Taxes for people who run the business

A Black Lentil masterclass for solopreneurs and small businesses

Black Lentil Editorial · September 20, 2026 · U.S. federal foundation, with state and local research prompts.

Understand what you owe, keep the evidence, plan the cash and verify that the work is finished.

This class is general education, not a determination of anyone's tax liability. Its main worked example is a U.S. individual running a sole proprietorship. It introduces the different paths for LLCs, partnerships, corporations and employers; it does not teach preparation of every business return. Use a CPA, enrolled agent or tax attorney for decisions that depend on your particular facts.

Figures and deadlines explicitly labeled 2026 concern the 2026 tax year. A return filed during 2026 may concern a different year. Sources were checked September 20, 2026; check the linked agency instructions again for the year you are handling.

Start with the result

By the end, you will have an obligation map, a record of unresolved bookkeeping questions, a tax-payment plan and a filing handoff. You should be able to explain where each number came from, who is responsible for it and what evidence shows the action happened.

Keep the completed worksheets privately. Use the fictional examples here when learning; this class does not require uploading tax returns, bank statements or taxpayer identifiers.

Use the companion business calendar guide to schedule preparation, review, filing and verification. It includes selected U.S. federal dates and suggested business routines, with state/local research prompts. Its entries do not determine your individual obligations.

Choose your route

• Working alone or running a side business: take all eight lessons in order. Pay particular attention to how business income fits into your household return.
• Running an LLC: establish its actual federal tax classification in Lesson 1 before following any example.
• Hiring or already employing people: add the employer checks in Lesson 6. Your own estimated payments do not replace payroll obligations.
• Running a partnership or corporation: use the records, cash and verification practices, but follow the entity's return and owner-payment rules with your preparer.
• Already behind: read Lesson 8 first, then rebuild the records and payment plan.

Each lesson includes a question, an explanation, a practice task and an observable result. Reading the lesson is the beginning; the completed work is the outcome.

1. Which taxes belong to me and my business?

Question: “I formed an LLC. What actually changed?”

Business formation and federal tax classification are different facts. A domestic single-member LLC is generally disregarded for federal income tax unless it elects corporate treatment. An individual owner's operating business will commonly use Schedule C; rental and farming activities can follow other schedules. A domestic LLC with multiple members generally defaults to partnership treatment, subject to applicable exceptions and elections. A disregarded LLC can still be a separate taxpayer for employment and certain excise taxes. IRS: single-member LLCs

For self-employed individuals, federal income tax and self-employment tax are distinct. Schedule C reports business profit or loss; Schedule SE is used to calculate self-employment tax where applicable. The business result then fits into the individual's broader return. IRS: self-employed tax center

State and local obligations depend on location and business structure. Build a separate research list for income, sales/use, employment and any industry-specific taxes. A federal answer does not settle these questions. SBA: business tax obligations

Read the tax map before choosing a form

Estimated tax is a way of paying during the year. It is not an additional tax layered on top of the income and self-employment taxes you later calculate on the return. Employment taxes arise from paying employees; excise taxes relate to specified activities, goods or services. Different obligations can coexist in the same business. IRS: business taxes

Partnerships generally file Form 1065 to report results and provide partners with Schedule K-1 information. S corporations generally file Form 1120-S and supply shareholder K-1s. These are paths by which business results reach the owners' returns; a K-1 is not simply a report of cash transferred to the owner. Owners need to understand allocation and basis rules before assuming a loss is deductible or a distribution has no tax consequences. IRS: Form 1065, IRS: Form 1120-S instructions, IRS: S corporation basis

Imagine a shop with one owner, online sales and two employees. A single question—“What is my tax rate?”—cannot describe all its work. The owner may need an individual income-tax calculation, while the shop has payroll deposits, information returns and state sales-tax questions. The useful first task is to identify these obligations separately, before attaching amounts or deadlines.

Common mistake: Copying a calendar from a friend whose business has a different classification. Start with your taxpayer and return type, then find the matching calendar.

Practice: Complete Worksheet A. Use your last filed returns, formation documents and any election correspondence to establish your starting point. Where they conflict, write down the conflict and assign its resolution to your preparer.

Worked distinction: Alex is the only owner of an LLC and has made no corporate election. Sam operates an LLC with an accepted S corporation election. Both say “I own an LLC,” but they should not copy one another's owner-pay and return instructions.

