Small Business Tax Guide 2025: What Every Owner Should Know

Choosing the Right Business Entity

The structure of your business directly impacts your tax obligations. Here is how the main options compare:

Sole Proprietorship

Simplest structure, no separate entity

Income reported on Schedule C of your personal return

Subject to self-employment tax on all profits

No liability protection

Single-Member LLC

Same tax treatment as sole proprietorship by default

Can elect to be taxed as S-Corp or C-Corp

Provides liability protection

Minimal compliance requirements

S-Corporation

Pass-through taxation: profits flow to personal return

Owners who work in the business pay themselves a reasonable salary

Distributions beyond salary are not subject to self-employment tax

Requires payroll processing and separate tax return (Form 1120-S)

Best when profits consistently exceed $50,000-$80,000

C-Corporation

Separate tax entity with flat 21% corporate rate

Profits are taxed twice: at corporate level and when distributed as dividends

Best for businesses planning to reinvest heavily or seek venture capital

More complex compliance requirements

Partnership / Multi-Member LLC

Pass-through taxation, reported on Form 1065

Each partner receives Schedule K-1

Flexible allocation of income and losses

Self-employment tax applies to general partners

Key Business Deductions

Startup Costs

Deduct up to $5,000 in startup costs and $5,000 in organizational costs in your first year. Amounts exceeding these limits are amortized over 15 years.

Section 179 and Bonus Depreciation

Immediately expense qualifying business equipment up to $1,250,000 (Section 179 limit for 2025). Bonus depreciation allows 80% first-year depreciation on new and used qualifying assets.

Business Insurance

All ordinary and necessary business insurance premiums are deductible: general liability, professional liability, property insurance, and business interruption insurance.

Employee Benefits

Employer contributions to health insurance, retirement plans, and other benefits are deductible. Offering benefits can be more tax-efficient than higher salaries.

Business Meals

Deduct 50% of business meal costs when directly related to business activities. Keep receipts and note the business purpose, attendees, and topics discussed.

Vehicle Expenses

Choose between standard mileage (70 cents per mile for 2025) or actual expenses. If you use the vehicle more than 50% for business, you can also depreciate it.

Payroll Tax Obligations

If you have employees, you must:

Withhold federal income tax, Social Security (6.2%), and Medicare (1.45%)

Pay employer's share of Social Security (6.2%) and Medicare (1.45%)

Pay federal unemployment tax (FUTA): 6% on first $7,000 per employee (usually reduced to 0.6% with state credit)

Pay state unemployment tax (SUTA)

File Form 941 quarterly and Form 940 annually

Issue W-2s by January 31

Quarterly Filing Requirements

Small businesses typically need to:

Make estimated tax payments quarterly (April 15, June 16, September 15, January 15)

File Form 941 (payroll taxes) each quarter

Remit sales tax quarterly or monthly depending on state requirements

Tax Strategies for Small Businesses

Track every expense - small deductions add up significantly over a year

Separate business and personal finances completely

Consider an accountable plan for employee expense reimbursements

Time large purchases to maximize Section 179 or bonus depreciation

Review your entity structure annually as your business grows

Set aside 25-30% of income for taxes from day one

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