Small business owners have more tax deductions available than W-2 employees—but also more complexity. Here’s how to minimize your tax bill legally.
Tax Rates by Business Structure
| Structure | Tax Type | Rates | Filing Form |
|---|---|---|---|
| Sole Proprietor | Income tax + SE tax | 10-37% + 15.3% | Schedule C (with Form 1040) |
| Single-Member LLC | Same as sole proprietor (default) | 10-37% + 15.3% | Schedule C (with Form 1040) |
| Partnership / Multi-Member LLC | Pass-through to partners | Partners’ individual rates | Form 1065 + K-1s |
| S-Corporation | Pass-through (salary + distributions) | 10-37% income + payroll tax on salary only | Form 1120-S + K-1s |
| C-Corporation | Corporate tax + dividend tax | 21% corporate + 15-20% dividends | Form 1120 |
Top Small Business Tax Deductions
Biggest Deductions by Savings Potential
| Deduction | Maximum | Typical Savings |
|---|---|---|
| QBI (20% of qualified business income) | 20% of QBI | $5,000-$40,000+ |
| Retirement contributions (Solo 401k/SEP) | $69,000 | $5,000-$20,000+ |
| Health insurance premiums (self-employed) | 100% of premiums | $5,000-$20,000 |
| Employee wages and benefits | Unlimited | Largest expense for most businesses |
| Rent/lease payments | Actual cost | $5,000-$50,000 |
| Home office | $5/sq ft or actual | $500-$5,000 |
| Vehicle expenses | $0.70/mile or actual | $1,000-$10,000 |
| Depreciation (Section 179) | $1,220,000 | Varies |
| Business insurance | Actual cost | $1,000-$10,000 |
| Professional services (legal, accounting) | Actual cost | $1,000-$10,000 |
| Software and subscriptions | Actual cost | $500-$5,000 |
| Marketing and advertising | Actual cost | $1,000-$20,000 |
The QBI Deduction (Section 199A)
| Income Level (Single) | QBI Deduction | Limitations |
|---|---|---|
| Under $191,950 | Full 20% of QBI | None |
| $191,950-$241,950 | Phased out for “specified service” businesses | SSTB limits apply |
| Over $241,950 | Limited by W-2 wages or property basis | Complex calculation |
“Specified service” businesses include: doctors, lawyers, consultants, accountants, financial advisors, athletes, performers.
Section 179 and Bonus Depreciation
| Feature | Section 179 | Bonus Depreciation (2026) |
|---|---|---|
| Maximum deduction | $1,220,000 | 60% of cost |
| What qualifies | Equipment, vehicles, software, some improvements | Equipment, vehicles, software |
| Must be profitable? | Yes (can’t create a loss) | No (can create a loss) |
| Used equipment? | Yes | Yes (for equipment placed in service) |
Example: Buy a $60,000 work vehicle. Section 179 lets you deduct most or all of it in year one instead of depreciating over 5 years.
Tax Filing Calendar
| Business Type | Tax Return Due | Extension Deadline |
|---|---|---|
| Sole Proprietor / Single-Member LLC | April 15 | October 15 |
| Partnership / Multi-Member LLC | March 15 | September 15 |
| S-Corporation | March 15 | September 15 |
| C-Corporation | April 15 | October 15 |
| Estimated tax payments | Apr 15, Jun 15, Sep 15, Jan 15 | No extensions |
| W-2s to employees | January 31 | No extensions |
| 1099s to contractors | January 31 | March 31 (electronic) |
The Bottom Line
The most impactful tax moves for small business owners: (1) choose the right structure (consider S-Corp when profitable), (2) maximize the 20% QBI deduction, (3) contribute to retirement accounts (Solo 401k or SEP IRA), (4) deduct health insurance premiums, (5) track every legitimate business expense, and (6) make quarterly estimated payments to avoid penalties. A good CPA will more than pay for themselves in tax savings.