Small Business Taxes: A Plain-English Guide for US Business Owners (2026)

Most US small businesses pay five kinds of tax: federal income tax, self-employment or payroll tax, state income or franchise tax, sales tax on taxable sales, and property tax on what they own. Your entity decides who pays the income tax. In a sole proprietorship, LLC, partnership or S-corp, profit flows to the owners’ personal returns and they pay. In a C-corp, the company pays a flat 21% federal rate and the owners pay again on dividends.

The table shows each tax, who owes it and what triggers it.

Two things surprise new owners. First, gross receipts taxes apply even when you lose money. Second, a state minimum tax can apply to an entity that did nothing all year: California charges most LLCs and corporations at least $800 annually once they are past the first year rules described below.

Each entity type has one federal income tax return, and for tax year 2026 (filed in 2027) the deadlines fall in March or April. Calendar-year dates:

• Sole proprietor or single-member LLC: Schedule C and Schedule SE attached to Form 1040, due Thursday, April 15, 2027. Extension on Form 4868 to October 15, 2027.
• Multi-member LLC or partnership: Form 1065, plus a Schedule K-1 to each partner, due Monday, March 15, 2027. Extension on Form 7004 to September 15, 2027.
• S-corporation (including an LLC that elected S status): Form 1120-S and K-1s, due Monday, March 15, 2027. Extension on Form 7004 to September 15, 2027.
• C-corporation: Form 1120, due Thursday, April 15, 2027 (the 15th day of the fourth month). Extension on Form 7004 to October 15, 2027.

An extension gives you more time to file, never more time to pay. Tax owed on a Form 1040 or 1120 is still due April 15.

Partnerships and S-corps get penalized even when no tax is owed. For returns required to be filed in 2027, the late-filing penalty is $260 per partner or shareholder for each month or part of a month the return is late, up to 12 months. A two-owner LLC that files its 1065 three months late owes $260 x 2 x 3 = $1,560 for a return that showed zero tax. If you file a 1040 or 1120 more than 60 days late, the minimum penalty for returns due in 2027 is the lesser of $535 or 100% of the tax due, on top of the regular 5% per month failure-to-file charge (capped at 25%).

Foreign-owned single-member LLCs have one more return: a pro forma Form 1120 with Form 5472, due April 15. The penalty for missing it is $25,000 per form, per year.

If no employer withholds tax from your business income, the IRS expects you to prepay it in four installments. Individuals must pay estimates when they expect to owe $1,000 or more after withholding and credits. C-corporations must pay when they expect to owe $500 or more.

Individual due dates for tax year 2026 were April 15, June 15 and September 15, 2026, and the last one is Friday, January 15, 2027. For 2027 the dates are April 15, June 15 and September 15, 2027, then January 18, 2028 (January 15 falls on a Saturday). C-corps pay on the 15th day of the 4th, 6th, 9th and 12th months, so a calendar-year corporation’s final 2026 installment is due Tuesday, December 15, 2026.

You avoid the underpayment penalty if your four payments, made on time in equal amounts, add up to the smaller of:

1. 90% of your 2026 tax, or
2. 100% of your 2025 tax, rising to 110% if your 2025 adjusted gross income was over $150,000 ($75,000 if married filing separately).

The prior-year test is the one to use in a growth year because it is a fixed number you already know. The penalty works like interest: the IRS rate for individual underpayments is 7% a year for the fourth quarter of 2026, charged per day on each late or short installment.

Worked example. A single consultant expects $90,000 of Schedule C profit in 2026. Her 2025 total tax was $14,000 and her 2025 AGI was under $150,000. Her projected 2026 bill is about $19,300: self-employment tax of $12,717 (15.3% x 92.35% x $90,000) plus income tax of about $6,600 after half of the SE tax, the $16,100 standard deduction and a QBI deduction of roughly $13,500. The safe harbor is the smaller of 90% x $19,300 = $17,370 or 100% x $14,000 = $14,000. She pays $3,500 each quarter, owes about $5,300 with her return on April 15, 2027, and pays no penalty. Our estimated tax calculator runs the same math with your numbers.

S-corp owners can replace some or all quarterly estimates by withholding extra federal tax through their own payroll. The IRS treats withholding as paid evenly through the year, which also fixes an underpayment discovered in December.

The moment you pay W-2 wages, you owe and must deposit payroll taxes on a schedule, and the penalties start at 2% for a deposit one day late. For each employee you withhold federal income tax, 6.2% Social Security (on wages up to $184,500 in 2026) and 1.45% Medicare, then add a matching 7.65% as the employer. Withhold an extra 0.9% Medicare on an employee’s wages over $200,000. Federal unemployment tax (FUTA) is 6.0% on the first $7,000 of each employee’s wages, reduced to a net 0.6% ($42 per employee) when you pay state unemployment tax on time and your state is not a credit reduction state.

