The entrepreneur’s income tax checklist: What to file, when, and how

When tax season rolls around, W-2 employees know the drill. Their employer has withheld taxes throughout the year, and, barring any unforeseen complexities, their tax refund or payment is likely minimal. 

But when you become an entrepreneur, there are more questions that need to be answered. What exactly do you pay taxes on? Which tax forms should you file? When’s your filing deadline? 

The good news is that with a little preparation, tax season doesn’t have to be a distraction from building your business. In this article, we’ll demystify the concepts you need to know as you prepare for tax season, so you can file with confidence. 

The short answer is yes. However, how you pay depends on your business structure.

Unlike W-2 employees, who have taxes withheld from every paycheck, entrepreneurs are often responsible for calculating and paying their own taxes on the profits their business generates.

Here are a couple examples based on business structure:

• Pass-through entities: Most solopreneurs and small business owners operate as sole proprietors, partners, LLCs, or S corporations. These entities generally don't pay income tax at the corporate level. Instead, profits (and losses) pass through to you, the owner, and you pay income taxes at your individual income tax rate (plus self-employment taxes).
• C corporations: If your startup is taxed as a C corp, the business pays a flat 21% federal income tax on profits. As the founder, you’re taxed individually on any salary (as a W-2 employee) or dividends you receive.

You may be wondering, “If my business isn’t profitable, do I still need to pay income tax?” Although you won’t be required to pay income taxes if your business is unprofitable for the year, you’ll still need to file a return to report your losses, which may offset other income (for example, income from a W-2 job).

Whether you’re filing taxes yourself or working with a tax professional, the process can be fairly painless — but only if you have the prerequisite information ready.

Before filing your income tax return, gather this information: 

• Bookkeeping records: A clear record of all incoming revenue and outgoing expenses. Whether you use accounting software, like QuickBooks or Xero, or track money movement natively through your bank account, you’ll want to make sure all of your transactions are categorized and up to date. 
• Bank and credit card statements: Have your year-end statements handy to verify your book balances.
• Receipts for deductions: You’ll need documentation for any expenses you claim. Digital receipts are typically emailed to you or logged in various customer accounts, and paper receipts can be logged with a picture after checkout. Store your receipts in folders categorized by month, or upload them directly to their transaction using Mercury’s accounting automations. 
• Previous year’s return: Having last year’s tax return to reference will help ensure consistency. Plus, it provides necessary carryover information.
• Entity information: Have your EIN handy (you can find this on your formation documents), as well as your address and your entity’s tax classification. (In other words,  are you taxed as a sole proprietorship, partnership, S corp, or C corp?)

Let’s be honest, the alphabet soup of tax forms can be daunting to any entrepreneur, especially first-timers. Luckily, you only need to submit the tax forms that are relevant to your business’s tax classification. 

For sole proprietors and single-member LLCs

This is the simplest tax classification. If this is your business type, aAttach the following forms to your individual income tax return (Form 1040):

• Schedule C: Schedule C is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor.
• Schedule SE: Schedule SE is used to calculate self-employment tax (Social Security and Medicare).

For partnerships and multi-member LLCs

Entities that fall under this tax classification have a bit more complexity in the filing process. 

These type of businesses need to follow each of these steps:

• Form 1065: File Form 1065, an information return used to report the income, gains, losses, deductions, and credits of the partnership. 
• Schedule K-1: Issue a Schedule K-1, which outlines each partner’s share of the profit or loss, to each partner.
• Schedule E: Each partner  will file their share of the profit or loss on Schedule E of their individual income tax return. 

For C corporations

As an owner of a startup and other C Corporation, you’ll face double taxation — first on the company’s profits, and then on your own individual income.

During tax season, the company must file Form 1120 (the U.S. Corporation income tax return) and issue each employee a W-2 for wages paid and a 1099-DIV for any dividends paid. You’ll then file your individual income tax return using the information from the W-2 and 1099-DIV. 

