Sole Proprietorship Taxes: A 2025 Guide
Sole proprietorships are the simplest business entity — their taxes are pretty straightforward, too.
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Sole proprietors report their businesses’ income on their personal tax returns. They’re also responsible for paying self-employment taxes.
Deadlines fall on April 15. But most sole proprietorships will need to make estimated payments quarterly. Finding a small-business tax advisor can help simplify the process and ensure accuracy, especially if you have employees.
Here’s what sole proprietorships should know about filing their taxes.
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Who does the IRS consider a sole proprietor?
A sole proprietor is the single owner of an unincorporated business, according to the IRS. This includes single-member limited liability companies (LLCs), too. In fact, the IRS taxes LLCs as sole proprietorships by default.
There’s no legal distinction between a sole proprietorship and its owner. That’s why the IRS considers this business structure a “pass-through” entity. This means sole proprietors report their businesses’ profits and losses on their individual income tax forms.
Some sole proprietorship examples include independent contractors, freelancers and consultants.
When are sole proprietorship tax deadlines?
Here’s a list of the main sole proprietorship tax forms and their deadlines.
Federal income tax: File Schedule C (Form 1040) by April 15 to report your annual income.
Self-employment tax: File Schedule SE (Form 1040) by April 15 to report your Social Security and Medicare taxes.
Employment tax: Sole proprietorships with employees must file Form 940 by Jan. 31 to report federal unemployment taxes. These payments are generally due quarterly (April 30, July 31, Oct. 31 and Jan. 31). You’ll file Form 941 on the same quarterly schedule to report Medicare and Social Security taxes. Form 941 payment schedules depend on how much you owe.
Estimated tax payments: Make these quarterly (April 15, June 15, Sept. 15 and Jan. 15) if you expect to owe more than $1,000 in federal taxes (including self-employment taxes).
State and local tax: Requirements differ from state to state, and payment schedules may change depending on how much you owe. Your state’s tax department website will have more details.
Deadlines can differ if you didn't start your fiscal year on Jan. 1. But that’s uncommon for sole proprietors. See our complete list of business tax deadlines for details.
Can sole proprietorships get tax extensions?
Yes. Sole proprietorships can file Form 4868 by April 15 to receive a six-month extension. This would push the return’s deadline to Oct. 15. However, your payment deadlines will not change.
Explore our article on filing a tax extension for more details.
What tax forms do sole proprietorships file?
Sole proprietorships must file Form 1040 to report their federal income taxes. In general, most must also file Schedules C and SE. Sole proprietorships that have hired contractors or employees are responsible for filing additional tax forms.
Here’s a rundown of each of them.
Schedule C
Self-employed individuals, including sole proprietorships, report their business’s profits and losses on Schedule C. You attach Schedule C to Form 1040 at tax time.
Schedule SE
Sole proprietors who earned $400 or more owe 15.3% in self-employment taxes. This is on top of federal income taxes. These go towards Medicare (2.9%) and Social Security (12.4%). Like Schedule C, you attach Schedule SE to Form 1040.
You can deduct half of what you pay in self-employment taxes from your income. This helps make up for what would have been your employer’s responsibility (if you weren’t self-employed).
State and local tax forms
Many states and some local governments also charge taxes. This includes state and/or local income, property, excise and sales tax. Only five states don’t charge sales tax. And all but eight states also charge their own income taxes, according to the Tax Foundation.
State and local income tax rates and rules look different depending on where your business operates. Your state’s tax department should have more details.
Form 1099
Sole proprietorships that paid a contractor $600 or more over the course of the year must file Form 1099 by Jan. 31. They need to mail copies to each contractor by that date, too. This informational form reports how much your business paid the contractor.
A contractor could be a lawyer, accountant or freelancer. But they aren’t one of your regular employees.
Sole proprietorships should ask any contractor they’ll pay more than $600 to fill out a W-9 when hiring them. This form provides the information you’ll need to file 1099s (e.g., contractor name, address, employer identification number). However, you don’t file the W-9s with the IRS.
Form W-2
Sole proprietorships with employees are responsible for filing W-2s with the IRS by Jan. 31. They must mail copies of the W-2s to each employee by the same date. This informational form reports paid employee wages and tax withholdings.
Forms 940 and 941
Sole proprietorships with employees must file Form 940, too. This document reports how much unemployment tax you withheld from your employees’ paychecks. Businesses that owe $500 or more in unemployment tax each quarter should make Form 940 payments quarterly (April 30, July 31, Oct. 31 and Jan. 31).
You’ll use the same quarterly schedule to file Form 941. This document reports how much Medicare and Social Security taxes you withheld from employees’ paychecks. This is also called FICA tax.
Form 941 deposit schedules depend on how much you owe. Typically, you’ll make payments monthly if you owe less than $50,000. Otherwise, you’ll pay semi-weekly.
How do sole proprietorships make quarterly estimated tax payments?
Sole proprietors owing more than $1,000 to the IRS annually must make quarterly estimated tax payments. That’s because the IRS uses a “pay-as-you-go” system.
There are a few different ways to calculate your quarterly estimated tax payments. One of the simplest is dividing the previous year’s taxes by four. Or, you can use one of the IRS’s worksheets to estimate your payment amounts.
Another option is hiring a tax professional to assist with the calculations. We’d recommend this for full-time sole proprietors.
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Which expenses can sole proprietorships deduct?
Sole proprietorships have lots of options when it comes to tax deductions. Here are just a few.
Qualified business income: This lets qualified businesses deduct up to 20% of their income.
Business mileage: Sole proprietorships can write-off trips driven for business purposes. The standard deduction rate is 70 cents per mile.
Home office: Sole proprietors who run their business from home may be able deduct certain home expenses. The simplest way to do this is by deducting $5 for each square foot of your home office (up to $1,500). Or, you can multiply your home expenses (e.g., mortgage, rent, utilities, insurance) by the percentage of square footage your home office takes up.
For more ideas, see our larger list of self-employed tax deductions that may be available to you.
A version of this article was first published on Fundera, a subsidiary of NerdWallet.
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