Business structure
Sole proprietor taxes: every federal tax, form and due date in one place
How sole proprietors are taxed: income tax on Schedule C, 15.3% self-employment tax, estimated tax, and the payroll, excise and 1099 filings that kick in as the business grows. With the IRS form map, due dates and 2025-2026 changes from Publication 334.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
A sole proprietorship isn't taxed separately from its owner. Under IRS Publication 334, the owner files Form 1040 or 1040-SR with Schedule C to report business profit, pays 15.3% self-employment tax on Schedule SE when net earnings from self-employment are $400 or more, and generally makes quarterly estimated payments on Form 1040-ES if they expect to owe $1,000 or more. A calendar-year 2025 return was due April 15, 2026.
Who the IRS treats as a sole proprietor
The IRS defines a sole proprietor as someone who owns an unincorporated business by themselves. An individual who is the only member of a domestic LLC is also a sole proprietor for income tax purposes, unless the LLC elects to be treated as a corporation.
The business doesn't have to be full time. Publication 334 says a part-time business on top of a regular job may be self-employment.
Statutory employees are a special case. They have box 13 checked on Form W-2 and use Schedule C to report their wages and expenses, but they don't pay self-employment tax on that income because Social Security and Medicare taxes should already have been withheld.
Income tax: Schedule C on the owner's return
The owner files Form 1040 or 1040-SR and attaches Schedule C, which figures the business's net profit or loss. That net profit or loss goes on Schedule 1 (Form 1040). Someone running more than one business as a sole proprietor attaches a separate Schedule C for each.
Publication 334 says you must file an income tax return for 2025 if your net earnings from self-employment were $400 or more, even if no other filing rule applies.
For calendar-year 2025, Form 1040 or 1040-SR was due April 15, 2026. A fiscal-year return is due on the 15th day of the 4th month after the fiscal year ends. Form 4868 extends the filing date 6 months, to October 15 for calendar-year filers, but doesn't extend the time to pay.
Self-employment tax
Sole proprietors pay self-employment tax and file Schedule SE if net earnings from self-employment, not counting church employee income, were $400 or more, or if church employee income was $108.28 or more. The rules apply at any age, even to people already getting Social Security or Medicare.
The rate is 15.3% of net earnings: 12.4% Social Security and 2.9% Medicare. Under the regular method, net earnings are self-employment earnings multiplied by 92.35%. The Social Security part applies to net earnings up to $176,100 for 2025 and $184,500 for 2026. The Medicare part has no cap. A 0.9% Additional Medicare Tax may apply above $250,000 for married filing jointly, $125,000 for married filing separately and $200,000 for other filers, figured on Form 8959.
Half of self-employment tax is deductible as an adjustment to income on line 15 of Schedule 1 (Form 1040). Self-employment tax also earns Social Security credits: one credit per $1,810 of income subject to Social Security tax for 2025 ($1,890 for 2026), up to four a year. The SSA generally credits only self-employment income reported on a return filed within 3 years, 3 months and 15 days after the year it was earned.
The full form map, with due dates
Income tax and self-employment tax are the core. Employment, excise and information returns are added as the business hires, sells certain goods or pays contractors. This is the IRS's own list from Publication 334, Table 1-2. If a due date falls on a Saturday, Sunday or legal holiday, file by the next day that isn't.
Estimated tax: paying during the year
No employer withholds tax on business profit. Publication 334 says you generally have to make estimated payments if you expect to owe taxes, including self-employment tax, of $1,000 or more when you file. Form 1040-ES is used to figure and pay them.
Underpaying through withholding and estimated tax may lead to a penalty. Form 2210 shows whether one applies and how much.
EIN, employees and contractors
A sole proprietor uses an SSN or ITIN on Form 1040 and its schedules. An EIN is also required to pay wages to one or more employees or to file pension or excise tax returns. When an EIN is required, it goes on Schedule C along with the SSN.
Classify workers carefully. Publication 334 says that if you incorrectly treat an employee as an independent contractor, you may be held liable for employment taxes for that worker plus a penalty.
Form 1099-NEC reports nonemployee compensation. For 2025 it applies to each person paid at least $600 for services in the course of business. For reportable payments made after 2025, the threshold rises to $2,000 for information reporting and backup withholding under section 6041(a). There is no penalty for missing or incorrect information on a small number of information returns (the greater of 10 or 0.5% of the total) if corrected by August 1 of the year they are due.
Receiving more than $10,000 in cash in one transaction, or in two or more related transactions, requires Form 8300. Not filing it carries civil and criminal penalties, including up to 5 years in prison.
Spouses who run a business together
Spouses who jointly own and operate an unincorporated business and share profits and losses are partners in a partnership, with or without a formal agreement. That means Form 1065, not Schedule C.
There are two exceptions. Spouses who each materially participate as the only members and file a joint return can elect to be a qualified joint venture, and each then files a separate Schedule C and a separate Schedule SE. A business run through an LLC doesn't qualify for that election. And spouses who wholly own an unincorporated business as community property can treat it as either a sole proprietorship or a partnership.