Result: You can name the taxpayer, tax type, jurisdiction and person who will verify each obligation. An unanswered classification question is visibly unresolved.

2. What counts as income—and why doesn't it match my bank deposits?

Question: “The payment platform says one number; my bank shows another. Which is right?”

Form 1099-K reports gross payments. Fees, refunds and other adjustments can explain why the reported figure differs from the cash deposited. Reconcile the form with your records; do not automatically add it to sales you have already recorded. Receiving no form does not make taxable business income disappear. IRS: understanding Form 1099-K, IRS: what to do with Form 1099-K

Worked example: A fictional service business processes $10,000 of customer payments in one month. It refunds $500 and pays $300 in processing fees. All transactions settle in the same month, with no sales tax, reserves, chargebacks or timing differences. Its bank receives $9,200.

The reconciliation is $10,000 − $500 − $300 = $9,200. Retain the gross sales, refund and fee records separately. If there are settlement delays or processor reserves, add those as separate reconciling items. Do not force the sales number to equal the deposit by deleting differences.

An owner contribution, a loan and a customer payment may all appear as deposits, but their underlying transactions are different. Identify the source before categorizing the money; ask your preparer to confirm disputed treatment. Your accounting method also affects when income and expenses enter the return. IRS: starting a business and keeping records

Build the explanation in a repeatable order

Begin with one period and one processor. Record gross customer payments, match the refunds, locate the fees and identify settlements crossing the period boundary. Then compare the expected deposits with the bank. Preserve the original reports so another person can repeat the calculation.

Suppose the same fictional business also deposits $2,000 transferred from the owner's savings. Its bank deposits now total $11,200, but its customer payments are still $10,000. The $2,000 needs its own supporting record and categorization. Mixing every deposit together would conceal what happened before anyone reaches a tax form.

For a cash-method business, income is generally recognized when received and expenses when paid, subject to specific rules. Under accrual accounting, recognition generally follows earning income and incurring expenses instead. Inventory, advance payments and other situations need additional analysis. Do not switch methods casually to make one year's result look smaller. IRS: Publication 583

Common mistakes: Recording net settlements as the entire sales story; adding a 1099 to income already in the books; assuming every deposit is a sale; and deleting unexplained differences. Each makes the bookkeeping look simpler while making the result harder to defend.

Practice: Reconcile one month's sales records, processor report and bank deposits. Give every unexplained difference an amount, evidence reference, owner and next action.

Result: You can trace gross customer payments to settled cash and explain each difference without counting the same sale twice.

3. What can I deduct—and what evidence supports it?

Question: “I paid for it through the business. Is it a write-off?”

A business account is a payment channel, not proof of deductibility. Business expenses generally must be ordinary and necessary. Personal costs, business costs and mixed use need different treatment. Some purchases require capitalization or another treatment rather than an immediate deduction. The IRS now directs readers to subject-specific resources; its discontinued Publication 535 should not be treated as a current all-purpose guide. IRS: business expense resources, IRS: Publication 334

Keep the supplier, date, amount, proof of payment and description showing the business purpose. A statement may need an invoice or other supporting record alongside it. Travel, transportation and assets require additional evidence. IRS: records to keep

Worked example: A $1,000 expense that is fully deductible and reduces income taxed at a hypothetical 24% marginal income-tax rate would reduce that income tax by $240. It still costs $760 after that assumed saving. This illustration excludes self-employment tax, other deductions, credits and limitations. A deduction is not reimbursement of the purchase price.

For mixed-use purchases, document a supportable allocation and check the rules for that category. For a home office, regular and exclusive business use is generally part of eligibility, with specific exceptions and additional tests. Having a laptop on the kitchen table does not by itself establish eligibility. IRS: home office deduction

Work through the category, not just the receipt

Vehicle use: A mixed-use car needs a distinction between business and personal use. The standard mileage and actual-expense methods have eligibility and election rules; the choice can affect later years. Keep the trip purpose and mileage records before comparing methods. Do not add ordinary operating costs already covered by the mileage method as if they were a second deduction. IRS: business use of a car

