Taxes
Small Business Tax Basics: Entity, Forms, and Deadlines
Quick answer
Most small businesses do not pay tax at the business level. Instead, profits and losses “pass through” to the owners' personal returns. The exception is the C corporation, which pays its own tax. Your entity type decides which form you file — and, often, whether you owe self-employment tax.
Key takeaways
- Pass-through is the norm: sole proprietorships, partnerships, and S corps report on owners' personal returns; C corps pay their own tax.
- Form map: Schedule C (sole proprietor), Form 1065 + K-1 (partnership), Form 1120-S + K-1 (S corp), Form 1120 (C corp).
- QBI deduction percentage/limits, C corporation tax rate, and partnership/S-corp filing deadlines are described qualitatively only, with no figures stated.
- Commingling personal and business money is the most common small-business tax mistake; a separate business account prevents most of it.
What “pass-through” really means
Educational information only. This page explains small-business tax structures in general terms. Entity choice has legal and tax consequences — consult a qualified tax professional (and, for formation, a legal professional) before choosing or changing a structure. The business reports its income and expenses, then allocates the result to owners on K-1s (or directly on Schedule C for a sole proprietor). Owners report that income on their personal returns and pay tax at their own rates — even on income the business kept rather than distributed. Cash in the bank and taxable income are not the same number. Partnership pass-through treatment (Form 1065, Schedule K-1 to partners) is confirmed on the IRS estimated-tax FAQ, verified 2026-10-28.
Deductions and record-keeping
Ordinary and necessary business expenses reduce taxable business income: supplies, software, rent, marketing, contractor payments, and business use of a phone or vehicle (with records). What does not count: personal expenses run through the business, and expenses without documentation. Good records are also what make Schedule C defensible — keep receipts, invoices, bank statements, and mileage logs separate from personal accounts (see Business Checking vs Personal).
The QBI deduction (qualifying businesses only)
Some pass-through owners may claim a deduction for qualified business income. Percentage, thresholds, and limits are not stated here; check current IRS QBI guidance. Do not assume every business qualifies — service-business and income limits apply.
Paying during the year
Pass-through owners generally pay through quarterly estimated payments (owners' personal Form 1040-ES), because no employer withholds for them. An S corporation itself must generally make estimated payments only for certain entity-level taxes totalling $500 or more (IRS estimated-tax FAQ). C corporations have their own estimated-payment rules.
Deadlines (confirm each year)
Individual owners and sole proprietors generally file with the personal return in April (extensions to October). Partnership and S corporation returns are generally due earlier in the year, with extensions to September. Exact March/September dates are not stated here; check the IRS business tax calendar.
At a glance
| Entity | Federal tax form | Who pays tax | SE tax? |
|---|---|---|---|
| Sole proprietorship | Schedule C + Schedule SE (if net earnings ≥ $400) | Owner, on personal return | Yes, generally |
| Single-member LLC (default) | Schedule C + Schedule SE, like a sole proprietorship | Owner, on personal return | Yes, generally |
| Partnership | Form 1065; partners get Schedule K-1 | Partners, on personal returns | Generally on general partners' shares + guaranteed payments |
| S corporation | Form 1120-S; shareholders get Schedule K-1 | Shareholders, on personal returns | Wages to shareholder-employees are subject to payroll tax; distributions are not SE income (reasonable-salary rules apply) |
| C corporation | Form 1120 | Corporation itself; shareholders taxed again on dividends (“double taxation”) | No — employees pay payroll tax on wages |
Small business tax by entity type
What this means for you
Entity choice is a tax-form choice first: it decides who pays, on which form, and whether self-employment tax applies. An LLC is primarily a legal-liability choice — by default it does not change federal tax treatment for a single owner. Unpack Money currently earns $0 affiliate revenue and has no approved affiliate programs, and this page contains no affiliate links.
FAQ
Should I form an LLC for tax reasons?
An LLC is primarily a legal-liability choice; by default it does not change federal tax treatment for a single owner. Formation services are compared at Best LLC Formation Services — tax treatment is a separate question for a professional.
When does an S corporation election make sense?
Commonly discussed when profits are high enough that payroll-tax savings on distributions outweigh the added payroll, bookkeeping, and compliance costs — a facts-and-figures analysis for a professional, not a rule of thumb to apply blindly.
What is the single most common small-business tax mistake?
Commingling personal and business money, then reconstructing records at filing time. A separate business account (see How to Open a Business Bank Account) prevents most of it.
Sources
- IRS, self-employment tax — https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes — verified 2026-10-28
- IRS, estimated tax FAQ — https://www.irs.gov/faqs/estimated-tax — verified 2026-10-28
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