Taxes when you're self-employed

General information, not tax advice. Tax rules change every year and your situation is your own. Confirm anything below with the IRS pages linked at the bottom or a CPA or enrolled agent, and check your state, which has its own income tax rules.

What changes when you stop being an employee

As an employee, your employer withheld income tax and paid half of your Social Security and Medicare. As a sole proprietor or single-member LLC taxed as a sole proprietorship, you report your profit on Schedule C of your personal return and you owe both halves yourself. The IRS calls the combined bill self-employment tax: 15.3% total, made up of 12.4% for Social Security and 2.9% for Medicare. It is figured on Schedule SE. The Social Security part stops above an annual earnings cap (the IRS lists $184,500 for 2026); the Medicare part has no cap. Generally you owe it once net earnings from self-employment reach $400.

Two details soften the blow. The tax is figured on 92.35% of your net earnings, not 100%. And you can deduct half of your self-employment tax when computing your adjusted gross income. That is an income tax deduction; it does not reduce the self-employment tax itself.

Quarterly estimated tax

Because nothing is withheld, the IRS expects you to pay during the year using Form 1040-ES or through your IRS online account. For a calendar-year filer the four payments are due April 15, June 15, September 15 and January 15 of the following year. Each covers a specific slice of the year's income, so a strong spring does not wait until January to be taxed. Underpaying can trigger an underpayment penalty.

A habit that works for many solo operators: open a separate savings account and move a fixed percentage of every customer payment into it the day it lands. Your own percentage depends on your profit, your state and your filing status. A CPA can set it in one meeting, and it is better than guessing. The IRS also explains safe-harbor rules, which let you avoid the penalty by paying a set share of last year's tax or this year's tax; see the estimated tax page below.

Deductions that matter most in the trades

You may deduct ordinary and necessary business expenses. Keep receipts and a log. For a trades shop the usual suspects are:

Vehicle. You can deduct either actual vehicle costs or the standard mileage rate. The IRS set the 2026 business rate at 72.5 cents per mile, then raised it to 76 cents for expenses from July 1, 2026. You need a mileage log either way. Commuting from home to a regular place of business is not deductible, and hauling tools does not change that on its own; see IRS Publication 463 for the rules.
Tools and equipment. Small items can generally be expensed in the year you buy them. Larger purchases may be depreciated or, in some cases, expensed under Section 179, with limits that change by year. Ask your preparer before a big purchase, not after.
Home office. If part of your home is used regularly and exclusively as your principal place of business, you can deduct it. The IRS offers a simplified method at $5 per square foot up to 300 square feet (a $1,500 maximum) or a regular method based on actual expenses and Form 8829. A kitchen table you also eat at does not qualify.
Health insurance premiums. Self-employed people can often deduct premiums they pay for themselves, their spouse and dependents, unless they were eligible for an employer-subsidized plan that month. See the next guide.
Insurance, licences, software, phone, bank and card fees, and professional help. All ordinary business costs.

There is also the qualified business income (QBI) deduction, which can let sole proprietors deduct up to 20% of qualified business income, subject to limits. Ask your preparer how it applies to you this year.

When an S-corp election might pay

An LLC or corporation can elect to be taxed as an S corporation. The appeal: you pay yourself a salary, which carries payroll tax, and the remaining profit passes through as a distribution that is not subject to self-employment tax. The catch is large. The IRS requires S-corp owners who work in the business to be paid reasonable compensation as wages before taking distributions, and it looks at this closely. You also take on payroll filings, a separate business return, often higher accounting costs, and state-specific rules or fees.

So the election tends to matter only when profit is well above what a fair salary for your work would be. There is no single break-even number; it depends on your profit, your state and your cost of running payroll. Get a CPA to run both scenarios on your real numbers before you elect, and see our entity setup guide for the basics.

A simple yearly rhythm

Every payment goes to your business account; a set percentage moves to a tax savings account.
Pay the four quarterly estimates on time.
Log mileage and save receipts as you go.
Meet your preparer in the fall to project the year and plan equipment buys.
File, then reset your estimates from the actual result.

What changes when you stop being an employee

Quarterly estimated tax

Deductions that matter most in the trades

When an S-corp election might pay

A simple yearly rhythm

Sources