If there’s one thing that tends to catch small business owners off guard, it’s taxes. Between choosing the right business structure, understanding self-employment tax, tracking deductions, and staying on top of quarterly payments, it’s easy to feel overwhelmed, especially if you’re new to running a business.
At TJ Marshall Tax & Accounting, based in Marietta, GA, we work with small business owners every day who are trying to make sense of exactly how their business is taxed and what they can do to plan ahead more effectively. The good news is that once you understand the basics, small business taxation becomes a lot less intimidating.
This 2026 guide breaks down everything small business owners need to know about how their business is taxed in the United States, from business structure to deductions to quarterly payments.
Please note: this guide is intended for general educational purposes. Every business’s tax situation is different, and we always recommend speaking with a qualified accountant or tax professional to discuss your specific circumstances.
Why Business Structure Matters for Taxes
One of the very first decisions that shapes how a business is taxed is its legal structure. The IRS taxes different business entities in very different ways, so understanding your structure is the foundation for everything else.
Sole Proprietorships
A sole proprietorship is the simplest business structure, and it’s also the default structure for anyone who starts doing business without formally registering as an LLC or corporation. With a sole proprietorship, business income and expenses are reported directly on the owner’s personal tax return using Schedule C.
Key tax characteristics: Business profits are subject to both personal income tax and self-employment tax, since there’s no separation between the owner and the business for tax purposes.
Single-Member LLCs
A single-member LLC is treated as a “disregarded entity” by the IRS by default, meaning it’s taxed almost identically to a sole proprietorship. However, an LLC does offer liability protection that a sole proprietorship doesn’t.
Key tax characteristics: Like sole proprietorships, income passes through to the owner’s personal tax return and is subject to self-employment tax.
Multi-Member LLCs and Partnerships
When two or more people own a business together as an LLC or general partnership, the business typically files an informational return (Form 1065), and each partner receives a Schedule K-1 showing their share of the profits or losses to report on their personal return.
Key tax characteristics: Income passes through to each partner individually, and each partner is generally responsible for self-employment tax on their share of the profits.
S Corporations
An S corporation is a tax election, not a business structure itself, that allows eligible LLCs or corporations to potentially reduce self-employment tax. Owners who work in the business are paid a “reasonable salary,” which is subject to payroll taxes, while remaining profits can potentially be distributed without self-employment tax.
Key tax characteristics: This structure can offer meaningful self-employment tax savings for profitable businesses, but it also comes with additional payroll and compliance requirements.
C Corporations
A C corporation is taxed as a completely separate entity from its owners. The corporation pays corporate income tax on its profits, and if profits are distributed to shareholders as dividends, those dividends are taxed again on the shareholder’s personal return, commonly referred to as “double taxation.”
Key tax characteristics: While double taxation sounds unfavorable, C corporations can offer advantages for businesses planning to reinvest profits, raise outside investment, or eventually go public.
Federal Taxes Small Businesses Need to Know About
Income Tax
Regardless of structure, business profits are generally subject to federal income tax, either at the individual owner level (for pass-through entities) or at the corporate level (for C corporations).
Self-Employment Tax
Self-employment tax covers Social Security and Medicare contributions for business owners who aren’t paid through a traditional payroll system. This tax applies to sole proprietors, single-member LLC owners, and partners in most partnerships.
Payroll Taxes
If your business has employees, or if you’re an S-corp owner paying yourself a salary, you’re responsible for withholding and paying payroll taxes, including Social Security, Medicare, and federal unemployment tax (FUTA).
Estimated Quarterly Taxes
Most small business owners don’t have taxes automatically withheld throughout the year the way traditional employees do. Instead, business owners are generally required to make estimated quarterly tax payments to avoid penalties at tax time.
State and Local Taxes in Georgia
In addition to federal taxes, small businesses operating in Georgia, including those in Marietta and the greater Atlanta area, need to account for state-level tax obligations as well.
Georgia state income tax: Business profits that pass through to the owner’s personal return are subject to Georgia state income tax in addition to federal tax.
Georgia sales tax: Businesses selling taxable goods or certain services are generally required to collect and remit sales tax to the state.
Local business licenses and taxes: Depending on your city and county, additional local business licenses, occupational taxes, or permits may apply.
