Sole proprietor taxes: how they work

A sole proprietorship is the simplest way to run a business in the US: no filing to start it and no separate business return. Its taxes are simple in structure but easy to underestimate. This guide sets out every tax a sole proprietor deals with.

By Muhammad Bilal, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

Sole proprietor taxes work through the owner's personal return. Business income and expenses go on Schedule C, and the profit is taxed at the owner's income tax rates plus 15.3% self-employment tax on 92.35% of it. Nothing is withheld, so most sole proprietors pay quarterly estimates. Many can also take the qualified business income deduction.

At a glance

Business return
None separate. Schedule C with Form 1040
Income tax
At the owner's personal rates on profit
Self-employment tax
15.3% of 92.35% of profit, half deductible
Paying during the year
Quarterly estimated tax
QBI deduction
Up to 20% of qualified profit for many
EIN
Optional unless you have employees
Sole proprietor taxes: how they workBusiness return: None separate. Schedule C with Form 1040; Income tax: At the owner's personal rates on profit; Self-employment tax: 15.3% of 92.35% of profit, half deductible; Paying during the year: Quarterly estimated tax; QBI deduction: Up to 20% of qualified profit for many; EIN: Optional unless you have employees.KEY FACTS AT A GLANCESole proprietor taxes: how they workBusiness returnNone separate. Schedule Cwith Form 1040Income taxAt the owner's personalrates on profitSelf-employment tax15.3% of 92.35% ofprofit, half deductiblePaying during the yearQuarterly estimated taxQBI deductionUp to 20% of qualifiedprofit for manyEINOptional unless you haveemployeesChecked against official sourcesTax BakersSole proprietor taxes: how they workBusiness return: None separate. Schedule C with Form 1040; Income tax: At the owner's personal rates on profit; Self-employment tax: 15.3% of 92.35% of profit, half deductible; Paying during the year: Quarterly estimated tax; QBI deduction: Up to 20% of qualified profit for many; EIN: Optional unless you have employees.KEY FACTS AT A GLANCESole proprietor taxes: how theyworkBusiness returnNone separate. Schedule C with Form 1040Income taxAt the owner's personal rates on profitSelf-employment tax15.3% of 92.35% of profit, half deductiblePaying during the yearQuarterly estimated taxQBI deductionUp to 20% of qualified profit for manyEINOptional unless you have employeesChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

What is a sole proprietorship for tax?

A business owned by one individual that has not been set up as a separate entity. The IRS treats the owner and the business as the same taxpayer, so there is no business tax return. A single-member LLC taxed under the default rules is taxed exactly the same way. See LLC vs sole proprietorship.

Which taxes does a sole proprietor pay?

TaxHow it worksWhere it is reported
Federal income taxOn business profit, together with all other income, at personal ratesSchedule C and Form 1040
Self-employment tax15.3% of 92.35% of net profit, with the Social Security part capped at $184,500 of earnings for 2026Schedule SE
State income taxIn most states, on the same profitState return
Sales taxCollected from customers where you have nexus and sell taxable goods or servicesState sales tax returns
Payroll taxesOnly if you have employeesForms 941 and 940, W-2s

What reduces the tax?

  • Business expenses, which reduce both income tax and self-employment tax. See deductible business expenses.
  • Half of self-employment tax, deducted from income for income tax.
  • The qualified business income deduction, generally up to 20% of qualified profit, with limits above $201,750 of taxable income for single filers in 2026. See the QBI deduction explained.
  • Retirement contributions to a SEP IRA or Solo 401(k), and the self-employed health insurance deduction.

The 20% QBI deduction is claimed on Form 8995.

If the activity looks more like a hobby, deductions can be lost. See hobby or business.

How is the tax paid?

Through quarterly estimated payments, since nothing is withheld: April 15, June 15, September 15 and January 15. Then the return, due April 15, settles the balance. See estimated quarterly taxes and how much to set aside for taxes.

Which tax numbers does a sole proprietor need?

Your Social Security number is enough for income tax. An EIN is required if you hire employees, and useful to give clients on Form W-9 instead of your SSN. A sole proprietor trading under a name other than their own usually registers that name locally as a DBA. See what a DBA is. See what an EIN is.

When does another structure make sense?

When liability risk grows, when you take on a partner, or when profit is high enough that S corporation status could reduce self-employment tax. See when an S corp election saves tax.

Are there guides for specific kinds of work?

Yes: rideshare and delivery drivers, content creators, online coaches and course creators, real estate agents, truck owner-operators and Airbnb and short-term rental hosts.

Want your sole proprietor taxes handled?

We prepare Schedule C and SE with your return, work out your quarterly payments, and claim every deduction you are entitled to.

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Questions people ask

How is a sole proprietor taxed?

Business profit goes on Schedule C of the owner's Form 1040 and is taxed at personal income tax rates, plus self-employment tax.

Does a sole proprietor file a separate business tax return?

No. Everything is reported on the owner's personal return.

What is the self-employment tax rate for sole proprietors?

15.3% of 92.35% of net profit, with the Social Security part capped at $184,500 of earnings for 2026.

Do sole proprietors need an EIN?

Only if they have employees or certain other filings. It is optional otherwise but useful for privacy.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS Publication 334: Tax Guide for Small Business
  2. IRS: About Schedule C (Form 1040)
  3. IRS: Self-employment tax (Social Security and Medicare taxes)
  4. IRS Revenue Procedure 2025-32, section 4.26: 2026 section 199A threshold amounts

Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.

Federal tax formsSchedule C (Form 1040): reporting business incomeFreelancers and self-employedSelf-employment tax explainedStarting a US companyLLC vs sole proprietorship: when forming a company is worth it

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This guide is general information. It is not tax or legal advice for your situation.