Meals and entertainment: An otherwise qualifying business meal is generally subject to a 50% deduction limit unless an exception applies. Ordinary entertainment expenses are generally nondeductible. Separately purchased or separately stated food and beverages can require their own analysis. Record the business purpose and participants alongside the cost; putting “client meeting” in the bank-feed category does not settle eligibility. For a restaurant, ingredients for meals sold to customers are a different category: the ordinary 50% business-meal limit does not apply to food sold to the public. Employee meals and owner meals need their own review; do not apply one rule to every food purchase. IRS: Publication 463

Home office: Establish eligibility before comparing the simplified and regular methods. For an eligible area, those methods determine the deduction differently; choosing the simpler calculation does not remove the qualification requirements. Record how the space is actually used and the facts supporting the claim. IRS: home office deduction

Equipment: Give the preparer the purchase date, cost, date placed in service, business-use facts and financing information. Ask for the proposed treatment and its current- and future-year effects. A loan payment schedule is not itself a depreciation schedule.

Exercise: A designer buys a $1,200 device used for client work and personal projects. What is missing before claiming a deduction? The answer includes evidence of actual business use, the purchase and service dates, and the applicable expense or capitalization treatment. “I bought it with the company card” answers none of those questions by itself.

Practice: Take five recent purchases. For each, write the business purpose, evidence held, any personal use, and whether the tax treatment is confirmed or needs review. Record an equipment purchase for asset review rather than guessing a depreciation rule.

Result: A second person can understand the proposed treatment from the evidence. The uncertain items remain on a question list instead of silently becoming deductions.

4. How do profit, owner pay and self-employment tax fit together?

Question: “If I leave the money in the business, or pay it to myself, does that change the profit?”

A sole proprietor cannot deduct their own salary or personal withdrawals as business expenses. Keep draws separate from operating expenses. This rule should not be copied into a corporation's payroll process. IRS: Publication 334

Self-employment tax covers Social Security and Medicare. The basic combined rate is 15.3%, but the Social Security component has an annual earnings limit and wages can affect that calculation. Additional Medicare Tax can apply at higher income levels. It is not accurate to call 15.3% the owner's entire tax bill. IRS: self-employment tax

Worked example: Jordan is a sole proprietor with $90,000 of revenue and $30,000 of deductible expenses, giving $60,000 of Schedule C profit. Assume no wages, no other self-employment income, no special computation method and income below the relevant Social Security limit and Additional Medicare Tax threshold.

• Regular-method net earnings: $60,000 × 92.35% = $55,410.
• Illustrative self-employment tax: $55,410 × 15.3% = $8,477.73 before return rounding.
• One-half, approximately $4,238.87, is an adjustment in calculating income tax; it does not halve the self-employment tax payment itself.

Federal income tax and any state/local taxes still need separate calculation. Jordan's filing status, other income, deductions and credits matter. A draw is not a substitute for that calculation. IRS: Publication 334, self-employment tax

For an S corporation, an owner who performs services can be a shareholder-employee. Reasonable compensation requirements apply before non-wage distributions. An election requires a comparison that includes compensation, payroll administration, return preparation and state treatment; this class does not prescribe an income level at which everyone should elect S status. IRS: S corporation compensation

Follow Jordan's numbers into the next decision

Suppose Jordan withdrew $40,000 during the year. The $60,000 profit in this example does not become $20,000 because of that draw. Nor does the remaining bank balance necessarily equal $20,000: opening cash, loans, equipment purchases and settlement timing can change it. Profit describes one result; the bank account records a different set of movements.

The example's $8,477.73 is only a self-employment-tax illustration. It cannot tell Jordan the next estimated payment. That requires the wider calculation in Lesson 5, including federal income tax and amounts already paid or withheld. This is why “set aside 15.3%” can be incomplete even when the person quoting it knows the basic rate.

Common mistake: Treating an S corporation election as an automatic discount. Build a comparison using the same business forecast on both sides. Include reasonable compensation, payroll costs, preparation fees and any state effects. Ask the preparer to show the assumptions and identify what happens if profit falls. The decision should survive a change in the forecast, not just produce an attractive first-year number.

Practice: Explain Jordan's profit, cash withdrawal and illustrative self-employment tax as three separate numbers. Then identify which assumptions differ in your business.

Result: You can distinguish money paid to the owner from deductible expenses, and self-employment tax from total tax.

