Running a small business means wearing a lot of hats, and tax compliance is one of the most confusing ones. These are the questions we hear most often, with straight answers and no filler.
1. Do I need to pay taxes quarterly?
Most small business owners do, yes. If you expect to owe at least $1,000 in federal taxes for the year, the IRS requires you to make estimated tax payments four times a year rather than waiting until April. This applies to sole proprietors, single-member LLC owners, partners, and S-Corp shareholders who receive pass-through income. Missing or underpaying these can result in a penalty even if you pay the full balance by the filing deadline. The IRS estimated tax page has due dates and payment options, including IRS Direct Pay.
2. What is the self-employment tax?
Self-employment tax covers Social Security and Medicare for people who work for themselves, since no employer is splitting the bill with them. The combined rate is 15.3%, which breaks down to 12.4% for Social Security (on net earnings up to the annual wage base) and 2.9% for Medicare with no cap. The good news is that you can deduct half of what you pay in self-employment tax when calculating your adjusted gross income, which reduces your overall tax bill. You will calculate this on Schedule SE.
3. Can I deduct my home office?
Yes, but the rules matter. The space must be used regularly and exclusively for business. A kitchen table where you also eat dinner does not qualify. If you meet that standard, you can deduct a proportional share of your rent or mortgage interest, utilities, insurance, and maintenance based on the square footage of the office relative to your home. There is also a simplified method that allows a flat $5 per square foot deduction up to 300 square feet. The IRS outlines both methods in Publication 587.
4. Are startup costs tax-deductible?
Yes, up to a point. You can deduct up to $5,000 in startup costs in the year your business opens, as long as total startup costs do not exceed $50,000. Anything above that threshold gets amortized over 180 months (15 years). The same rules apply separately to organizational costs if you formed a corporation or partnership. Costs incurred before you actually opened for business, such as market research, legal fees, and training, can qualify, but costs incurred before you even decided to start a specific business generally do not.
5. Can I deduct mileage for business use of my car?
Yes. For 2026, the IRS standard mileage rate is 72.5 cents per mile for business use. You multiply that rate by your total business miles for the year and that is your deduction. Alternatively, you can deduct your actual vehicle expenses, including gas, insurance, repairs, and depreciation, based on the percentage of miles driven for business. Whichever method you choose, you need a mileage log. The IRS expects records showing the date, destination, business purpose, and miles for each trip. Commuting from home to your regular place of business does not count.
6. What’s the difference between an LLC and an S-Corp for taxes?
By default, a single-member LLC is taxed as a sole proprietorship, meaning all profit flows to your personal return and is subject to both income tax and self-employment tax. A multi-member LLC is taxed as a partnership by default. An S-Corp election changes that structure: you pay yourself a reasonable salary (subject to payroll taxes), and any remaining profit passes through to you without self-employment tax, which is where the savings come from. The tradeoff is more compliance, including payroll, quarterly filings, and generally more recordkeeping. Whether an S-Corp election makes sense depends on how much net profit your business generates, and it is worth running the numbers with a tax professional before making the switch since the threshold where it starts saving money meaningfully varies by situation.
7. Are business meals tax-deductible?
Business meals are 50% deductible when they meet the IRS requirements: there must be a genuine business purpose, you or an employee must be present, and the meal cannot be lavish or extravagant under the circumstances. The 50% limit applies to meals with clients, prospective clients, or business associates where business is discussed. There are exceptions, including meals provided to employees at company-wide events like a holiday party and meals for employees working late under certain conditions, which may be 100% deductible. Entertainment expenses, which are separate from meals, remain nondeductible since the Tax Cuts and Jobs Act eliminated that deduction.
8. Do I need an EIN for my small business?
You are required to have an Employer Identification Number (EIN) if you have employees, operate as a corporation or partnership, or file certain specialty returns like excise tax returns. Sole proprietors with no employees can use their Social Security Number instead, but many choose to get an EIN anyway to avoid putting their SSN on vendor forms like the W-9. It is free to apply on the IRS website and you get the number immediately.
9. Can I write off bad debts?
This one depends entirely on your accounting method. If you use accrual accounting, meaning you record income when it is earned rather than when it is received, you can deduct a debt as a business bad debt when it becomes uncollectible. If you use cash basis accounting, which most small businesses do, you cannot. Under cash basis, you only record income when you actually receive it, so a payment that never came in was never income to begin with and there is nothing to write off. The IRS covers this distinction in Publication 535.
10. How long should I keep business tax records?
The general rule is three years from the date you filed the return, which is how long the IRS has to audit you under most circumstances. However, that window extends to six years if the IRS suspects you underreported income by more than 25%, and there is no statute of limitations at all if fraud is involved. In practice, most tax professionals recommend keeping records for seven years to cover the more common audit scenarios comfortably. Employment tax records have their own rule, so keep those for at least four years. If you own business property, keep the records related to that property until at least three years after you dispose of it, since you will need them to calculate gain or loss.
Tax rules change regularly, and what applies to one business structure or industry may not apply to yours. If you have questions specific to your situation, reach out and we will give you a straight answer.
