How to File Small Business Taxes in 6 Steps

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If you’re a solopreneur or small business owner in the US, you’re responsible for filing taxes related to your business to the IRS. Different business types have different tax obligations. Beware: Miscalculations or missed payments can result in fines and penalties. 

The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25% of your unpaid taxes.

Ahead, learn what you need to know to file taxes for your small business on time.

What are the most common small business taxes?

Your business type determines which taxes you need to pay. For example, sole proprietors have different federal taxes than businesses with employees and assets.

Here are the five main tax categories businesses pay, according to the IRS:

1. Income tax

You pay the IRS a percentage of your business’s income in federal income tax. The rates can vary depending on the type and location of your business. In the US, 44 states levy a corporate income tax with rates ranging from 2% flat in North Carolina to 11.5% in New Jersey.

If you’re self-employed, you’ll report business income taxes using Schedule C through Form 1040. You’ll also owe a self-employment tax (more on that below).

Note: If you sell a business asset like equipment, property, or the business itself, for more than you paid for it, you may owe capital gains tax on the profit. 

2. Estimated taxes

The IRS requires you to pay taxes on income earned during the year, either by withholding or through estimated tax payments. If you’re self-employed or receive income such as interest, dividends, or capital gains, you may have to make estimated tax payments.

The estimated tax is used not only to pay income tax, but also other taxes like self-employment tax. A tax year is divided into four payment periods with specific due dates. Use Form 1040-ES to report your estimated tax.

In general, you don’t get penalized if you pay 90% of your tax, or 100% of the tax shown on your prior year’s return. 

3. Self-employment tax

If you’re self-employed, you must pay self-employment tax consisting of Social Security (12.4%) and Medicare (2.9%) taxes, totaling 15.3%. You report this using Schedule SE and file it through Form 1040. 

These taxes are normally split between employers and workers; however, self-employed individuals are responsible for both portions. But you can deduct 50% of the self-employment tax when calculating adjusted gross income. 

If you make more than $400 from self-employment, you must file.

4. Employment taxes

If you hire employees, you must withhold and deposit federal employment taxes. These include federal income tax, Social Security and Medicare taxes, and federal unemployment tax, which is paid entirely by the employer. 

You must file quarterly tax returns via Form 941 and make regular deposits to the IRS. The IRS also requires employers to provide employees with Form W-2 documenting wages and withheld taxes at year-end.

Most states also require employers to withhold income taxes from wages earned in that state. Research the laws for your state or consult a local tax professional for more details. 

5. Excise tax

Excise taxes typically apply to importers, manufacturers, and retailers, depending on the specific tax. Common types include the heavy highway vehicle use tax reported on Form 2290, sport fishing and archery equipment excise tax, and sports wagering excise taxes reported on Forms 730 and 11-C.

You must register with the IRS before engaging in many activities subject to federal excise taxes.

6 steps for filing small business taxes

The filing process can vary depending on your business structure, income level, number of employees, and whether you have self-employment or estimated tax obligations. However, most small businesses follow the same core sequence to stay compliant.

Whenever in doubt, consult a tax professional or visit IRS.gov to verify your compliance requirements.

1. Collect your company records

Choose a recordkeeping system suited to your business and that clearly shows your income and expenses. Keep your records as long as needed to prove the income or deductions on a tax return. Timelines may vary. If you have employees, keep all records of employment taxes for at least four years.

Here’s a recordkeeping checklist as advised by the IRS:

• Keep supporting documents that show amounts and sources of income, including cash register tapes, deposit information, receipt books, invoices, and Forms 1099-MISC.
• Keep supporting documents for purchases, including canceled checks or other documents reflecting proof of payment, cash register receipts, credit card receipts and statements, and invoices.
• Keep supporting documents for business expenses, including canceled checks or documents reflecting proof of payment, cash register receipts, account statements, credit card receipts and statements, and invoices.
• Keep records for business assets showing when and how you acquired them, purchase price, cost of improvements, depreciation deductions taken, how you used the asset, when and how you disposed of it, selling price, and expenses of sale.

In most cases, sole proprietors can use their Social Security number for tax purposes. You need an employer identification number (EIN) if you have employees, file excise taxes, operate an LLC, start a retirement plan, and more.

