Small business tax guide: Schedule C, 1120 & 1065 explained

• Small business taxes depend mainly on your business structure (sole proprietorship, LLC, partnership, S-corp, C-corp) and which business tax forms you file.
• Schedule C is usually for sole proprietors and single-member LLCs, Form 1065 for partnerships and multi-member LLCs, and Form 1120 / 1120-S for C corporations and S corporations.
• Small businesses pay federal income taxes, self-employment tax, employment taxes, estimated tax, and sometimes excise tax, depending on how they operate and whether they have employees.
• Most small businesses must pay estimated taxes quarterly and are subject to self-employment tax for Social Security and Medicare.
• You can reduce taxable business income with small business tax deductions such as home office, mileage, equipment, and professional services—if they are “ordinary and necessary” for your business.
• pdfFiller lets you find, fill in, collaborate on, and securely store Schedule C, Forms 1065, 1120, and 1120-S online—helping you prepare a clean business tax return that you and your tax professional can review and submit using your preferred filing method.

Introduction to small business tax forms

Navigating small business taxes can feel complex, but understanding the key forms is the first step toward a smooth tax season. Each form corresponds to a specific business structure and dictates how you report your income and expenses to the IRS. The primary forms you will encounter are:

• Schedule C (Form 1040), Profit or Loss from Business, is used by sole proprietors and single-member LLCs to report business profit or loss as part of their personal income tax return.
• Form 1120, U.S. Corporation Income Tax Return, is used by C corporations, while its variation, Form 1120-S, is used by S corporations.
• Form 1065, U.S. Return of Partnership Income, is an informational return filed by partnerships to report their income, deductions, and credits. The partnership itself usually doesn’t pay income tax; instead, profits and losses are passed through to partners via the 1065 Schedule K-1.

Choosing the right business tax form is crucial for compliance and accurate tax payment.

What are the different types of small business tax structures?

Your business structure is the legal foundation of your company. It affects everything from your liability and daily operations to how you pay taxes. Let’s review the most popular business structures.

Sole proprietorship

A sole proprietorship is the simplest business structure. It is an unincorporated business owned and operated by one individual, with no legal distinction between the owner and the business. This means you are personally responsible for all business debts and liabilities. For tax purposes, the business is not taxed separately. Instead, you report business income and losses on your personal tax return using Form 1040 with its Schedule C.

Limited liability company (LLC)

A Limited Liability Company (LLC) offers a hybrid structure that combines the liability protection of a corporation with the tax efficiencies and operational flexibility of a partnership. An LLC protects your personal assets from business debts. For federal income tax purposes, the IRS treats LLCs differently depending on the number of owners (called members):

• A single-member LLC is taxed like a sole proprietorship, filing Form 1040 + Schedule C.
• A multi-member LLC is taxed like a partnership, filing Form 1065 and sending Schedule K-1 to its members.

However, an LLC can also elect to be taxed as a C corporation or an S corporation. This flexibility is a key advantage of LLC taxes.

Partnership

A partnership is a business owned and operated by two or more individuals. There are several types, including general partnerships and limited partnerships. Partnerships themselves do not pay income tax. Instead, they file an informational return (Form 1065), and the profits or losses are “passed through” to the partners who then report on their personal tax returns.

C corporation

A C corporation is a separate taxable entity, meaning it exists independently from its owners for tax purposes. It files Form 1120 with the IRS and is responsible for paying corporate income tax at the current corporate rate of 21%, though this rate is subject to change based on law revisions. One notable aspect of C corporations is double taxation, where the corporation first pays income tax on its profits, and then shareholders are taxed again on any dividends they receive.

S corporation (S-corp)

An S corporation (S-corp) is a special tax election that allows a corporation’s income, losses, deductions, and credits to be passed through to its shareholders. This avoids the double taxation often associated with C corporations. To become an S-corp, a business must first be structured as a corporation or an LLC and then file Form 2553 with the IRS. Shareholders report the income and losses on their personal tax returns and pay taxes at their individual income tax rates. Filing S-corp taxes requires Form 1120-S.

How do small business owners get taxed?

Small business owners get taxed in different ways depending on their business structure and whether the business is a pass-through entity or a C corporation.

For most businesses—sole proprietorships, partnerships, LLCs, and S-corps—profits pass through to owners’ individual tax returns, where they pay federal income and self-employment taxes. C-corps, however, pay corporate income tax at the entity level using Form 1120.

According to the U.S. Small Business Administration and IRS guidance, there are five general types of business taxes you may deal with:

1. Income tax – Paid on taxable business income.
2. Self-employment tax – Covers Social Security and Medicare taxes for self-employed individuals.
3. Estimated tax – Quarterly payments on income not subject to withholding.
4. Employment (payroll) taxes – Withheld and paid when you have employees (income tax withholding, Social Security and Medicare, and unemployment).
5. Excise tax – Applies to certain industries/products (fuel, heavy vehicles, etc.).

