Small business · Schedule C
Sole proprietorship taxes are income tax plus self-employment tax, both charged on your profit.
To the IRS, you and your sole proprietorship are one taxpayer. You file your business and personal taxes together: the profit goes on Schedule C, with your Form 1040. That profit is taxed at your own income tax brackets, from 10% to 37% in 2026. You also owe self-employment tax of 15.3% on 92.35% of it, with the 12.4% Social Security part capped at $184,500.
Updated · Sources
Sole proprietors, tax year 2026
- 15.3%
- is the self-employment tax rate, which funds Social Security (12.4%) and Medicare (2.9%).
- $400
- of net earnings from self-employment means you must file a return, even if you owe no income tax.
- $1,000
- of tax due after withholding generally means you must pay estimated tax each quarter.
State and local taxes are separate, and so are any business licenses and fees your state or city charges.
Which tax forms does a sole proprietor file?
Schedule C goes with every sole proprietor’s return. The other forms apply only once you pass a threshold, such as $400 of net earnings or a first employee.
Schedule C, for the business
Schedule C reports what the business took in and spent, and the net profit or loss left over. Its expense lines include office expenses, such as supplies and postage, plus travel and depreciation. Costs with no line of their own go under other expenses. An activity is a business only if you run it for profit, with continuity and regularity. A hobby or an occasional activity does not count.
Schedule SE, once net earnings reach $400
Schedule SE figures your self-employment tax from the Schedule C profit. At $400 or more of net earnings, the tax applies to all of them, not only the part over $400.
Form 1040, the return itself
Your Schedule C profit reaches Form 1040 through Schedule 1, where it is taxed with your other income. Below $400 of net earnings, you must still file once your gross income reaches $16,100 in 2026, if you are single and under 65. For a business, gross income means receipts minus the cost of goods sold.
Form 8995, for the QBI deduction
Sole proprietors can generally deduct up to 20% of their qualified business income (QBI), on Form 8995 or Form 8995-A. The cap is 20% of your taxable income, figured before this deduction and minus any net capital gain. From 2026, the deduction is at least $400 if you have $1,000 or more of QBI from a business you materially participate in.
Forms 941 and 940, once you hire
Once you pay wages, you generally file Form 941 every quarter, starting with the quarter of your first payday. Form 940 is due for a year if, in that year or the one before, you paid $1,500 of wages in any quarter. It is also due if, in either year, you employed someone in 20 different weeks. These payroll returns are one of the few filings that need an employer identification number (EIN).
These forms are for a business with one owner. The owner of a single-member LLC files them too, unless the LLC elects to be taxed as a corporation. The LLC files its own payroll returns, under its own name and EIN. A business with two or more owners is generally a partnership, which files Form 1065.
What is the tax rate for a sole proprietorship?
A sole proprietorship has no rate of its own. Self-employment tax takes about 14.1% of profit, and income tax adds your bracket rate on roughly three quarters of it.
Below the standard deduction
$1,413
If the standard deduction still covers all your income, only self-employment tax applies, before any earned income credit.
12% bracket
$2,305
Income tax adds $892, for 23.1% of the $10,000 in all.
22% bracket
$3,049
Income tax adds $1,636, for 30.5% in all.
24% bracket
$3,197
Income tax adds $1,784, for 32.0% in all.
Self-employment tax is 15.3% of the 92.35% of profit that counts as net earnings. Two deductions cut the income tax. Half the self-employment tax is deducted, and the QBI deduction takes 20% of what remains. The figures assume your net earnings stay under the $184,500 Social Security wage base, and your taxable income under the $201,750 QBI threshold. To estimate the tax on your own extra profit, take the row for your bracket and add state tax.
What changes in your first year as a sole proprietor?
Your own payroll tax nearly doubles, because no employer pays half of it. The figures and dates below are for 2026.
| On a salary | On your own | |
|---|---|---|
| Payroll tax | 7.65% of your pay Your employer pays another 7.65% | All 15.3% Both halves, paid by you |
| Income tax during the year | Withheld from each paycheck | Four estimated payments Due in April, June, September and January |
| Work expenses | Usually not deductible When your employer does not repay them | Deducted on Schedule C When ordinary and necessary for the business |
| Social Security cap | $184,500 of wages | $184,500 of earnings Less any wages you also earn |
For 2026, the estimated payments are due April 15, June 15 and September 15, 2026, and January 15, 2027. If you also have a salary, you can give your employer a new Form W-4 to raise its withholding. The extra withholding can cover the tax on your profit, in place of estimated payments.
What trips people up when filing taxes as a sole proprietor?
