New Business, New Rules: What First-Time Business Owners Need to Know About Taxes
New Business, New Rules: What First-Time Business Owners Need to Know About Taxes
Starting a new business is exciting—but when tax season rolls around, reality sets in. Suddenly, you’re not just filing a personal return. You’re navigating income types, expenses, entity choices, and possibly even self-employment taxes. If you're a first-time business owner, knowing the basics can save you time, money, and stress.
Here’s what every new business owner should know about taxes—and how to stay ahead from day one.
1. You’re a Business Now—Taxes Work Differently
Once you start earning money from a business, even as a side hustle, the IRS sees you differently. You’re no longer just an individual taxpayer—you’re also a business entity, and that comes with new responsibilities.
Unless you’ve formed a corporation or partnership, you’re likely considered a sole proprietor by default. That means you’ll report your business income and expenses on Schedule C, attached to your personal Form 1040.
2. Self-Employment Tax Catches People Off Guard
As a W-2 employee, your employer pays half your Social Security and Medicare taxes. As a self-employed person, you’re on the hook for the full amount—currently 15.3% of your net income. This is called self-employment tax, and it's in addition to regular income tax.
If you’re making a profit, you’re expected to pay these taxes quarterly (more on that below).
3. Quarterly Estimated Taxes Are a Real Thing
The IRS expects business owners to pay taxes throughout the year—not just at the end. If you expect to owe at least $1,000 in taxes for the year (after credits and withholdings), you must make estimated tax payments quarterly.
Due dates are usually:
April 15
June 15
September 15
January 15 (of the following year)
Failing to pay on time can lead to penalties—even if you pay the full amount later.
4. Good Bookkeeping Is Non-Negotiable
Accurate bookkeeping isn't just about being organized—it’s your first line of defense in case of an audit and your best tool for maximizing deductions. You should be tracking:
Revenue (invoices, payments received)
Expenses (receipts, subscriptions, supplies)
Mileage (if using a personal vehicle)
Business use of home (if applicable)
Bank statements and reconciliations
Using accounting software like QuickBooks, Xero, or even a structured Excel spreadsheet is far better than a pile of receipts at tax time.
5. Your Entity Type Affects Your Taxes
If you registered an LLC, that doesn’t automatically change your tax treatment—it depends how it’s taxed:
Sole Proprietor (default for single-member LLCs)
Partnership (default for multi-member LLCs)
S-Corp (optional if you file Form 2553)
Each structure has pros and cons related to taxes, liability, and recordkeeping. If you’re making consistent profits, it may be worth exploring an S-Corp election to reduce self-employment taxes.
6. Business Expenses Lower Your Tax Bill—Legally
You can deduct ordinary and necessary business expenses to reduce your taxable income. Common deductions include:
Office supplies, equipment, and software
Marketing and advertising costs
Business meals and travel (within IRS guidelines)
Internet and phone (business portion)
Home office (if used exclusively and regularly for business)
Keep receipts and records. If it’s not documented, it’s not deductible.
7. You May Need to Issue (or Receive) 1099s
If you hire freelancers, contractors, or vendors and pay them $600 or more during the year (non-employee services), you’re required to issue them a Form 1099-NEC. Likewise, if you’re paid as a contractor, you’ll likely receive 1099s from your clients.
Failure to issue 1099s can lead to penalties from the IRS.
8. State & Local Taxes Vary
Depending on where your business operates, you may be subject to:
State income taxes
State sales tax collection and remittance
Franchise taxes or LLC annual fees
Local business licenses or tax filings
Don’t assume it’s just a federal issue. Each state plays by different rules.
9. You Might Need Help Sooner Than You Think
Many new business owners try to DIY taxes to save money, only to realize they overpaid, missed deductions, or triggered penalties. Hiring a professional can help you:
Set up your books correctly
Choose the right entity
Estimate taxes accurately
Identify missed opportunities
File correctly the first time
Think of it as an investment in your business—not just an expense.
10. Start Clean, Stay Clean
The earlier you build good habits, the easier taxes will be each year. Create a system for tracking income, saving for tax payments, organizing receipts, and staying compliant.
Trying to backtrack during tax season is expensive, stressful, and usually less accurate.
Final Thoughts
As a new business owner, taxes may seem like just another task on your list—but they impact nearly every part of your financial life. The good news? You don’t have to figure it all out alone.
At Ajazi Tax, we help new business owners stay compliant, minimize taxes, and build smarter financial systems from day one. Whether you need help setting up your books, choosing an entity, or just making sure you're not missing anything—we’re here to help.
Starting a business is hard enough. Don’t let taxes make it harder.
Let’s talk.