Working with a local accountant who understands Georgia’s specific tax requirements can help ensure nothing gets overlooked at the state or local level.
Common Small Business Tax Deductions
One of the most effective ways small businesses can reduce their tax liability is by taking advantage of legitimate business deductions. Some of the most common include:
Home office deduction for business owners who use a dedicated portion of their home exclusively for business purposes.
Business vehicle expenses, either through the standard mileage rate or actual vehicle expenses.
Office supplies and equipment, including computers, software, and furniture.
Professional services, such as accounting, legal, and consulting fees.
Marketing and advertising expenses, including website costs and paid advertising.
Employee wages and benefits, including health insurance premiums and retirement plan contributions.
Business insurance premiums.
Travel and meal expenses directly related to business activities, subject to specific IRS limitations.
Retirement plan contributions, which can reduce taxable income while also helping business owners save for the future.
Keeping detailed, organized records throughout the year makes it significantly easier to claim every deduction you’re entitled to, and to defend those deductions if you’re ever audited.
Choosing the Right Tax Strategy for Your Business
There’s no single “best” tax strategy for every small business. The right approach depends on your business structure, profit level, growth plans, and personal financial goals. Here are a few general considerations:
If you’re just starting out, a sole proprietorship or single-member LLC may be simplest, but it’s worth discussing liability protection and future growth plans with a professional early on.
If your business is consistently profitable, an S-corp election may offer meaningful self-employment tax savings, though it does come with additional payroll and compliance responsibilities.
If you’re planning to reinvest heavily in the business or seek outside investors, a C corporation structure may align better with your long-term goals.
Regardless of structure, staying current on quarterly estimated taxes and maintaining organized financial records throughout the year will make tax season significantly less stressful.
Common Small Business Tax Mistakes to Avoid
Mixing personal and business finances. This makes bookkeeping more difficult and can create complications if the IRS ever questions your business deductions.
Missing quarterly estimated tax payments. This can result in penalties, even if you pay your full tax liability by the annual deadline.
Failing to track deductible expenses throughout the year. Waiting until tax season to piece together expenses often means missed deductions.
Choosing a business structure based on assumptions rather than professional guidance. The right structure depends on your specific financial situation, not a one-size-fits-all answer.
Not planning for self-employment tax. Many new business owners are surprised by how much self-employment tax adds to their overall tax liability.
How TJ Marshall Tax & Accounting Helps Small Businesses in Marietta, GA
At TJ Marshall Tax & Accounting, we help small business owners throughout Marietta and the greater Atlanta area navigate every aspect of business taxation, from choosing the right business structure to maximizing deductions and staying compliant with quarterly estimated payments.
Our team takes the time to understand your specific business and financial goals, so we can help you build a tax strategy that actually fits your situation, rather than applying a generic, one-size-fits-all approach.
Frequently Asked Questions About Small Business Taxes
How are small businesses taxed differently based on their structure? Sole proprietorships, single-member LLCs, and partnerships generally have business income passed through to the owner’s personal tax return, while C corporations are taxed separately at the corporate level. S corporations offer a hybrid approach that can potentially reduce self-employment tax.
Do small business owners have to pay quarterly taxes? Most small business owners are required to make estimated quarterly tax payments if they expect to owe a certain amount in taxes for the year, since taxes typically aren’t withheld automatically the way they are for traditional employees.
What is self-employment tax? Self-employment tax covers Social Security and Medicare contributions for business owners who aren’t paid through traditional payroll, and it’s calculated in addition to regular income tax.
Can an LLC choose to be taxed as an S corporation? Yes, an eligible LLC can elect to be taxed as an S corporation, which may offer self-employment tax savings for profitable businesses, though it comes with additional payroll and compliance requirements.
What are the most commonly missed small business tax deductions? Home office expenses, vehicle mileage, retirement plan contributions, and professional service fees are among the most frequently overlooked deductions for small business owners.
Get Expert Guidance on Your Small Business Taxes
Understanding how your business is taxed is one of the most important steps toward building a financially healthy, sustainable business. If you’re a small business owner in Marietta, GA, or anywhere across the greater Atlanta area, the team at TJ Marshall Tax & Accounting is here to help you navigate your tax obligations with confidence.
Contact TJ Marshall Tax & Accounting today to schedule a consultation and start planning a smarter tax strategy for your business.