For S corporations

Entities classified as an S corporation — an entity type that’s common among high-earning solopreneurs or small businesses — must file Form 1120-S. This is an information return used to report activity, but S Corps don’t pay income tax at the corporate level. S corps also need to issue a Schedule K-1 to its owners and a W-2 to its employees. 

As an owner and/or employee of the S corp, you’ll file W-2 information on your personal income tax return and Schedule K-1 information on your Schedule E (which is attached to your tax return).

Additional forms you or your business may have to file

Depending on your circumstances, you may also need to file one of these forms:

• 1099-NEC: If you paid any contractor or freelancer $600 or more via cash, check, ACH, or wire during the tax year, you’ll likely need to file a 1099-NEC..
• 1099-K: If you accept payments via third-party networks (like Stripe or PayPal), you may receive a 1099-K, if your gross payments exceed certain thresholds.

Understanding tax deductions for high-income entrepreneurs can significantly optimize your tax bill.

Common deductions include:

• Advertising and promotion: Costs for digital ads, brand assets, and marketing agencies.
• Professional fees: Payments to lawyers, consultants, and tax professionals.
• Software and tools: Subscriptions for tools like Slack, Zoom, or project management software.
• Qualified Business Income (QBI): Many owners of sole proprietorships, partnerships, and S corporations can deduct up to 20% of their qualified business income.
• Section 179 depreciation: Section 179 depreciation allows businesses to deduct the full purchase price of qualifying equipment and software bought or financed during the tax year.
• R&D tax credit: If you’re developing new technology, you may be eligible for the R&D tax credit, which can offset payroll taxes for early-stage startups.

Note: Determining what qualifies as a deduction and what usually doesn’t (like personal travel or entertainment, for example) can be complex. We recommend reading our guide on how to categorize business expenses, and consulting a tax professional.

Pro tip: An extension to file isn’t an extension to pay. You must still pay your estimated tax liability by the original deadline.

Quarterly estimated tax deadlines for the remainder of 2026

If you expect to owe over $1,000 or more in income taxes from your business (this may apply to sole proprietors, partners, or S corp shareholders), the IRS expects you to send them an estimated amount each quarter. 

To avoid underpayment penalties, you can calculate how much you owe in one of two ways and send to the IRS over four equal installments:

1. Pay 90% of the income tax amount you expect to owe this year.
2. Pay 100% of the income tax amount you had to pay last tax year. This increases to 110% if your adjusted gross income (AGI) is over $150k.

For the 2026 tax year, make sure to mark these estimated tax payment deadlines in your calendar:

• April 15, 2026: Q1 estimated tax payment due
• June 15, 2026: Q2 estimated tax payment due
• September 15, 2026: Q3 estimated tax payment due
• January 15, 2027: Q4 estimated tax payment due

Once you’ve gathered the information, you need to decide how to file. Options include:

• DIY software: Tools like TurboTax or FreeTaxUSA are cost-effective for solopreneurs with simple finances, though they may miss nuanced and complex deductions and tax filing capabilities. 
• CPA or tax advisor: Hiring a CPA or tax advisor is highly recommended for venture-backed startups, partnerships, or even small businesses with employees to navigate state tax laws and optimize your tax liability. 

Regardless of how you file, preparation starts with visibility into your finances. 

Platforms like Mercury integrate with bookkeeping software, like QuickBooks and Xero, to keep your records clean year-round.

Filing taxes isn’t just a box you have to check in order to get back to running your business.  It’s also an opportunity to gain a clear view of your income, expenses, and tax liability, so you can make smarter decisions about hiring, spending, and growth.

*These filing deadlines are provided for general guidance only and are subject to change. Please verify all deadlines and requirements with your tax advisor or the IRS. 

For specific guidance on your tax filing obligations, please consult with a qualified tax professional. Mercury does not provide tax advice. Tax regulations can be complex and vary based on individual circumstances, so it's important to seek personalized advice from an expert who can assess your unique situation.