The Small Business Guide To Tax Season

For many business owners, tax season feels like being jammed under a financial microscope. Receipts are scrutinized, spreadsheets are judged and questions pile up: Am I missing something? What happens if I get it wrong?

The truth is, tax season doesn’t have to feel so overwhelming. With the right information, business owners can approach it with confidence. Here’s a look at what you need to know to tick the right boxes and make sure you’re not paying Uncle Sam more than you need to.

Tax Season Is More Than A Tax Return

Today, the U.S. has more than 36 million small businesses, employing nearly 62 million Americans and making up about 46% of the private workforce. While small businesses have driven a majority of job creation over the past several decades, the reality is that many struggle to survive — about one in five fail in their first year, and half don’t make it past five years.

That’s one reason tax season can feel so stressful. Tax returns aren’t just paperwork — they’re a snapshot of your business’s financial health. Getting them right can improve cash flow and free up money for growth, hiring, reinvestment or saving for your own retirement. That means that understanding taxes isn’t just about compliance — it can be a strategic financial move.

Federal Income Taxes

Most small businesses pay federal income taxes based on profits. How you file depends on your structure:

• Sole proprietors and single-member LLCs typically report business income on Schedule C attached to their personal tax return, or Form 1040, due on April 15.
• Partnerships and multi-member LLCs that elect to be taxed as a partnership report income on Form 1065, due on March 15, but profits and losses flow through to owners’ individual returns — meaning that they’ll end up on those Forms 1040.
• S corporations report income on Form 1120-S, due on March 15, and as with partnerships, profits and losses flow through to shareholders’ individual returns.
• Corporations (sometimes called C-corps) report income on Form 1120, due on April 15. Importantly, C-Corps pay tax at the entity level — income doesn’t pass through to the individual shareholders — unless it’s distributed as dividends, which those shareholders would pick up as investment income.

(All of these due dates can be extended for federal income tax purposes by making a payment or filing a form before the original due date.)

Taking Advantage Of Deductions And Credits

One of the most common mistakes small business owners make during tax season is overpaying. Often, that happens because deductions or credits are misunderstood or missed entirely.

Small Business Tax Deductions

Deductions reduce your taxable income, lowering the tax you owe. Some of the most common deductions for small businesses include:

• Home Office Deduction. If you use part of your home regularly and exclusively for business, you may be able to deduct a portion of mortgage interest, utilities and other related costs.
• Vehicle Expenses. If you use a vehicle for business, you can deduct actual costs or use the IRS’s standard mileage rate.
• Travel Expenses. Headed to a conference or business meeting that’s out of town? Travel expenses, such as airfare, lodging and transportation, are deductible when the primary purpose of the trip is business.
• Office Supplies & Equipment. Pens, paper, cell phones, and laptops may be deductible if they’re ordinary and necessary for your business.
• Interest on Business Loans. Interest paid on business loans, including lines of credit, is generally deductible.
• Insurance Premiums. Business insurance — including general liability, professional liability, commercial auto and property insurance — is deductible. In some cases, self-employed individuals may also be able to deduct health insurance premiums.
• Professional Services. The upside of paying your lawyer, bookkeeper or IT support person? Those fees are generally deductible.
• Marketing and Advertising. You probably know that business cards and promotional items (like cool swag) are deductible, but your online presence may be, too. Online ads (like Google or Facebook ads), website design and hosting, and social media management tools may all be deductible. Again, the magic words are ordinary and necessary.

And don’t forget about the Section 199A deduction. Owners of pass-through businesses and sole proprietors may be eligible for a 20% deduction on qualified business income, subject to wage limits and other rules. Often called the pass-through deduction, it was scheduled to expire in 2025 but is now permanent under the One Big Beautiful Bill Act (OBBBA).

OBBBA also made 100% bonus depreciation permanent. Instead of writing off the cost of certain assets over several years, businesses can generally deduct the full cost upfront, within limits.

And it’s always a bonus when you can combine a deduction with a long-term strategy for savings. Contributions a small business makes to retirement savings vehicles like SEP or SIMPLE IRAs, solo or traditional 401(k)s, profit-sharing plans, or defined benefit plans are deductible business expenses. When done right, they can reduce taxable income while benefiting both owners and employees.