Waiting for a 1099 before you report income
Every payment goes on Schedule C, whether or not a Form 1099 arrives. For 2026 payments, a business client files Form 1099-NEC only once it pays you $2,000 or more, up from $600. A client who pays you for something personal files none.
Paying all the tax in April
The IRS can charge a penalty for any quarter you underpay, even if you pay in full when you file. Paying 100% of last year’s tax on time avoids it, as long as you filed last year’s return and it covered 12 months. Use 110% if last year’s adjusted gross income topped $150,000, or $75,000 married filing separately. The 100% rule works for a new business too, since last year’s tax counts even if it all came from a salary.
Deducting equipment you later use less for work
Section 179 lets you deduct the cost of equipment in the year you start using it. If business use drops to 50% or less within its recovery period, part of the deduction comes back as income. The recovery period is the span of years the equipment would otherwise be depreciated over. On Schedule C, that income is also subject to self-employment tax.
Counting on the full QBI deduction at a high income
Above $201,750 of 2026 taxable income, or $403,500 on a joint return, the QBI deduction can shrink. A limit then applies, based on the wages your business pays and the property it owns. It phases in over the next $75,000 of taxable income, or $150,000 on a joint return. Over the same range, a specified service trade or business phases out of the deduction entirely. Other businesses you materially participate in keep the $400 minimum.
A CPA handles your business and personal taxes on one return.
Valim’s CPAs prepare tax returns for sole proprietors and freelancers, and can plan their quarterly estimated tax. We start from your own records, or work with your bookkeeper from the year-end numbers they send.
- We prepare your federal and state returns, Schedules C and SE included.
- We set your four estimated payments to meet a safe harbor.
- We match your Forms 1099-NEC and 1099-K to your income, so every payment is reported once.
- We compare your tax as a sole proprietor with an LLC taxed as an S corp, and say whether switching pays.
- We reply to IRS and state letters about a return we prepared, and your fee already covers it.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
Sole proprietorship tax questions.
How much does a sole proprietor have to make to file taxes?
A sole proprietor who is a US citizen or resident must file once net earnings from self-employment reach $400, which takes about $433 of profit. That rule applies whatever your age or total income. Otherwise, the test is gross income: $16,100 or more in 2026 for a single filer under 65. For a sole proprietor, that counts business receipts minus the cost of goods sold, not profit after expenses. The owner of a single-member LLC taxed by default files under the same rules.
How much should I set aside for taxes as a sole proprietor?
Set aside about 23% of each extra dollar of profit for federal tax in the 12% bracket, or 30.5% in the 22% bracket. Add your state’s income tax on top. The IRS itself sets no percentage. Paying the safe harbor amount in four on-time estimated payments avoids the penalty.
How much tax will I pay if I earn $30,000 self-employed?
On $30,000 of self-employment profit, you would owe about $5,181 in federal tax for 2026. That assumes you file single, are under 65, have no other income and take the standard deduction. Most of it, $4,239, is self-employment tax. Income tax is only $942: the standard deduction, half the self-employment tax and the QBI deduction leave about $9,424 taxable, all at 10%. The total is 17.3% of the profit, and state tax comes on top.
What are the disadvantages of a sole proprietorship?
A sole proprietorship’s biggest tax disadvantage is self-employment tax on nearly all of its profit (92.35%), on top of income tax. An S corp owner pays payroll tax only on a reasonable salary, and a sole proprietor has no such split. Nothing is withheld from the profit, so you usually pay the tax through quarterly estimated payments, or through extra withholding from a salary. The upside is simplicity, because the business files no income tax return of its own.
Sources
- IRS, 2025 Instructions for Schedule C (Form 1040)
- IRS, Schedule SE (Form 1040) (2025), Self-Employment Tax
- 26 U.S.C. § 6017, Self-employment tax returns
- 26 U.S.C. § 6012, Persons required to make returns of income
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- 26 U.S.C. § 199A, Qualified business income
- IRS, Form 1040-ES (2026), Estimated Tax for Individuals
- IRS, Publication 15 (2026), Employer’s Tax Guide
- Social Security Administration, Contribution and benefit base
- 26 U.S.C. § 6041, Information at source
- 26 U.S.C. § 179, Election to expense certain depreciable business assets
- 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions
- IRS, 2025 Instructions for Form 4797
- 26 U.S.C. § 1402, Definitions (self-employment income)
- 26 U.S.C. § 6654, Failure by individual to pay estimated income tax
- 26 U.S.C. § 3306, Definitions (FUTA employer)
Reviewed and updated September 2026. General information, not advice for your situation.