5. How much should I set aside, and when must I pay?

Question: “Is saving 25% enough?”

A reserve percentage is a cash-management choice; it is not a tax calculation. Base the plan on expected household income, deductions, credits, withholding and business results. Individuals generally need estimated payments when the expected balance after withholding and credits is at least $1,000 and their prepayments fall below the applicable required amount. Additional wage withholding can sometimes cover the need. IRS: estimated taxes

Generally, the required annual prepayment is the smaller of 90% of current-year tax or 100% of prior-year tax, subject to the conditions below. For 2026, the prior-year percentage becomes 110% when 2025 AGI exceeds $150,000, or $75,000 for married filing separately. The prior-year method requires a qualifying full-year return. Timing and special rules matter: meeting an annual total late does not automatically cure earlier underpayments, and a penalty safe harbor can still leave a balance at filing. Use the actual worksheets, including annualization where appropriate for uneven income. IRS: Publication 505 for 2026

General 2026 individual estimated-payment calendar

These dates apply to the ordinary calendar-year individual schedule, not every business tax. Disaster relief, fiscal years and special rules may change the applicable dates. The intervals are not four equal three-month periods. IRS: 2026 Form 1040-ES

Worked cash example: Your reviewed plan calls for a $3,000 payment on a specified deadline. You have reserved $1,800 and have six weekly transfer opportunities before it. The funding gap is $1,200, requiring $200 per week if cash permits. This arithmetic funds an already-calculated payment; it does not determine the tax due or erase a previous shortfall.

Separate three amounts that are often confused

1. Expected total tax: the projected liability for the year.
2. Required prepayments: what the applicable rules require during the year to address underpayment exposure.
3. Cash available: what you actually have reserved to make the payments.

These amounts answer different questions. A prior-year method may produce a prepayment target below the new year's eventual liability. A fully funded savings account may still accompany a missed payment. A payment confirmation may be real but attached to the wrong year.

Worked planning example: Assume a preparer has established a $12,000 annual estimated-payment target after accounting for the taxpayer's facts, with four equal $3,000 installments and no withholding to allocate. The same projection expects total annual tax of $16,000. Paying the scheduled $12,000 still leaves an anticipated $4,000 to fund for filing. This example assumes the target and method have already been validated; it does not establish a safe harbor for the reader.

Exercise: You have $3,000 reserved, but only $2,400 is verified as paid for the relevant installment. What is unresolved? First establish whether $600 was never sent, is pending or was credited elsewhere. The balance in savings cannot resolve that question. Check the payment records before initiating another payment.

Practice: Complete Worksheet C. Keep “calculated obligation,” “cash reserved” and “payment credited” in different fields. Revisit the calculation when profit, household income or circumstances change.

Result: You can name the next payment, its calculation, its funding source and how you will verify it reached the right taxpayer and tax year.

6. What changes when I hire help?

Question: “Can I just pay everyone as a contractor?”

Federal worker classification considers behavioral control, financial control and the relationship between the parties. A contract label alone does not settle it. Establish the facts before deciding the tax treatment; employment-law and state tests also need their own review. IRS: contractor or employee

Employees introduce withholding, employer tax, deposit and return obligations. A return filing deadline and a payroll deposit deadline are different events. Identify which forms and deposit schedule apply to the business. IRS: employment taxes

For nonemployees, information reporting has its own rules. The general Form 1099-NEC reporting threshold for qualifying business service payments is $2,000 for payments made after December 31, 2025, replacing the earlier $600 threshold. Exceptions and payment-method rules still apply; this is neither a universal reporting rule nor a recipient's tax-free allowance. Use the applicable year's instructions to determine the payer's filing duty. IRS: Form 1099-NEC and independent contractors

Follow a hire through the whole process

Start with the proposed work: who sets the schedule, supplies tools, directs the method and bears business risk? Record facts for the classification review rather than selecting the cheaper payment route first. Then identify the appropriate onboarding documents and payment setup. Finally, establish how the resulting filings and deposits will be checked.

An employee's gross pay, net pay, withheld amounts and employer costs are separate numbers. A payroll report should make them distinguishable. A net-pay bank transfer alone will not show all of the related obligations. Ask the provider or bookkeeper to explain how the payroll report reconciles with the cash movements and liability balances.

