DIY Small Business Taxes: A Guide for Self-Funded Entrepreneurs

You can manage your small business taxes without a CPA — but you need a system, not just good intentions. Self-employed individuals pay a 15.3% self-employment tax on net earnings, plus federal and state income taxes. Knowing what you owe, which forms to file, and how to track deductions is how you stay compliant without paying for professional help you may not need yet.

Self-employed individuals pay 2 types of federal tax: self-employment tax and income tax. The self-employment tax rate is 15.3% — 12.4% for Social Security and 2.9% for Medicare — applied to your net earnings from self-employment. On top of that, you owe federal income tax at your marginal rate, plus any applicable state income tax.

The self-employment tax kicks in once your net earnings hit $400 or more for the year. One thing that catches people off guard: you pay self-employment tax on profit, not revenue. If your business brought in $80,000 but you had $30,000 in deductible expenses, you're taxed on $50,000 — not the full $80,000. That's why tracking expenses matters from day one.

Good tax filing starts with good records — not at tax time, but throughout the year. The IRS requires self-employed individuals to maintain records of all business income and expenses to back up any deductions claimed on a return. A shoebox of receipts is not a system. A system means you know where every dollar came from and where it went.

Open a dedicated business bank account and run all business income and expenses through it. This one step makes bookkeeping far less painful and protects your liability protection if you've formed an LLC. From there, pick a bookkeeping method — even a simple spreadsheet works at the start — and reconcile your transactions weekly, not monthly. Catching a miscategorized expense in the same week is easy. Catching it six months later is not.

• Open a dedicated business bank account and use it exclusively for business transactions

• Store digital copies of receipts — most bookkeeping apps let you photograph and tag them on the spot

• Reconcile your transactions weekly so nothing slips through

• Back up your financial records to a cloud service so you're not scrambling if a device fails

• Track contractor payments separately — you'll need those figures for 1099-NEC reporting

Your entity structure determines which tax forms you file and how your income is taxed. This is one of the most consequential decisions you'll make as a business owner, and it's worth understanding before you file your first return.

Sole proprietor or single-member LLC

By default, a sole proprietor and a single-member LLC are taxed the same way. You report business income and expenses on Schedule C (Form 1040), then calculate self-employment tax on Schedule SE. Your business profit flows directly onto your personal return — there's no separate business tax return to file.

Multi-member LLC

A multi-member LLC is taxed as a partnership by default. The LLC files Form 1065 (a partnership return), and each member receives a Schedule K-1 showing their share of income, deductions, and credits. Each member then reports that K-1 income on their personal return and pays self-employment tax on their share.

S Corporation election

If your LLC has elected S Corporation status, you're required to pay yourself a reasonable salary as a W-2 employee. The business files Form 1120-S, and you receive a K-1 for any remaining profit distributions. The potential tax advantage is that distributions above your salary aren't subject to self-employment tax — but the payroll requirements add complexity. A tax professional can help you figure out whether an S Corp election makes sense for your income level.

Deductions reduce your taxable profit, which means they reduce both your income tax and your self-employment tax. The IRS allows deductions for business expenses that are ordinary and necessary — meaning common in your industry and directly related to running your business. The key word is "directly." Personal expenses dressed up as business expenses are the fastest way to trigger an audit.

Common deductible expenses include supplies, software subscriptions, professional services, business-related travel, and a portion of your phone bill if you use it for work. If you work from home, you may qualify for the home office deduction — but only for space used exclusively and regularly for business. The IRS offers a simplified method ($5 per square foot, up to 300 square feet) or the actual expense method, which requires more documentation.

Vehicle expenses are deductible too, using either the standard mileage rate or actual costs — but you need a mileage log with dates, destinations, and business purpose. The IRS looks closely at vehicle deductions, so documentation matters. A luxury watch, on the other hand, doesn't qualify as a business expense regardless of how it's framed.

If you expect to owe at least $1,000 in federal taxes for the year, the IRS requires you to pay estimated taxes quarterly using Form 1040-ES. This isn't optional — skipping quarterly payments can mean an underpayment penalty even if you pay everything you owe by April 15. The IRS expects taxes to be paid as you earn, not all at once at year end.

The 4 quarterly due dates are generally April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or federal holiday, it shifts to the next business day. You can pay online through the IRS Direct Pay portal at irs.gov/payments — no account required.

To estimate what you owe each quarter, take your projected annual net profit, apply the 15.3% self-employment tax rate, add your estimated income tax, and divide by 4. It's an estimate — you'll true it up when you file your annual return. Most self-employed business owners set aside 25–30% of every payment they receive to cover both taxes.

The forms you file depend on your entity structure, but most self-funded entrepreneurs running a sole proprietorship or single-member LLC work with a short list. Knowing these forms before tax season means you're not scrambling to figure out what goes where.

• Schedule C (Form 1040): Reports your business profit or loss. This is where your income and deductible expenses go.

• Schedule SE (Form 1040): Calculates your self-employment tax based on the net profit from Schedule C.

• Form 1040-ES: Used to calculate and pay quarterly estimated taxes throughout the year.

• Form 1099-NEC: If you paid any contractor $600 or more during the year, you need to file this form and send a copy to the contractor by January 31.

• Form 1065: Required for multi-member LLCs taxed as partnerships. Each member also receives a Schedule K-1.

• Form 1120-S: Required if your LLC elected S Corporation status. Members receive a K-1 for their share of income.

You can file your federal return electronically through IRS Free File if your adjusted gross income is $79,000 or less. IRS Direct File is also available in participating states and lets eligible taxpayers file directly with the IRS at no cost. Commercial tax software certified by the IRS is another option if your situation is more complex.

DIY taxes work well when your situation is straightforward — one income source, clear expenses, no employees. But some situations genuinely benefit from professional help, and knowing when to ask is part of running a business well.

Consider bringing in a tax professional if you're thinking about an S Corporation election, you have employees or multiple contractors, you're dealing with a home office and vehicle deductions in the same year, or you received an IRS notice. An Enrolled Agent (EA) is a federally authorized tax practitioner who can represent you before the IRS for audits, collections, and appeals — and they're often less expensive than a CPA for straightforward business tax work.

You don't need a PTIN or any special credential to prepare your own business tax return. That requirement applies only to paid preparers who file returns on behalf of others. Preparing your own return is always an option — the question is whether your time and risk tolerance make it the right one.