Business Taxes Overview
Overview
Running a small business means dealing with taxes differently than a W-2 employee. You're responsible for calculating and paying your own taxes — no employer is withholding anything from your income. For most sole proprietors and single-member LLCs, that means understanding three things: annual return filing, quarterly estimated tax payments, and the deductions that reduce what you owe.
ZenBusiness helps you stay organized through Money Pro (which tracks expenses and generates Schedule C reports year-round), April Tax filing integration for self-service tax filing, and a partnership with 1-800Accountant for professional tax advice and full-service filing. This article covers the fundamentals — how business income is taxed, what estimated taxes are, and the most valuable deductions for small business owners.
Disclaimer: This article is for general educational purposes and is not tax advice. Consult a qualified CPA or tax professional for guidance specific to your situation.
Is my Unlimited Tax Filing subscription tax deductible?
Yes. You can claim the total amount paid within the given year, as a business expense.
If I use Money Pro, but decide to have an accountant file my annual business taxes, what reports can I provide to them?
You can provide your accountant with the following reports, which can be found in the Taxes page or in the Reporting page:
- Schedule C
- 1065
- Tax Details Report
Other reports you may need that aren't provided with Money Pro:
- Form 1120 (C-Corps)
- Form 1120S (S-Corps)
- Form 1040 or 1040NR
Business Taxes Overview
How small business taxes work, what you owe as a self-employed owner, common deductions, and what reports to give your accountant.
How Small Business Income Is Taxed
Sole Proprietors and Single-Member LLCs
If you're a sole proprietor or single-member LLC, your business income is "pass-through" income — it flows directly to your personal tax return (Form 1040). You report business profit and loss on Schedule C, which is part of your personal return.
You pay two types of tax on your Schedule C net profit:
- Self-employment tax (15.3%) — covers Social Security (12.4%) and Medicare (2.9%). Employees split this with their employers, but self-employed people pay both sides.
- Federal income tax — based on your total taxable income (business + personal) and your tax bracket
One important note: your net profit from Schedule C is reduced by half of your self-employment tax before calculating income tax (this is a built-in deduction). And business expenses directly reduce your Schedule C profit, which reduces both types of tax.
Multi-Member LLCs and Partnerships
Multi-member LLCs are taxed as partnerships by default. Partners report their share of income on Schedule K-1 and pay self-employment tax and income tax on their portion.
S-Corps
S-Corps are a special tax election (not an entity type). Profit flows through to shareholders' personal returns. The tax advantage: only the portion paid as salary (W-2 wages) is subject to self-employment tax — distributions above salary are not. However, S-Corps have more complexity: required payroll, quarterly payroll tax filings, and Form 1120-S annual return.
C-Corps
C-Corps are taxed at the corporate level (currently 21%) on corporate profit. When profits are distributed as dividends, shareholders pay income tax on them too — this is "double taxation." C-Corps make sense for businesses seeking outside investment or planning complex equity structures; most small businesses choose LLC or S-Corp instead.
Estimated Quarterly Taxes
As a self-employed individual or LLC owner, the IRS requires you to pay taxes quarterly — not just at year-end. This "pay as you go" system prevents a large lump-sum tax bill in April and avoids underpayment penalties.
Who needs to pay estimated taxes?
You generally owe quarterly estimated taxes if you expect to owe at least $1,000 in taxes at year-end after withholding and credits. This applies to:
- Sole proprietors and freelancers
- Single and multi-member LLC owners
- S-Corp and C-Corp shareholders who receive distributions or pass-through income
Quarterly due dates
| Quarter | Income Period | Due Date |
|---|---|---|
| Q1 | January – March | ~April 15 |
| Q2 | April – May | ~June 15 |
| Q3 | June – August | ~September 15 |
| Q4 | September – December | ~January 15 (following year) |
How to pay: Estimated taxes are paid directly to the IRS at eftps.gov (free federal electronic payment system) or irs.gov/payments. Most states also require estimated state tax payments — check your state's tax authority website.
