How to File Small Business Taxes in 6 Steps (2025)

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Running your own small business means you’re in charge. That comes with benefits, but it also means tackling tasks like filing small business taxes.

Whether it’s your first tax season or your 10th, filing a business tax return can be overwhelming. Without accounting experience, tax filing feels daunting. Miscalculating your small business taxes could result in fines and penalties you want to avoid.

If you live in the US, this step-by-step guide will help you file small business taxes well before they’re due.

What are the most common small business taxes?

Your business type determines which taxes you need to pay. Sole proprietors have different federal taxes than corporations with employees and assets.

Here are the main taxes most small businesses pay:

Income tax

Federal income tax is a percentage of your business’s income paid to the IRS. Rates vary based on your business entity and location. Forty-three states charge state tax on corporate income. If you’re self-employed, you’ll pay business income taxes on your personal returns, with rates from 10% to 37%.

Payroll tax

As an employer, you and your employees must pay: 

• Social Security: You each pay 6.2% of wages
• Medicare: 2.9% of gross wages total
• Federal unemployment tax: 6% of each employee’s first $7,000 in yearly wages

Self-employment tax

Self-employment taxes cover Social Security (12.4%) and Medicare (2.9%), making the total tax rate 15.3% of your business income.

Capital gains tax

When business investments increase in value or you sell assets, you may owe capital gains taxes. This typically ranges from 15% to 28%, depending on your income, how long you owned the asset, and the asset type.

Property tax

If your business owns property like buildings or land, you’ll pay property taxes to your county based on the property’s value. Rates vary by location.

Dividend tax

Dividends are portions of corporate income distributed to shareholders, which count as taxable income. Tax rates for dividends are 0%, 15%, or 20%, based on investment length and the shareholder’s taxable income.

Excise tax

If you manufacture certain products like alcohol or tobacco, you might need to pay excise tax. Rates vary by state.

6 steps for filing small business taxes

1. Collect your company records
2. Understand sales tax requirements
3. Find the correct tax form and fill it out
4. Know the tax filing deadlines
5. Hire an accountant
6. File your small business taxes

1. Collect your company records

Accurate bookkeeping is essential when filing small business taxes. It shows you exactly how your business is performing and protects you if you’re audited. Inaccurate books could lead to unintentional false claims to the IRS.

Track these items in your small business accounting system:

• Business expenses: Keep a record of all costs related to your business.
• Income: Track all the money your business has earned.
• Profits and losses: Maintain a clear record of your earnings and any losses.
• Salaries: Document what you’ve paid your employees.
• Taxes paid: Keep records of any quarterly estimated tax payments.

You can gather this information from:

• Receipts
• Deposit slips
• Invoices
• Bank statements

You can manage this yourself with ecommerce accounting software or hire a bookkeeper. Choose the method that fits your time, budget, and comfort with bookkeeping.

2. Understand sales tax requirements

Sales tax rules can be complex, especially for online businesses. Consider talking to an accountant about your sales tax obligations.

Sales tax depends on nexus—your business’s physical or economic connection to a state. If you have nexus in a state, you need to collect sales tax there.

Your business might have nexus in multiple states. These factors can create nexus:

• Having an office
• Employing staff
• Operating a warehouse
• Running a pop-up shop or selling at events
• Storing inventory

You need to collect sales tax wherever your business has nexus. Since tax laws differ by state, check with a tax professional about your state tax requirements before filing.

3. Find the correct tax form and fill it out

The tax forms you’ll need depend on your business structure and whether you have employees. Here are the most common forms:

• Schedule C with Form 1040: Sole proprietorships and single-person LLCs should use this form to report business income. You’ll need to know total income earned, business expenses, and cost of goods.
• Schedule SE with Form 1040: Self-employed individuals use this to calculate self-employment tax with their income tax return.
• Form 1120: Corporations use this form to report income and losses. You’ll need gross receipts, business expenses for deductions, dividend information, and basic information about the corporation.
• Form 1065: Partnerships use this form to report income, losses, and deductions.
• Form 940: Businesses with employees file Form 940 to report federal unemployment tax payments.
• Form 941: Employers use this to report employee wage withholdings for Social Security, Medicare, and income taxes.

4. Know the tax filing deadlines

Keep track of your tax deadlines to avoid penalties. Your filing dates depend on your business structure and whether you have employees. You might need to file annually or quarterly.