The forms you will file:

• Form 941, quarterly: due the last day of the month after each quarter. The third quarter of 2026 is due Monday, November 2, 2026 (October 31 is a Saturday), and the fourth quarter is due Monday, February 1, 2027.
• Form 940, annual FUTA return for 2026: due February 1, 2027.
• Form W-2 to each employee and the Social Security Administration: due February 1, 2027.
• State returns: withholding (in states with an income tax), unemployment insurance, and new-hire reports, usually within 20 days of hire.

Deposits go through EFTPS. New employers start as monthly depositors (taxes for one month due by the 15th of the next) and move to semiweekly once lookback-period taxes exceed $50,000. Failure-to-deposit penalties are 2% if 1 to 5 days late, 5% if 6 to 15 days, 10% after that and 15% if still unpaid 10 days after an IRS notice.

The withheld half is held in trust for the government. If a business does not remit it, the IRS can assess the trust fund recovery penalty under IRC §6672 personally against the owners and anyone else who decides which bills get paid. That is the one business tax an LLC or corporation will not protect you from. We tell every client using payroll for the first time: pay the IRS deposit before rent.

For payments you make in 2026, you must file Form 1099-NEC for each non-employee (contractor, freelancer, attorney) you paid $2,000 or more for services during the year. The threshold was $600 for payments made before 2026; the July 2025 law raised it, and it will be indexed for inflation starting in 2027. The same $2,000 floor now applies to most Form 1099-MISC payments and to backup withholding.

The practical workflow:

1. Collect a Form W-9 before the first payment. If the vendor refuses or gives an invalid taxpayer ID, you must withhold 24% backup withholding once payments reach the threshold.
2. Track payments by payee during the year, not in January.
3. Skip payments made by credit card or through a payment app; those are reported by the processor on Form 1099-K. Corporations are generally exempt, but attorneys’ fees are reportable even when the law firm is incorporated.
4. File with the IRS and furnish the recipient copy by Monday, February 1, 2027. If you file 10 or more information returns of all types combined, you must e-file.

Penalties for 2026 forms (filed in 2027) are $340 per return for failing to file with the IRS and a separate $340 per statement for failing to furnish the payee copy, reduced to $60 each if corrected within 30 days. Five missed contractors can mean $3,400 before interest.

On the receiving side, the Form 1099-K threshold for payment apps and marketplaces is back to more than $20,000 and more than 200 transactions. Not getting a 1099 does not make income non-taxable: report all of it.

You owe a state’s taxes once you have nexus there, meaning enough connection for the state to tax you, and remote sales alone can create it. Three separate tests matter.

Income and franchise tax nexus. Physical presence (an office, an employee working from home, inventory in a warehouse) almost always creates it. Many states also use economic nexus for income tax based on sales into the state. Federal law (P.L. 86-272) protects sellers of tangible goods whose only in-state activity is soliciting orders, but it does not cover services or software, so most SaaS and service businesses get no protection from it.

Sales tax economic nexus. Since the 2018 Wayfair decision every state with a sales tax can require remote sellers to register once they pass a threshold. The most common threshold is $100,000 of sales into the state in the current or prior year; California, New York and Texas use $500,000 (New York also requires more than 100 transactions). Whether your product is taxable at all varies: many states tax SaaS, many do not. Our nexus checker and the state threshold post list each state.

Minimum and gross receipts taxes. These apply regardless of profit:

• California: $800 minimum franchise tax for most LLCs, corporations and LPs, plus an LLC fee once California gross receipts reach $250,000. Corporations that incorporate or qualify through the Secretary of State do not pay the minimum in their first taxable year.
• Texas: franchise (margin) tax, but no tax is due for 2026 reports when annualized revenue is at or below $2.65 million. You still must file a Public Information or Ownership Information Report, or the entity can forfeit its right to do business.
• Delaware: LLCs pay a flat $400 annual tax due June 1. Corporations pay franchise tax and file an annual report by March 1; use the assumed par value method, because the default authorized shares method can produce a bill of tens of thousands of dollars for a startup with 10 million authorized shares.
• Washington: business and occupation tax on gross receipts, with no income tax.

If you formed in Delaware but operate in another state, you will also register (foreign qualify) and pay that state’s taxes.

The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) made the biggest small-business deductions larger or permanent. The ones worth planning around for 2026:

