreshBooks to track income and expenses and categorize deductions automatically.
• Tax prep: TurboTax or H&R Block for self-filing, or a licensed CPA/enrolled agent for anything complex (multi-state, S-corp, or heavy deductions).
• Payroll: Gusto, QuickBooks Payroll, or ADP to handle withholding, filings, and payroll-tax deposits if you have employees.

Because taxes are a YMYL area, lean conservative: good software handles routine filing, but for entity elections, multi-state nexus, or a first S-corp year, a professional usually pays for itself. Never chase a “tax hack” that sounds too good to be true.

Business taxes in Florida

Business taxes in Florida are relatively light, mainly because the state has no personal income tax — so pass-through owners (sole proprietors, most LLCs, S-corps) pay no state income tax on business profit, only federal. Florida does levy a 5.5% corporate income tax on C-corporations (filed on Form F-1120), a 6% state sales tax plus a county surtax on taxable sales, and a reemployment (unemployment) tax on employers, per the Florida Department of Revenue.

One recent change worth noting: Florida’s separate sales tax on commercial rent (the “business rent tax”) was repealed effective October 1, 2025, eliminating a cost that used to hit every business leasing space — confirm the current treatment with the Florida Department of Revenue. The combination of no personal income tax and the commercial-rent-tax repeal makes Florida one of the more tax-friendly states for small businesses, though you still owe federal taxes and must collect sales tax. If you’re forming here, see our guide to how to start an LLC in Florida.

Frequently Asked Questions About Business Taxes

Here are quick, standalone answers to the most common small-business tax questions. All are educational — confirm specifics with the IRS or a CPA.

How much should a small business set aside for taxes?

A common rule of thumb is to set aside 25–30% of net profit for taxes, covering both income tax and the 15.3% self-employment tax. This is illustrative, not exact — your real rate depends on your income, structure, deductions, and state. Higher earners or those without an S-corp election may need to reserve more; a CPA can pin down your specific percentage.

Do LLCs pay federal taxes?

Yes, LLCs pay federal taxes, but by default not at the entity level. Profit passes through to the owners, who report it on their personal returns and pay federal income tax plus self-employment tax. A single-member LLC files Schedule C; a multi-member LLC files Form 1065. An LLC can elect S-corp or C-corp taxation if that’s more advantageous for its situation.

Does Florida have a business income tax?

Florida has no personal income tax, so pass-through business owners pay no state income tax on their profit. Florida does impose a 5.5% corporate income tax on C-corporations (Form F-1120). It also charges a 6% state sales tax plus county surtax on taxable sales, and employers owe a reemployment tax — but for most small pass-through businesses, the state tax burden is low.

What is the self-employment tax rate?

The self-employment tax rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare. The Social Security portion applies only to net earnings up to the annual wage base ($184,500 in 2026); Medicare has no cap. It’s calculated on 92.35% of net self-employment earnings, and you can deduct half of the tax when figuring your income tax.

What business expenses are tax deductible?

Any “ordinary and necessary” business expense is generally tax deductible: supplies, software, marketing, professional fees, rent, business travel and meals (partially), insurance, and a home office. Larger deductions include vehicle mileage, equipment depreciation, retirement contributions, self-employed health insurance, and the QBI deduction. Keep records and receipts for everything, since documentation is required to support each deduction.