In a fourth-quarter 2025 Shopify survey of store owners,* 77% reported tracking sales or total revenue, while 41% reported reviewing their finances daily. Accurate recordkeeping can help with catching discrepancies early and ensure you stay on top of tax obligations.

Tip: Before meeting with an accountant or preparing your tax filings, export your sales and tax reports from your Shopify admin. Go to Analytics > Reports to access the tax reports available to you. Tax reports provide a summary of sales and tax information regarding your sales. 

2. Understand sales tax requirements

Determine whether you have to collect sales tax and remit it to a state tax authority before setting up taxes. When you determine which states to charge taxes in, register with each state’s tax authority before collecting taxes. Once you’ve registered, set up your Shopify store to collect taxes.

Shopify helps automate sales tax charging and provides insights into your tax liability. The platform doesn’t remit or file your taxes for you, unless you use Shopify Tax and set up automated filing. Once configured, Shopify Tax calculates, collects, and tracks tax and generates reports for filing verification.

“Shopify automatically understands which location you are in and charges the appropriate tax,” says Sat Gurumukh Khalsa, founder of Sukhmani Designs. “Then it’s just easily reported for state tax filing.”

When a business’s retail activity in a state meets a certain threshold, a nexus may be established, and that business must register with and begin collecting sales tax for that state. There are two types of nexuses: 

• A physical nexus occurs when you have a physical presence in a state, such as an office, store, warehouse, or employees.
• An economic nexus occurs when you exceed a sales threshold, e.g., $100,000 annually, in a state, regardless of physical presence. This does not require a physical presence.

This is particularly significant for online businesses because ecommerce accounted for 16.9% of total retail sales in the first quarter of 2026, and all states with a sales tax have enacted economic nexus provisions.

The sales threshold that determines whether you have nexus is different for each state. For businesses that import products internationally, you’ll also need to navigate tariffs and customs requirements in addition to domestic sales tax obligations.

Note: Five states, including Alaska, Montana, New Hampshire, Oregon, and Delaware, do not levy a general statewide sales tax. 

3. Find the correct tax form and fill it out

The IRS requires different returns based on whether you’re a sole proprietor, partnership, corporation, or limited liability company (LLC). For LLCs specifically, how you’ve elected to be taxed.

If you have more than one owner, your LLC is treated like a partnership for tax purposes, and you have to file Form 1065. LLCs with just one member are treated like corporations for federal tax purposes, unless they file Form 8832 to elect to be treated as corporations. 

If a single-member LLC files Form 8832, it can elect to be taxed as a C corporation and should file Form 1120. If a qualifying LLC elects to be an S corporation, it should file Form 1120-S, and S corporation laws apply to the LLC. 

Note: If you pay independent contractors or freelancers, you have reporting obligations. For each person paid $600 or more in a calendar year, a 1099-NEC form must be filed. The deadline is January 31 of the year following the payment year. 

4. Know the tax filing deadlines

The tax filing deadlines depend on your kind of business, how you’re taxed, and if you have employees. If a deadline falls on a weekend or a federal holiday, it might change. 

Generally, if a due date for performing any act for tax purposes falls on a Saturday, Sunday, or legal holiday, the act is considered to be performed timely if it’s done no later than the next day that isn’t a weekend day or legal holiday.

These are the deadlines for use in 2026, published by the IRS based on a business that’s fiscal year follows the calendar year:

Note: If you file your income tax return for a fiscal year that’s different from the calendar year, some of these dates will change.

If you expect to owe $1,000 or more at tax time, you’ll have to make quarterly estimated tax payments. For businesses that follow a fiscal year that matches the calendar year, first-quarter payments typically are due on April 15, with subsequent quarterly payments due on June 15, September 15, and January 15 of the following year.

If the IRS office where you’re supposed to file is located in that state, then a statewide legal holiday delays the due date. But a statewide legal holiday does not delay a due date for making a federal tax deposit. 

5. Decide whether to use tax software or a tax professional

When filing business taxes, you have two paths: handle taxes yourself with software, or work with a tax professional.

A self-service tax tool can be sufficient if your situation is straightforward, like if you’re a sole proprietor with no employees, operate in one state, and you’re confident in navigating the forms.