• Domestic R&D (§174A): for tax years beginning after December 31, 2024, US research and software development costs are deductible in the year paid instead of amortized over five years. Foreign research is still amortized over 15 years. Businesses with average gross receipts of $31 million or less can elect to amend 2022 to 2024 returns to recover the amortization they were forced to take.
• 100% bonus depreciation: permanent for qualifying property acquired after January 19, 2025. Laptops, servers, furniture and equipment can be written off in year one.
• Section 179: for tax years beginning in 2026, up to $2,560,000 of equipment and qualifying software can be expensed, phasing out dollar for dollar once total purchases exceed $4,090,000. Unlike bonus depreciation, §179 cannot create a loss.
• Qualified business income (§199A): the 20% deduction for pass-through owners is now permanent. For 2026, the wage and service-business limits start at taxable income of $201,750 (single) or $403,500 (joint) and phase in over $75,000 and $150,000. A new minimum deduction of $400 applies if you have at least $1,000 of QBI from a business you materially participate in.
• Startup costs (§195): deduct up to $5,000 of pre-opening costs in the first year, reduced by every dollar of startup costs above $50,000; amortize the rest over 180 months.
• De minimis safe harbor: expense items costing $2,500 or less per invoice or item instead of depreciating them, by attaching an election to a timely filed return.
• Vehicle use: the 2026 standard mileage rate was 72.5 cents per mile for January through June and 76 cents for July 1 through December 31, after the IRS raised it mid-year. Keep a contemporaneous log.
• Self-employed health insurance and retirement plans: both reduce income tax but not self-employment tax, and S-corp owners must run health premiums through their W-2 to claim them.

Keep a separate business bank account and card from day one, record every transaction monthly, and keep the support for at least as long as the IRS can audit the return. Commingled personal and business spending is the most common reason small business deductions get disallowed and, for LLCs, a reason a court may disregard your liability protection.

How long to keep records:

• Income tax records and receipts: 3 years from filing, 6 years if you underreported income by more than 25%.
• Employment tax records: at least 4 years after the tax is due or paid.
• Asset records (purchase price, depreciation): until 3 years after you sell the asset.
• Formation documents, operating agreement, cap table, elections such as Form 2553: permanently.

Cash or accrual. The cash method records income when received and expenses when paid. It is simpler and often defers tax. For tax years beginning in 2026, corporations and partnerships with a corporate partner can use it if their average annual gross receipts for the prior three years are $32 million or less, and almost every small business qualifies. Accrual records revenue when earned and expenses when incurred. Investors, lenders and auditors want GAAP accrual books, so a funded startup often keeps accrual books and files its tax return on the cash method, reconciling the two at year end.

Pick bookkeeping software, connect the bank feeds, and close the books every month within 15 days. A business that reconciles monthly spends far less on year-end tax prep than one that sends a shoebox in March.

These are the federal dates plus the most common state dates for a calendar-year business. Weekend dates have already been moved to the next business day.

Add your state income tax return (most follow the federal date or a month later), sales tax returns (monthly, quarterly or annual depending on volume), and the California $800 payment, which is due by the 15th day of the fourth month of the tax year for LLCs and with first-quarter estimates for corporations. The R&D credit payroll offset, if you claim it, is taken on Form 941 starting the quarter after you file the income tax return.

The largest bills come from a handful of avoidable errors, and most are about timing, not tax rates. Ranked roughly by how much they cost when they happen:

1. Unpaid payroll taxes. Using withheld employee tax as working capital triggers deposit penalties of up to 15% and personal liability for the trust fund portion.
2. No estimated payments in the first profitable year. Owners moving from a W-2 job often owe a full year of income and self-employment tax in April, plus the first 2027 estimate on the same day.
3. Late 1065 or 1120-S returns. At $260 per owner per month, a four-owner LLC that files nine months late owes $9,360 with no tax due.
4. Ignoring state nexus. Sales tax you did not collect comes out of your margin, usually with several years of interest, once a state notices or a buyer’s due diligence finds it.
5. Missing the S election deadline or electing too early. Late elections need Rev. Proc. 2013-30 relief; early elections add payroll and return costs that exceed the savings at low profit.
6. Misclassifying workers as contractors. If you control how, when and where someone works, they are likely an employee, and back payroll taxes plus penalties follow.
7. Forgetting foreign-owner filings. A missed Form 5472 costs $25,000 per year.
8. Filing Delaware franchise tax on the default method. It produces an inflated bill that is fixed simply by recalculating under the assumed par value method.
9. Mixing personal and business money. You lose deductions in an audit and weaken your liability protection.

You can self-prepare a simple Schedule C with no employees, no inventory and sales in one state. Hire a CPA or enrolled agent once any of these is true:

• You have a partnership, S-corp or C-corp return to file (Forms 1065, 1120-S, 1120).
• You run payroll, including payroll only for yourself.
• You sell into more than one state or sell software or digital products.
• Profit is above roughly $80,000 and you are asking whether an S election makes sense.
• You raised outside money, issued equity or plan to.
• You have a foreign owner, a foreign subsidiary or foreign contractors.
• You received an IRS or state notice you do not understand.

The split that works for most small businesses: a bookkeeper or outsourced accounting firm closes the books monthly, and a CPA prepares returns and does planning twice a year (once before the end of the year, once at filing). Fees vary with transaction volume and entity count, so ask for a fixed quote covering bookkeeping, payroll, the business return and the owners’ returns before you sign.

Questions to ask before you hire: Will you file my state and local returns too? Who tracks my estimated payments? Do you handle sales tax registration and filings, or only income tax? How fast do you answer notices? This guide explains the general rules as of October 2026 and is not tax advice for your specific facts; check your situation with a professional before acting on it.