Changes for 2025 and 2026 in Publication 334
Aldro prepares and files the owner's Form 1040 with Schedule C and Schedule SE, plus the state return and any Forms 1099, for one flat yearly price that covers everything tax.
- The 20% qualified business income (QBI) deduction is now permanent under P.L. 119-21, and its income thresholds increased
- 100% bonus depreciation is allowed for certain qualified property acquired after January 19, 2025
- Beginning in 2025, the Section 179 limit is $2.5 million, reduced when Section 179 property placed in service exceeds $4 million
- Beginning in 2025, domestic research and experimental costs can be deducted currently or amortized over 60 months or more
- The excess business loss limit (Form 461) is permanent
- The business standard mileage rate for 2025 was 70 cents a mile
- Business meal deductions generally remain limited to 50%
- Publication 535 is discontinued, and its bad debt guidance moved into Publication 334
Worked example
Say a sole proprietor has $50,000 of Schedule C net profit in 2026 and no other job. Under the regular method, net earnings from self-employment are $50,000 x 92.35% = $46,175. That is over $400, so they file Form 1040 with Schedule C and Schedule SE. Self-employment tax is 15.3% of $46,175 = $7,064.78, made up of $5,725.70 Social Security (12.4%) and $1,339.08 Medicare (2.9%). The whole amount is under the $184,500 Social Security cap. Half of the self-employment tax, $3,532.39, is deducted on line 15 of Schedule 1. Because self-employment tax alone is well over $1,000, they generally make estimated payments with Form 1040-ES, due on the 15th day of the 4th, 6th and 9th months of 2026 and the 15th day of January 2027. If they pay a freelancer $2,500 for work in 2026, that is above the new $2,000 threshold, so a Form 1099-NEC goes to the freelancer and the IRS by January 31.
Common questions
How are sole proprietors taxed?
Through the owner's return. Business profit is figured on Schedule C and taxed on Form 1040 or 1040-SR. The owner also pays 15.3% self-employment tax on Schedule SE when net earnings are $400 or more.
How much can a sole proprietor make before paying taxes?
Publication 334 says you must file if net earnings from self-employment were $400 or more, and self-employment tax applies from the same $400 point. Below that, you still file if any other Form 1040 filing rule applies.
Is a single-member LLC taxed like a sole proprietorship?
Yes, by default. An individual who is the only member of a domestic LLC is a sole proprietor for income tax purposes unless the LLC elects to be treated as a corporation.
Does a sole proprietor need an EIN?
Only to pay wages to employees or to file pension or excise tax returns. Otherwise the owner's SSN or ITIN is used.
Do sole proprietors pay quarterly taxes?
Generally yes, if they expect to owe $1,000 or more, including self-employment tax. Form 1040-ES payments are due on the 15th day of the 4th, 6th and 9th months of the tax year and the 15th day of the month after it ends.
Can my spouse and I file one Schedule C?
Not if you jointly own and run the business and share profits. That is a partnership filing Form 1065, unless you elect qualified joint venture status (then each spouse files a separate Schedule C) or own it as community property.
The cheapest way to get your business taxes done: $399 flat.
Business tax filing is $399 USD a year, and it covers everything tax for that year.
How it works
- Tell us about your business. A two-minute form. No payment is collected through it.
- Get your next steps by email. We’ll email you the next steps within one business day. After you sign up we’ll send you a secure upload link for your documents.
- We file it. Our team prepares and files your return. Add bookkeeping for $20 a month if you want it.
What's included
$399 a year covers everything tax for that tax year.
- Every business return for the year. All the federal and state or provincial business returns you need for the tax year: Schedule C, 1065, 1120-S, 1120 and their state returns in the US; T2, or T1 with T2125, in Canada.
- More than one state. Multi-state returns are included at the same price.
- Your personal return. The owner’s personal return (1040 or T1) is included when it’s needed for the business income.
- Quebec. Quebec returns (CO-17, TP-1 and TP-80) are included. Our Quebec pages are in French, and our team works with you in English.
- Extensions and reminders. Extensions (Form 7004 or 4868) and quarterly estimate reminders are included.
- Information returns. 1099-NEC, T4/T4A and T5018 slips are included in the tax price.
- City and excise returns. City and local business tax returns, and state excise returns such as Washington B&O, are included in the yearly price.
- Franchise tax reports. State franchise tax reports, such as the Texas franchise tax report, are included.
- Estimated tax and instalment amounts. We work out your quarterly estimated tax payments in the US, or your CRA instalments in Canada, and tell you what to pay and when.
- Unfiled past years. Each unfiled prior-year return is $399 per tax year, the same flat price.
- Bookkeeping at $20 a month. Unlimited bank and card accounts, monthly reconciliation and monthly statements.
Basic inventory tracking for online stores, such as Shopify, is included. Full cost-of-goods reconciliation is quoted separately. Payroll processing and sales-tax filing aren’t included in bookkeeping. Prices are in USD. Our team prepares and files your return.
Sources
- IRS: Sole proprietorships · checked October 31, 2026
- IRS: Publication 334, Tax Guide for Small Business · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.