Small Business Tax Credits

Tax credits can be even more valuable than deductions because they are a dollar-for-dollar reduction in your tax bill. They can also be difficult to understand, which is why they are often overlooked. Some of the most common tax credits for small businesses include:

• Work Opportunity Tax Credit (WOTC). The WOTC incentivizes hiring individuals from certain groups that face barriers to employment, including veterans or long-term unemployed individuals. Eligible employers can claim a credit based on wages paid during the employee’s first year.
• Small Business Health Care Tax Credit. If you provide health insurance to employees and meet specific size and wage requirements, you may qualify for this credit. It’s designed to help offset the cost of providing coverage — that means a perk for your employees and a tax credit for you.
• Research and Development (R&D) Tax Credit. Despite its name, the R&D credit isn’t limited to labs or tech startups. Many small businesses qualify if they’re improving products or processes, developing new software or systems or experimenting with design or manufacturing methods. This credit applies across industries, including manufacturing, engineering, software, and some service-based businesses. Plus, under OBBBA, full expensing for domestic R&D expenses has been made permanent.

A quick takeaway? Depending on your industry and business activities, you may be eligible for credits you didn’t even know existed (which is why planning is so important).

Be Sure To Keep Excellent Records

You can only claim deductions and credits if you can support them — and that requires keeping excellent records.

For small businesses, that means holding onto receipts (digital copies are fine) and annotating them with enough information so that you remember the business purpose of the expense. A good practice? Note the date and location of the expense right on the receipt, and if it’s travel or meals-related, include a note about whom you were with and what you discussed.

Another good idea? Bookkeeping software helps you consistently track income and expenses throughout the year, which can pay off big at tax time (no more receipts stashed in Tupperware to sort through). Good records minimize stress and errors, and support your deductions and credits — and good bookkeeping helps you understand your business’s financial health.

Pay Your Estimated Taxes (Quarterlies)

Once you’ve sorted your income and expenses, you need to consider your payments. Small business owners don’t have automatic tax withholding as W-2 employees do. Instead, you’re generally required to pay estimated taxes quarterly (usually April 15, June 15, September 15, and January 15).

Individuals — including sole proprietors, partners and S corporation shareholders — typically must make estimated tax payments if they expect to owe $1,000 or more when their return is filed, while corporations generally must make estimated tax payments if they expect to owe $500 or more.

To avoid underpayment penalties, many business owners rely on the IRS safe harbor rules. In general, you can avoid penalties by paying at least 90% of your current year tax or 100% of your prior year tax (110% of your prior year tax for higher-income taxpayers), spread across your quarterly payments. Using the safe harbor can help reduce surprises at filing time and make quarterly payments more predictable.

Other Taxes To Consider

If you employ workers (whether it’s full-time staff or part-time help), you’ll need to pay close attention to payroll taxes. These include the employer’s portion of Social Security and Medicare, federal and state unemployment taxes and income tax withholding from employee paychecks. Employers, including small business owners, have a legal obligation to remit the withholding to the tax authorities. If that doesn’t happen on time, there can be serious consequences. A good solution? Hire a payroll company. Payroll companies will determine how much is owed for federal, state and local taxes and can remit payments directly from your checking account. They can also create reports and coordinate with your bookkeeper or tax preparer to help ensure that you, your employees and the tax authorities get paid on time.

Don’t forget about state and local taxes. Often, they follow the feds when it comes to income and expenses, but some jurisdictions may have extra reporting requirements.

(Depending on your industry and location, sales and use taxes, franchise taxes and business property taxes may also apply.)

Wrapping It All Up At Tax Time

Ready to get started? It’s never too early. Using tax and accounting software can help you run calculations, flag missing information and track deadlines throughout the year, so you’re less likely to panic in March or April. And conducting mid-year check-ups, estimated tax planning, making smart purchases, and setting up retirement contributions can all shrink your tax bill. Even small adjustments can lead to meaningful savings.

When it comes to tax time, some small business owners can handle basic filings using tax software. But as your business grows, adding professional help can make a real difference. A tax preparer can help identify deductions and credits, manage multi-state or multi-income situations and reduce the risk of costly mistakes. Think of professional tax help as an investment — and remember, it’s deductible.

The Bottom Line

One of the biggest myths about taxes is that they only matter during tax season. But smart business owners think about taxes all year long. When you understand the rules, keep good records and plan ahead for taxes, you stay in control. That’s not just smart tax planning — it’s smart business.