Worked scenario: A shop hires a person to open the premises, work assigned shifts and use the shop's equipment under the owner's direction. The person sends an invoice. That invoice is evidence of a requested payment; it does not answer the classification question. The owner needs a fact-based review before relying on contractor treatment. This scenario identifies the issue, not a final legal determination.

Common mistake: Beginning the reporting review only after the year ends. Build the evidence while hiring and paying, then reconcile the year-end reports to those records.

Practice: Before the next hire or engagement, create a worker record with the classification facts, reviewer, required onboarding records, payment method and filing/deposit responsibilities. Keep tax identifiers in the secure business record, not a public learning worksheet.

Worked distinction: A payroll provider's invoice shows that the provider charged for service. It does not, on its own, demonstrate that a particular tax deposit posted. Agree on which reports and confirmations you will receive and who checks them.

Result: Each worker has a documented treatment and each required payroll or information-reporting action has a named owner and evidence of completion.

7. What does my preparer need—and what decisions belong before year-end?

Question: “I have an accountant. What is still my job?”

Create a handoff that explains the business, reconciles its records and exposes unresolved issues. Ask the preparer to confirm what is included in the engagement: business and personal returns, state filings, estimated payments, payroll support and notice responses are separate responsibilities unless agreed otherwise.

Your handoff should contain:

• Confirmed entity/classification and tax year, prior returns and relevant election records.
• Reconciled books, supporting documents and a list of accounts included.
• Sales-platform reconciliations and information returns, with possible duplicate reporting flagged.
• Asset purchases/disposals and mixed-use records.
• Payroll and contractor records, where applicable.
• Estimated-payment confirmations showing the taxpayer, year and amount.
• Material changes and unresolved questions, each with evidence and a decision deadline.

These are Black Lentil's suggested handoff fields, not a claim that one packet covers every return. The underlying records should substantiate income, deductions and credits. Retention periods vary: employment and asset records, unfiled returns and other exceptions prevent a universal “delete everything after three years” rule. IRS: records to keep, IRS: retention periods

Before year-end, ask your preparer to review retirement contributions, health-insurance treatment, qualified business income, equipment purchases, changes in ownership and any proposed entity election. This is a review agenda; eligibility, amounts, elections and deadlines require separate year-specific analysis. Record the answer and supporting calculation rather than treating the topic's name as an available deduction.

Turn a planning topic into a decision

Consider retirement contributions. SEP, SIMPLE and qualified plans can have different participation, contribution and administration rules. A one-participant 401(k) generally covers an owner with no employees, or the owner and spouse; hiring eligible employees changes the analysis. A self-employed person's contribution calculation also uses adjusted earned income rather than simply applying an advertised percentage to revenue. IRS: small-business retirement plans, IRS: one-participant 401(k) plans, IRS: self-employed contribution calculation

A useful question to the preparer is: “Using my expected profit, existing retirement contributions, employees and cash needs, which plans am I eligible for, what would I need to contribute for others, and what establishment and funding dates apply?” That is specific enough to produce a comparison you can use.

Apply the same discipline to an equipment purchase. Put the business reason first, then compare the cash cost and confirmed tax treatment of buying now, buying later or not buying. A tax saving can improve a necessary purchase; it does not establish that the purchase is necessary.

Common mistake: Receiving an answer without recording its assumptions. Save the forecast and facts used in the comparison. If employees, ownership or profit change, you can identify which advice needs to be revisited.

Practice: Send no documents yet. Assemble Worksheet D privately, identify missing evidence and write three precise questions. Replace “Can I save taxes?” with a decision such as “What are the after-tax cost and filing consequences of these two alternatives, using these facts?”

Result: The preparer can distinguish settled records from open questions, and you know who is responsible for the response and next action.

8. How do I finish—and what if I am behind?

Question: “The return is prepared. Are taxes handled?”

Track preparation, review, filing acceptance and payment separately. Save the final return and filing acknowledgment. Compare the authorized payment with the actual debit and available account record. Investigate a rejection, wrong tax year or missing payment rather than marking the whole job finished.

