Taxes for sole proprietors are filed as part of the owner’s personal income tax return; different to C and S Corporations which report their taxes on a separate business return.
If you’re a new sole proprietor and are not familiar with how you should report and pay your taxes, you can simply leave it in the capable hands of an experienced accounting firm in Fort Lauderdale, or refer to this brief guide:
Single filer federal income tax brackets for 2026
Rate Taxable income
10% – Up to $12,400
12% – $12,401 – $50,400
22% – $50,401 – $105,700
24% – $105,701 – $201,775
32% – $201,776 – $256,225
35% – $256,226 – 640,600
37% – Over $640,600
Sole proprietorship taxation is classed by the IRS as ‘pass-through,’ because the tax liability is passed through the business’s owner on their personal tax return. The net income of the business will increase the personal taxable income of the owner, and push them into a higher tax bracket under pass-through taxation.
Forms sole proprietors must complete and file:
- IRS Form 1040 – U.S. individual income tax return
- Schedule C (Form 1040) – profit or loss from business
- Schedule SE (Form 1040) – self-employment tax
Taxes sole proprietors are responsible for paying:
- Federal income tax
- State income tax (if applicable)
- Self-employment tax
- Quarterly estimated taxes, both federal and state
- Sales tax (if applicable)
- Local taxes
Quarterly tax estimates for 2026 are due by:
- April 15th
- June 15th
- September 15th
For self-employment tax, the rule for 92.35% of net earnings is still applicable, funding Medicare (2.9% of all earnings) and Social Security (12.4% on earnings up to $185,500). If you’re a single filer who makes $200,000 or more, you will be subject to an extra 0.9% rate to fund Medicare taxes.
Calculating your income as a sole proprietor
Paying taxes only on business profits, sole proprietors are taxed on all profits, irrespective of how much money they take out of the business. Your profit is what remains of your income once deductible expenses have been withdrawn.
Your taxable income will be similar to the ‘net income’ or ‘net profit’ that can be found at the bottom of the profit and loss statement, but with some minor adjustments.
Owner draws aren’t considered to be taxable income, and as such, shouldn’t be reported as an expense or income on a profit and loss statement. If they are, they can impact the total profit calculation and lead to an over or underpayment of taxes.
It’s also important that loan proceeds, debt payments, and personal deposits are categorized correctly, and working with bookkeeping and accounting services for small businesses can help you get it right.
Tax deductions
Reducing your taxable income as a sole proprietor is easy provided you track your expenses properly throughout the year, here are some common deductions you may be eligible for:
- Health insurance
- Equipment and software
- Home office deduction
- Mileage
- Business meals
- Phone and internet
- Business insurance
- Banking fees
- Continued education
- Professional services
- IRA or SEP contributions
Forming an LLC as a sole proprietor
While there are a number of different advantages to forming a Limited Liability Company (LLC), it’s best to consult with a service providing small business tax preparation in Fort Lauderdale, who will evaluate your liability needs, net business income, current tax bill and future goals to help determine if it’s the best course of action for you.
Provided your bookkeeping is accurate and up-to-date (ideally with professional help), your deductions have been properly organized, and your estimated taxes are calculated correctly (by a small business tax specialist), calculating, filing and paying your taxes as a sole proprietorship, should be relatively straightforward.