On top of federal taxes, many states and local governments have their own income tax, sales tax, and property tax rules for small businesses. Your total tax obligations depend on where you operate, how you receive income, and whether you have employees.

Which tax form to use: Schedule C vs 1120-S vs 1065?

Choosing between Schedule C, Form 1120-S, Form 1120, and Form 1065 is one of the key decisions for small business taxes and is critical for IRS compliance. Your business entity dictates which form you must file. Using the wrong one can lead to penalties and processing delays.

Here’s a clear breakdown to help you determine which form applies to your business.

• Schedule C (Form 1040): This form is for sole proprietors and single-member LLCs who have not elected to be taxed as a corporation. It’s part of your personal Form 1040 tax return. You use it to calculate the net profit or loss from your business. This net figure is then reported as income on your personal return, where you will also calculate any self-employment tax due.

A fragment of the IRS Form 1040 Schedule C for sole proprietorship reporting on their profit or loss from business.

• Form 1065, U.S. Return of Partnership Income: This form is filed by partnerships and multi-member LLCs (that haven’t elected corporate status). It’s an informational return that reports the business’s total income, expenses, gains, and losses. The partnership itself doesn’t pay income tax. After filing Form 1065, the partnership provides each partner with a Schedule K-1, which details their individual share of the business’s financial results. Each partner then uses their Schedule K-1 to report their share on their own tax return.

Prepare your Form 1065, U.S. Return of Partnership Income, in pdfFiller, where you can easily type in your business information and numbers of your income and deductions using the platform’s intuitive editor.

• Form 1120-S, U.S. Income Tax Return for an S Corporation: Businesses that have elected S corporation status file this form. Like a partnership, an S-corp is a pass-through entity. It files Form 1120-S to report its financial activity, but the taxes on the profits are paid by the shareholders on their personal returns. Each shareholder receives a Schedule K-1 detailing their portion of the income and losses. Small S corporations find this structure beneficial for avoiding double taxation.

A view of the IRS Form 1120-S opened in the pdfFiller editor, where you can easily fill out form fields with your details.

When deciding between Schedule C vs S-corp, business owners often weigh liability and tax savings. While a sole proprietorship filing Schedule C is simpler, an S-corp can sometimes offer tax advantages, particularly regarding self-employment taxes. There’s no one-size-fits-all solution, and it’s best to consult a tax professional to determine the right approach for your situation.

How pdfFiller helps small businesses in tax preparation

pdfFiller streamlines tax documentation for small businesses with an all-in-one platform for managing forms. Business owners can quickly access fillable tax form templates from the pdfFiller library, complete them online using easy-to-use tools, and securely store them in the cloud. The platform also supports collaboration by allowing users to share forms directly with tax professionals, simplifying the preparation process for greater efficiency.

How do small business tax deductions work?

The IRS uses two keywords for small business tax deductions: ordinary and necessary. Ordinary means common and accepted in your industry; necessary means helpful and appropriate for your trade, even if not essential.

Here are common categories that many small business owners can deduct.:

• Home office deduction: If you use a part of your home exclusively and regularly for your business, you may be able to deduct expenses for its use. This can include a portion of your rent or mortgage interest, utilities, insurance, and repairs. You can calculate this using the simplified method or the regular method.
• Business use of your car: You can deduct the actual expenses of operating your car for business, including gas, oil, repairs, and insurance. Alternatively, you can use the standard mileage rate set by the IRS. For either method, you must keep detailed records of your business mileage.
• Office supplies: The cost of items used in your business, such as paper, pens, and software, is fully deductible in the tax year you purchase them.
• Business travel: The costs of travel for business purposes, including airfare, lodging, and 50% of the meal costs, are deductible. The travel must be away from your tax home and for a period longer than a normal workday.
• Salaries and wages: Payments to employees, including salaries, wages, and benefits, are a deductible business expense. This is a major part of payroll taxes.
• Contract labor: The money you pay to independent contractors to perform services for your business is also deductible. You must issue Form 1099-NEC to any contractor you pay $600 or more during the year.
• Insurance: Premiums for business insurance, such as liability insurance, property insurance, and workers’ compensation, are fully deductible. Health insurance premiums for yourself and your employees may also be deductible.
• Professional services: Fees paid to lawyers, accountants, and consultants for business-related services are deductible.
• Rent expense: Rent paid for business property, such as an office or storefront, is a deductible expense.

What are the quarterly estimated tax requirements?

Unlike employees who have taxes withheld from their paychecks, small business owners are responsible for paying their own taxes throughout the year. The IRS requires you to pay federal income tax and self-employment tax in four quarterly installments, known as estimated tax payments. This “pay-as-you-go” system ensures you are current with your tax obligations.