Key tax filing dates for 2025:

• January 31: Employers should file Form 940 by January 31.
• March 15: Partnerships should submit Form 1065 by March 15, or the 15th day of the third month after their fiscal tax year.
• April 15: Calendar year filers must submit Form 1120 for corporations, or Form 1040 with Schedules C and SE for sole proprietors.
• Quarterly: Most businesses make estimated tax payments on a quarterly basis. Employers are also required to file Form 941 quarterly.
• Four months + 15 days after the fiscal year: Small businesses using their own fiscal calendar must file taxes by day 15 of the fourth month after their fiscal year ends.

Tax deadlines can be easy to miss, leading to expensive penalties. Mark these dates in your calendar and note that filing dates may change each year.

💡 Here is the IRS’s online tax calendar with all the latest deadlines.

Tax extensions: Need more time to file? You can request an extension:

• Corporations and partnerships: Form 7004 for a six-month extension
• Sole proprietors: Form 4868 for a six-month extension

Remember: Extensions give you more time to file, not to pay. You still need to pay your estimated taxes by the original deadline to avoid penalties and interest.

5. Hire an accountant

You didn’t start a business to calculate taxes. Luckily, experienced financial professionals such as chartered public accountants (CPAs) can take the job off your plate. Ask your current bookkeeper for recommendations, or check if your accounting software lists trusted tax specialists. 

When choosing a tax accountant, consider their industry knowledge, understanding of your business needs, and their billing method (hourly or flat fee).

Ask your accountant these questions to potentially reduce your tax bill:

• Are there any local tax credits available?
• Does my business have nexus in other states?
• Would changing to an LLC structure benefit my business?

6. File your small business taxes

Submit your taxes by the deadline to avoid late filing penalties. The IRS charges 5% of unpaid taxes for each month your return is late, up to 25%.

Common tax deductions for small businesses

A tax deduction (or write-off) is an “ordinary and necessary” business expense in your industry. The IRS lets online sellersdeduct certain business expenses from their income to reduce their tax bill. If you’re just starting out, check with your accountant—some expenses might count as start-up costs.

Here are common small business tax deductions:

Business property

You can deduct rental costs for properties you use exclusively for business. This includes office space, storage units, and warehouses.

Home office

If you regularly use part of your home as your main business location, you might qualify for the home office deduction. Your home office must be used only for business and be where you conduct your core business activities.

You can use the IRS’s simplified method to deduct $5 per square foot of business space, up to a maximum of $1,500 yearly. Alternatively, use the regular method by dividing household expenses by the percentage of your home used for business.

Office supplies

You can deduct costs for shipping materials, printer ink, labels, paper, pens, and software.

Education

Deduct work-related education that adds value to your business or increases your expertise.

Phone and internet

If you have a business-only phone number, deduct the full cost. For phones used for both business and personal purposes, deduct the percentage used for business. Video conferencing services like Zoom count as office expenses. Your internet bill can be deducted based on business usage.

Web hosting and online store themes

You can deduct costs for domain registration, ecommerce hosting, and web hosting. Custom Shopify themes can be deducted as software or marketing expenses.

Contractor work

Deduct costs for independent contractors. If you pay an independent contractor more than $600 yearly, you’ll need to send them Form 1099 and submit a copy to the IRS.

Employee salaries

Employee salaries are tax deductible.

Shipping costs

Deduct the cost of shipping goods to your customers, such as postage and packaging costs.

Vehicle use

Track business mileage using a mileage tracker tool or manual odometer logs. Many businesses track business and personal mileage for a two-week period each quarter to calculate their business-use ratio.

Online service fees

Services like Shopify that you use to run your online store are deductible business expenses.

Equipment

You can recover equipment costs through depreciation or a Section 179 deduction. Rented business equipment is also tax-deductible. Consider working with an accountant to choose the best method for your situation.

Travel expenses

When traveling outside your usual business location, you can deduct necessary travel expenses like transportation, lodging, and meals.

Professional services

Business-related fees for accountants, legal services, and business registration specialists can be deducted as professional services.

Advertising and marketing

You can deduct costs for web design, business cards, and both print and digital advertising from your tax return.

Until next tax season

Taxes might not be the highlight of running a small business. You started your business to be creative and make money—not to track tax liabilities. But with good planning, you can maximize your deductions and make tax season easier.

Shopify helps simplify tax season. Calculate your tax liabilities, collect sales taxes at checkout, and file taxes directly from your Shopify admin.