How to calculate: If you use Money Pro, it estimates your quarterly obligation based on your year-to-date income and expenses. For a more precise calculation, especially if you have other income sources, work with your accountant.
Penalties for missing: The IRS charges an underpayment penalty if you owe more than $1,000 at year-end and didn't pay enough throughout the year. Paying at least 90% of this year's tax or 100% of last year's tax (110% if income > $150K) avoids the penalty.
Common Business Tax Deductions
Every legitimate business expense reduces your Schedule C profit — and therefore reduces your tax bill. Here are the most common and valuable deductions for small business owners:
| Deduction | What It Covers |
|---|---|
| Home office | Percentage of home expenses (mortgage interest, rent, utilities, insurance) based on square footage used exclusively for business |
| Vehicle / mileage | Business miles at the IRS standard rate (2026: $0.725/mile; 2025: $0.70/mile) OR percentage of actual vehicle expenses |
| Business meals | 50% of the cost of business meals with clients (purpose must be documented) |
| Professional services | Accountant, attorney, and consultant fees directly for your business |
| Software & subscriptions | Business software, SaaS tools, and cloud services |
| Business equipment & computers | Full purchase cost deductible in the year purchased (Section 179 deduction) |
| Health insurance premiums | Self-employed health insurance deduction (for you, your spouse, and dependents) |
| Education & certifications | CPE credits, professional license renewals, courses that maintain or improve business skills |
| Business interest | Interest on loans used for business purposes |
| Marketing & advertising | Ads, promotional materials, website costs |
| Payment processing fees | Stripe, PayPal, Square, and other processor fees |
| Half of self-employment tax | You deduct 50% of SE tax paid — built into Schedule C |
| Retirement contributions | SEP-IRA, SIMPLE IRA, or Solo 401(k) contributions |
Keep documentation for every deduction — receipts, bank statements, and records. The IRS can audit up to 3 years after filing (longer in fraud cases).
What Reports to Give Your Accountant
If you use Money Pro and have your own accountant file your taxes, generate these reports from Money Pro's Reports section:
Required:
- Schedule C (Draft) — income and expense breakdown by IRS category
- Tax Details Report — full categorized income and expense breakdown
- Profit & Loss Statement — total income, expenses, and net profit for the year
If applicable:
- Mileage Detail List — all logged business trips for the mileage deduction
- Export of all transactions — some accountants prefer the raw transaction data
Forms your accountant prepares (not available from Money Pro):
- Form 1040 / 1040NR (personal return)
- Form 1120-S (S-Corp return)
- Form 1065 (partnership return)
- Form 1120 (C-Corp return)
Frequently Asked Questions
Is my ZenBusiness subscription tax deductible?
Yes. ZenBusiness services used for your business — formation fees, registered agent service, compliance services, Money Pro — are business expenses deductible on Schedule C. Keep your ZenBusiness billing records as documentation.
What's the difference between Schedule C and Form 1065?
Schedule C is for single-member LLCs and sole proprietors — it's part of your personal Form 1040. Form 1065 is for multi-member LLCs taxed as partnerships — it's a separate business return that produces Schedule K-1 for each partner. Money Pro is designed for Schedule C filers.
Do I need to pay both federal and state estimated taxes?
Most states with income tax also require quarterly estimated state tax payments. The due dates and payment thresholds vary by state. Check your state's tax authority website for state-specific requirements.
What's the penalty for not paying estimated taxes?
The IRS charges an underpayment penalty based on the amount you should have paid and how late the payment was. The current IRS underpayment rate is 8% annually (as of 2024). To avoid the penalty, pay at least 90% of the current year's tax or 100% of the prior year's tax (110% if your income exceeds $150,000).
My taxes are complicated. How does ZenBusiness help?
ZenBusiness Money Pro handles expense organization and report generation. For professional help, we partner with 1-800Accountant for unlimited tax advice and full-service filing, and with April Tax for integrated self-service filing. See our Tax Services and April Tax articles for details.
Still need help?
Call (844) 493-6249, use live chat on your dashboard, or email support@zenbusiness.com. Monday–Friday during business hours.