According to the IRS, individuals, including sole proprietors, partners, and S-corp shareholders, generally must make estimated tax payments if they expect to owe $1,000 or more when their return is filed. Corporations usually must make estimated tax payments if they expect to owe $500 or more when their return is filed.

Typical quarterly due dates (2025 tax year)

• April 15, 2025 – for income earned from Jan 1–Mar 31
• June 16, 2025 – for income earned from Apr 1–May 31
• September 15, 2025 – for income earned Jun 1–Aug 31
• January 15, 2026 – for income earned Sep 1–Dec 31

If these dates fall on a weekend or holiday, the deadline moves to the next business day.

You calculate estimated tax using Form 1040-ES (for individuals) or corporate worksheets and pay via IRS Direct Pay, EFTPS, or other accepted methods. Underpayment can trigger penalties, so many business owners set aside a percentage of net earnings each month.

What are the rules for self-employment tax?

Self-employment tax covers the Social Security and Medicare taxes that regular employees pay through payroll plus the employer share. For most self-employed people, the combined rate is 15.3%:

• 12.4% for Social Security, up to the annual wage base (for 2025, $176,100 of combined wages and self-employment income).
• 2.9% for Medicare, with no income cap, plus an extra 0.9% Medicare tax for some higher earners.

You owe self-employment tax if your net earnings from self-employment are $400 or more, and you report it on Schedule SE attached to your Form 1040.

You calculate self-employment tax on 92.35% of your net earnings from self-employment. The good news is that you can deduct one-half of your self-employment tax when calculating your adjusted gross income. This deduction is an adjustment to income, meaning you don’t have to itemize to claim it. The purpose of this deduction is to place self-employed individuals on a more equal footing with employers, who can deduct their share of FICA taxes. You will use Schedule SE (Form 1040), Self-Employment Tax, to calculate the tax due.

How do taxes differ for sole proprietors, LLCs, partnerships, S-corps, and C-corps?

The business entity you choose greatly impacts your taxes, including federal income, self-employment taxes, required tax forms, and available deductions or credits. Understanding these differences is key to choosing the right structure and maximizing tax benefits.

Comparison of the tax implications of each business structure

When should I hire a tax professional?

While many small business owners can manage their taxes, there are times when hiring a tax professional is a wise investment. A qualified accountant or tax advisor can provide expertise that saves you money and prevents costly mistakes. Consider hiring one if:

• Your business is growing: As your income and complexity increase, so do your tax obligations. A professional can assist with tax planning and strategy.
• You’re facing an audit: An IRS audit can be stressful. A tax professional can represent you and guide you through the process.
• You have employees: Handling payroll taxes, including Social Security and Medicare, can be complicated.
• You operate in multiple states: Each state has unique tax laws, and a professional ensures compliance.
• You’re changing your business structure: Switching to an LLC or S-corp has major tax implications. An expert can help you decide.

Even if you handle your day-to-day bookkeeping, a tax professional can review your records, prepare your business tax return, and help you find deductions you might have missed.

How to get an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is a unique nine-digit number the IRS uses to identify your business for tax purposes—like a Social Security number for your company. You will likely need an EIN if you plan to hire employees, operate your business as a corporation or partnership, or file excise or employment tax returns.

Getting an EIN is a straightforward and free process. The fastest and easiest way is to apply online through the IRS website. You can also apply by fax or mail by completing Form SS-4, Application for Employer Identification Number.

With pdfFiller, you can:

• Search for Form SS-4 in the template library.
• Fill it out online, including all required information about your business entity, accounting period, and reason for applying.
• Save, print, or share the completed form with your advisor before submitting it to the IRS.

Final thoughts

Managing small business taxes requires organization, diligence, and a clear understanding of your obligations. From choosing the right business structure and tax forms to tracking deductions and paying estimated taxes, staying on top of your finances is key to success. By using the right tools and seeking professional advice when needed, you can handle your tax responsibilities with confidence.

Don’t let paperwork slow you down. pdfFiller provides a complete solution for managing all your tax documents. You can fill out, sign, and securely store forms like Schedule C, Form 1120, and Form 1065 online. Take control of your tax preparation process and ensure everything is organized and ready for filing.

Start your free trial with pdfFiller today and simplify your small business tax preparation!

Glossary

• Business structure: The legal classification of a company, which determines factors like liability and how it is taxed. Common structures include sole proprietorship, partnership, LLC, and corporation.
• Estimated tax: Quarterly tax payments made by individuals and businesses who receive income not subject to withholding. This system ensures that taxpayers pay their income and self-employment taxes throughout the year.
• Pass-through entity: A business structure (like a sole proprietorship, partnership, or S-corp) where the business itself is not subject to income tax. Instead, the income or losses are “passed through” to the owners and reported on their personal tax returns.
• Self-employment tax: A tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is analogous to the FICA taxes that are withheld from the pay of most wage earners.
• Taxable income: The amount of income used to calculate how much tax an individual or a company owes. It is generally gross income minus any eligible deductions.