Small Business Tax FAQ

Generally yes, if you expect to owe $1,000 or more for the year after withholding and credits. Estimated payments are usually due quarterly. Check the current IRS instructions for Form 1040-ES for the exact schedule.

A deduction reduces taxable income, so its value depends on your tax rate. A credit reduces the tax itself, dollar for dollar. A credit is usually worth more than a deduction of the same amount.

No. An extension gives more time to file, not to pay. Tax owed is still due by the original deadline, and interest and penalties may apply. Filing an extension request on time avoids the late-filing penalty, not the late-payment penalty.

It can reduce self-employment tax on profit above a reasonable owner salary, but it adds payroll and compliance costs. Model the result at your expected profit level before deciding. See our business structure guide.

Keep receipts, bank and card statements, invoices, payroll records, mileage logs and asset records. Keep records as long as they may be needed to support a return, generally at least three years from filing.

Federal law provides several ways to recover equipment costs, including bonus depreciation and Section 179 expensing. Each has its own limits and phase-outs, and the best choice depends on your income that year and your plans for later years. See our year-round planning guide.

Generally, a home office may qualify if part of the home is used regularly and exclusively for business. The rules have specific tests, so confirm the requirements in the current IRS publication for business use of your home before claiming it.

Options include SEP IRAs, SIMPLE IRAs and 401(k) plans, each with different setup rules, limits and deadlines. See owner retirement and benefits for a comparison.

In a sole proprietorship, partnership, LLC or S corporation, the profit flows through to the owners' returns whether or not it was withdrawn. Cash left in the business can still be taxed to you, so plan for tax before you plan distributions.

Yes. The IRS expects an owner who works in an S corporation to be paid reasonable compensation as wages. Very low pay with large distributions can lead to the distributions being treated as wages, with payroll tax, interest and penalties.

The IRS looks at facts such as a profit motive, how you run the activity, your records, time spent and expertise. Hobby income is generally taxable, while hobby expenses are generally not deductible under current rules.

It can be disallowed. Business deductions generally need records showing the amount, date and business purpose, and travel, vehicle and gift expenses face stricter substantiation rules. A receipt without the purpose written down is often not enough.

No. Losses can be limited by your basis in the business, at-risk rules, passive activity rules and an overall limit on large business losses for individuals. A loss on paper does not always turn into a deduction this year.

Often, yes, as a deduction on the personal return, if the business shows a profit and you are not eligible for a subsidized employer plan. S corporation owners with more than 2% of the stock have special reporting rules for premiums.

No. The qualified business income deduction is calculated on your return, and its limits depend on your income, the type of business, wages paid and property owned. Planning how you pay yourself can change the result.

Taxes withheld from employees' pay are held in trust for the government. If they are not paid over, the IRS can assess the Trust Fund Recovery Penalty against the responsible people personally, even if the business is a corporation or LLC.

Wages for real, age-appropriate work can be deductible. In a sole proprietorship or a partnership owned only by the child's parents, a child under 18 is generally exempt from Social Security and Medicare tax. The pay must be reasonable and documented.

More than most employees can. Plans such as a solo 401(k), SEP IRA or SIMPLE IRA allow contributions that reduce taxable income, and the limits change every year. Check the IRS limits for the year before setting a contribution.

Generally by paying at least 90% of this year's tax or 100% of last year's tax, whichever is smaller. The prior-year safe harbor rises to 110% if last year's adjusted gross income was over $150,000.

Generally 50% of the cost of a business meal that is not lavish and has a clear business purpose, with the people and topic recorded. Entertainment, such as tickets and club dues, is generally not deductible.

Often, yes. The reporting threshold for most payments to contractors has been $600, and recent legislation raises it for payments made after 2025. Confirm the threshold for your year, and collect a Form W-9 before you pay.

Both. Depreciation and expensing rules generally depend on when an asset is placed in service, meaning ready and available for use, not just when you pay. A purchase made in December but not used until January may fall in the wrong year.