🧾 Small business taxes: SE tax, quarterlies, QBI, sales tax, payroll and 1099s

🎯 In 30 seconds: A profitable owner pays income tax plus 15.3% self-employment tax, in four estimated payments during the year. The 2025 tax law made the 20% QBI deduction permanent and raised the 1099-NEC threshold to $2,000 for payments made in 2026. Sales tax and payroll taxes are money you collect for the government, so keep them out of your spending money.

Self-employment tax

If net earnings from self-employment are $400 or more, you owe SE tax: 12.4% for Social Security and 2.9% for Medicare, 15.3% in total, on 92.35% of net earnings. The Social Security part stops at $184,500 of combined wages and self-employment earnings for 2026. You can deduct half of the SE tax when figuring adjusted gross income.

Worked example (2026): A cleaning business nets $60,000. $60,000 × 92.35% = $55,410. × 15.3% = $8,478 of SE tax, of which $4,239 is deductible. Federal income tax comes on top, plus any state tax. Many owners set aside 25% to 30% of profit as a starting point, then let a CPA tune it.

Quarterly estimated taxes

Nobody withholds for you, so the IRS expects payments as you earn. You generally must pay estimated tax if you expect to owe $1,000 or more when you file.

Safe harbor: you generally avoid the underpayment penalty if you paid at least 90% of this year’s tax, or 100% of last year’s tax. If last year’s AGI was over $150,000 ($75,000 married filing separately), the second test becomes 110%. The prior-year test is the easy one for a growing business: if your 2025 total tax was $10,000, four payments of $2,500 for 2026 meet it, even if 2026 turns out bigger. You then owe the difference in April, without a penalty.

The QBI deduction

Owners of pass-through businesses (sole proprietors, partnerships, S corps, most LLCs) can generally deduct up to 20% of qualified business income. The July 2025 law (the One, Big, Beautiful Bill Act) made it permanent, widened the income range over which the limits phase in, and added a minimum deduction of $400 for people with at least $1,000 of QBI from active businesses they materially participate in, adjusted for inflation. Wages an S corporation pays you are not QBI. Above certain income levels, limits based on wages paid and on the type of business (certain service fields) apply, and those thresholds change each year.

Sales tax and nexus

Sales tax is set by states and localities. You collect it where you have nexus: physical presence (a shop, employees, inventory) or, since the Supreme Court’s 2018 South Dakota v. Wayfair decision, enough sales into a state. Most states set an economic threshold, often $100,000 of sales, and several have dropped the older 200-transaction test. Some states also tax certain services. Register with your state for a seller’s permit before the first taxable sale, and check each state’s revenue site if you ship out of state.

Payroll taxes

• Employer Social Security 6.2% (to $184,500 of wages per employee for 2026) and Medicare 1.45%, matching what you withhold from the employee.
• Federal unemployment (FUTA): 6.0% on the first $7,000 of each employee’s wages, reduced by a credit of up to 5.4% for state unemployment tax paid, so usually 0.6% ($42 per employee per year).
• State unemployment tax, at a rate your state assigns.
• Deposits are made electronically, on a schedule set in IRS Publication 15. A payroll service handles this.

Home office and 1099s

Home office: the space must be used regularly and exclusively for business. The simplified method allows $5 per square foot up to 300 square feet, a maximum of $1,500. The regular method (Form 8829) uses actual costs and can be larger, but takes more records.

1099-NEC and 1099-MISC: for payments made in 2026, the reporting threshold is $2,000 per recipient (it was $600), with inflation adjustments after 2026. Some IRS pages still show $600 for earlier years. 1099-K: payment apps and platforms report when payments exceed $20,000 and transactions exceed 200; some states set lower thresholds. All income is taxable whether or not a form arrives.

Records to keep

• Income and expense records: generally 3 years after filing; 6 years if income was underreported by more than 25%; 7 years for a bad-debt deduction.
• Employment tax records: at least 4 years.
• Asset records (vehicles, equipment): until the limitation period ends for the year you sell or dispose of them.

Track the set-aside in the Budget tool as its own line.

Sources

• IRS Topic 554: Self-employment tax
• IRS: 2026 Form 1040-ES
• IRS: Business tax provisions of the 2025 law (1099 thresholds, QBI)
• IRS Topic 759: Form 940 and FUTA
• IRS: Simplified option for home office deduction
• IRS: How long should I keep records?