Your first year in business, taxes feel like a foreign language: quarterly estimates, pass-through income, deductible vs. capital expenses, deadlines that come four times a year. Here's the map — what you owe, when you pay it, and which forms do what.
The two tax worlds: pass-through vs. corporate
Almost everything comes down to one question: who pays the tax?
- Pass-through entities (sole proprietors, single/multi-member LLCs, S-Corps, partnerships) — the business itself pays no income tax. Profit "passes through" to owners, who report it on their personal returns and pay tax at their personal rate.
- C-Corporations — the corporation is a separate taxpayer. It pays corporate income tax on profit, and shareholders pay again on dividends (the double tax).
If you're a typical LLC owner, you're in the pass-through world, and your personal return is where everything lands.
The forms you'll actually touch
| Form | What it's for | When |
|---|---|---|
| Schedule C | Reports LLC/sole-proprietor profit on your personal return | With your 1040 |
| Schedule K-1 | Reports your share of partnership/S-Corp profit | With your 1040 |
| Form 1065 | Partnership tax return | March 15 |
| Form 1120-S | S-Corp tax return | March 15 |
| Form 1120 | C-Corp tax return | April 15 |
| Form 1040-ES | Quarterly estimated tax payments | Apr/Jun/Sep/Jan |
| Form SS-4 | Get your EIN | Before you need one |
| Form 941 | Employment tax (if you have employees) | Quarterly |
When you actually pay
The IRS expects tax on income as you earn it — not once a year. For business owners without payroll withholding, that means quarterly estimated payments:
| Payment period | Income covered | Due |
|---|---|---|
| Q1 | Jan–Mar | April 15 |
| Q2 | Apr–May | June 15 |
| Q3 | Jun–Aug | September 15 |
| Q4 | Sep–Dec | January 15 |
Miss a quarterly deadline and the IRS charges interest plus a late-payment penalty on the shortfall — even if you pay everything by April 15. The safe harbor: pay at least 100% of last year's tax liability (110% above certain income thresholds) in estimates and you won't owe a penalty.
What's deductible (the short version)
A deductible expense is ordinary and necessary for your business. The big ones for service businesses:
- Home office — a dedicated space used regularly and exclusively for work.
- Vehicle — mileage (standard rate) or actual costs, business use only.
- Software & subscriptions — the tools you actually pay for.
- Equipment — computers, cameras, tools (via depreciation or the Section 179 deduction).
- Professional services — your CPA, lawyer, and fees.
- Travel & meals — business travel is deductible; meals generally 50%.
- Health insurance premiums — for self-employed owners in many cases.
- Retirement contributions — SEP or solo 401(k) contributions lower your taxable income.
Keep receipts and a running log. At tax time, documentation is what turns an expense into a deduction.
Sales tax: you collect it, you're not paying it
Sales tax is money you collect from customers and remit to your state — it's not your cost, so it's not deductible in the usual sense. If you sell goods or certain services, you typically need a state sales tax permit and file periodic returns. A separate question from income tax, with separate registration.
Payroll taxes, if you hire
Once you have employees, you're in the payroll tax world:
- Withhold income tax + FICA from each paycheck.
- Pay the employer half of FICA.
- File Form 941 quarterly and W-2s annually.
If you're an S-Corp, your own salary runs through this same system.
Recordkeeping rules of thumb
- Keep business money separate — a dedicated bank account is the foundation of clean books.
- Track expenses as they happen — a shoebox of receipts in March is a tax-preparation disaster.
- Keep records 3–7 years — the IRS can audit later years; 3 years is the general limit, but 6+ is safer for major issues.
- Separate personal from business — co-mingled accounts invite both audit risk and pierce-the-veil liability problems.
Common questions
Do I need a separate business tax return? Only for corporations and partnerships/S-Corps. A single-member LLC's activity goes on your Schedule C.
What if I can't pay by April 15? File anyway (extension for filing, not for paying) — the late-filing penalty is worse than the late-payment penalty, and both are avoidable with an installment plan.
Can I deduct my startup costs? Yes — generally up to $5,000 of organizational costs and a similar amount for startup costs, with the rest amortized.
Should I pay myself or take distributions? For an LLC, both are pass-through; the distinction matters mainly for S-Corps (salary vs. distributions) and for retirement-plan calculations.
The honest advice
Tax software handles the arithmetic, but the strategy — structure, timing, deductions, entity choice — is where a CPA pays for itself. One planning session a year almost always covers its own cost in avoided penalties and found deductions.