But as complexity grows, professional help can be worth the cost. Consider working with a tax professional:

• If you have employees and must file payroll taxes (Forms 940, 941, W-2)
• If you sell in multiple states and must manage varying sales tax requirements
• If you have significant deductions or business expenses to track
• If you changed your business structure, LLC to S-corp, for example
• If you’ve received a notice or letter from the IRS
• If you aren’t sure which forms to file or when

Your options include: 

• Bookkeepers, who organize financial records 
• Accountants, who prepare returns and offer tax planning 
• CPAs or enrolled agents, who have credentials and can represent you before the IRS 

6. File your small business taxes

You have multiple paths to filing, depending on your business structure and comfort level:

• File electronically for many of the taxes and forms that small businesses are required to file.
• File by paper mail, though this takes longer and provides no instant confirmation. 
• You can request a filing extension if you need more time to organize records or documents. The extension gives you more time to file, but not necessarily more time to pay. 

For businesses, Form 7004, Application for Automatic Extension to File, can be used to request an automatic extension, typically six months. 

Make sure you file all your tax returns, regardless of whether you can pay in full. The longer you wait, the more interest and penalties can accumulate. If you can’t pay what you owe, you may be able to request an additional 60 to 120 days to pay through the IRS’s Online Payment Agreement application, set up an installment agreement, or explore an offer in compromise if you qualify. 

Additionally, not filing self-employment returns means you won’t receive credits toward Social Security benefits, and loan approvals may be delayed if lenders need copies of filed returns.

Common tax deductions for small businesses

The difference between gross revenue and taxable income comes down to deductions. Most business expenses are deductible if they’re “ordinary and necessary” for your trade or business, according to the IRS.

Tip: Read the full guide on small business tax deductions ahead of tax season. 

Startup expenses

If you’re just starting your business, Section 195 of the Internal Revenue Code allows taxpayers with low startup costs to deduct up to $5,000 in startup costs during the business’s first year. 

The deduction phases out for every dollar of startup costs above $50,000, meaning no immediate deduction is available for startup costs above $55,000. Any startup costs ineligible for a first-year deduction may be deducted over 180 months, i.e.,15 years. Note that costs that can go toward the deduction are limited.

Workspace and property

Business property

You can deduct rental costs for properties you use exclusively for business, including office space, storage units, warehouses, and retail locations. You can deduct only the amount of rent you paid in advance for that year’s use of the property.

Home office

If you regularly use part of your home as your main business location, you might qualify for the home office deduction. Your home office must be used only for business activities.

Eligible taxpayers can use the IRS’s simplified method to deduct $5 per square foot of business space, up to a maximum of 300 square feet. Alternatively, the regular method can be used by dividing household expenses by the percentage of floor space in your home used for business.

Operations and digital tools

Office supplies, phone, internet, and software

Everyday business essentials, including office supplies and business software subscriptions, may be tax-deductible. 

Dedicated business internet and phone lines can be fully deductible, but if you share a single connection between personal and business use, you deduct only the portion used for business purposes. 

If a cost benefits your business only in the current year, like office supplies or a monthly software subscription, you deduct it in full that year.

Equipment

You can recover equipment costs through depreciation or a Section 179 deduction. Rented business equipment is also tax-deductible. Consider working with an accountant to choose the best method for your situation.

Personnel

Employee salaries and wages are tax-deductible business expenses. According to the US Chamber of Commerce, this deduction extends to independent contractors, who must be classified correctly. Partners and proprietors are not covered.

Professional services and development

Professional services

Business-related fees for accountants, legal services, and consultants can typically be deducted as professional services.

Education

You can deduct work-related education that adds value to your business or increases your expertise.

Marketing and advertising

You can deduct things like business cards and both print and digital advertising from your tax return.

Travel and transportation

Travel expenses

When traveling outside your usual business area, you can deduct necessary travel expenses like transportation, lodging, and non-entertainment-related meals.

Vehicle use

If you use your car only for business purposes, you can typically deduct the entire cost of ownership and operation. However, if you use the car for both business and personal activities, you may deduct only the portion related to business use. 

Other car expenses, including parking fees and tolls, that are attributable to business use are also deductible.

Fulfillment and shipping

Costs for mailing standard business correspondence are deductible business expenses. Shipping supplies, including boxes, envelopes, packing materials, and labels, are also deductible.

*Based on a November 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.