An ordinary extension to file an individual return does not extend the time to pay. If you cannot pay in full, filing and payment remain separate tasks. Review IRS payment options and any notice's response deadline; payment arrangements can carry costs and do not make the balance vanish. IRS: filing extensions, IRS: tax payment options

Worked exception: Taylor's preparer submitted the return, but it was rejected. The planned bank debit has also not appeared. Taylor needs the rejection explanation and corrected filing acknowledgment, plus an independent check of the payment status. Paying again without checking could create a duplicate; treating submission as acceptance could leave the return unresolved.

Recover a missed step without losing the rest of the picture

Separate a missing return, an unpaid balance, a disputed notice and incomplete records. Each requires different evidence. Write down the taxpayer, year, agency, document or notice involved, amount if known, and response date. Preserve the original notice and any submission confirmations.

Then distinguish what you know from what you need to establish. “The agency shows no payment” and “the bank shows a debit” are two observations that need reconciliation; neither should be erased to make the status look tidy. Give the person resolving the mismatch both records.

If cash is the problem, prepare a realistic cash view for the payment discussion. Include operating commitments and upcoming tax obligations so an arrangement is evaluated alongside the business's ability to keep up. Eligibility and terms belong to the agency's process; this class does not promise a waiver or a particular payment plan.

Exercise: Your dashboard says “filed,” but you have no acknowledgment and the preparer says the transmission is awaiting a response. What should your own record say? “Submitted; acceptance pending,” with a person and follow-up date. Accurate intermediate status tells you exactly what still needs attention.

Practice: Complete the closing checklist in Worksheet D. If a deadline has passed, name the affected return/payment and jurisdiction, gather the notice or account evidence, and arrange the required correction with a qualified preparer or the agency. Do not invent missing receipts or classify uncertainty as zero.

Result: You have evidence for the actions performed, a visible list of unresolved exceptions and the next review date.

Your monthly tax routine

The following is a suggested operating rhythm, not a statutory filing schedule:

1. Reconcile accounts and explain the differences.
2. Attach missing support or assign its recovery.
3. Update expected business results and report material household changes to whoever calculates estimates.
4. Recheck the payment plan and reserve gap.
5. Review the next required filings and deposits across federal, state and local obligations.
6. Verify recent payments and filings; keep exceptions open until resolved.

When you work alone, you may hold every role. The separation still helps: making an estimate, setting aside cash and verifying payment are three different jobs.

Practice check

1. A sole proprietor moves $2,000 to their personal account. Does that create a business wage deduction?
2. A processor deposits $9,200 after $500 refunds and $300 fees. What gross customer payments reconcile to that deposit, assuming no other adjustments?
3. A 2026 individual estimated payment is due September 15. Is putting the amount into savings proof of payment?
4. A contractor earns less than the payer's information-reporting threshold. Does that make the income tax-free?
5. An LLC owner says “I am an LLC.” What information is still missing before following owner-pay instructions?
6. A return has been submitted but rejected. What remains unresolved?

Explained answers

1. No. A sole proprietor's draw moves money to the owner; it is not deductible owner wages. Keep it separate from the expense calculation.
2. $10,000. Add the $500 refund and $300 processing fee back to the $9,200 net settlement to reconstruct the stated gross payments. Actual processor reports may contain additional differences that also need explaining.
3. No. Savings establish funding. Payment requires an action directed to the agency, and verification must establish the intended taxpayer, tax type and year.
4. No. A payer's obligation to issue an information return and the recipient's obligation to report taxable income are different questions.
5. The federal tax classification and relevant activity. Confirm ownership and any elections, then identify the applicable return and owner-payment rules. The letters LLC do not supply that answer.
6. The filing remains unresolved. Correct the rejection and retain the resulting acknowledgment. Investigate payment independently because a filing failure does not by itself tell you whether a debit occurred.

Scope and maintenance

This foundation does not calculate individualized liability or cover all state regimes, international activity, foreign ownership, complex partnership allocations, excise taxes, farming, rental activity, credits, loss limitations or industry-specific rules. Those are explicit follow-on topics, not assumed exceptions to be ignored.

The linked IRS sources and the worked arithmetic were checked September 20, 2026. This is an editorial educational guide; it has not received an independent tax-professional review. Confirm decisions for your business with a qualified preparer and the instructions for the relevant year. Some linked publications are the latest available edition for an earlier tax year; they support the general concepts discussed here, not unstated 2026 limits. Check current agency corrections and disaster relief before acting.