Taxes in year one are different.
Here's what to know.
No W-2 withholding. Self-employment tax. Quarterly estimates. Deductions you didn't know existed. This page covers everything first-year owners need — with calculators you can actually use.
Where are you in your business journey?
Year 1 checklist
Self-employment tax
When you work for yourself, you pay both sides of Social Security and Medicare — 15.3% on your first $176,100 in net earnings, then 2.9% after that. You can deduct half of it, but the bill still shows up. Most first-year owners are surprised by how much it adds up to.
Revenue minus business expenses
Self-employment tax
$11,304
15.3% / 2.9% on net earnings
Federal income tax
$7,971
After $15,000 std. deduction
Total estimated tax
$19,274
Effective rate: 24.1% · Marginal: 22.0%
Quarterly payments
Apr 15
$4,819
Jun 16
$4,819
Sep 15
$4,819
Jan 15
$4,819
Estimates only. Uses 2025 tax brackets and standard deduction. Excludes state taxes, QBI deduction, NIIT, AMT, and other adjustments. Not tax advice — consult a CPA for your actual situation.
Home office deduction
If you use part of your home exclusively and regularly for business, you can deduct it — two ways. The simplified method ($5/sq ft, max 300 sq ft) is easy to calculate. The actual method captures your real costs and usually delivers a larger deduction once home expenses are significant.
The key word is "exclusively." A dedicated office qualifies. The dining table where you also eat dinner does not. The IRS is literal about this.
Annual home expenses (for actual method)
Business use: 8.3% of home
Simplified method
$750
Tax savings: $180
$5/sq ft × 150 sq ft
Actual expense method
Better for you$1,800
Tax savings: $432
8.3% of $21,600 in home expenses
Estimates only. Simplified method cannot create a loss. Actual method may require Form 8829. Home office deduction for employees (W-2) was suspended by TCJA through 2025. Consult a CPA for your specific situation.
Startup costs and equipment write-offs
Money you spent before you opened — legal fees, licenses, your website, initial training — isn't a regular business expense. It's a startup cost under §195. You can deduct up to $5,000 immediately in year one (it phases out above $50,000) and amortize the rest over 15 years.
Equipment you buy and use in the business is different. Section 179 lets you deduct the full cost in year one. Bonus depreciation (40% in 2025) is the fallback if 179 doesn't work for you. Both produce the same bill of sale — the difference shows up when your business has a loss.
Legal fees, licenses, website, initial marketing, training — spent before you opened
Computers, tools, furniture, vehicles — items used in the business for 1+ years
Use Section 179
Deduct full equipment cost in Year 1
Startup costs (§195)
Equipment — Section 179
Total Year 1 deduction
$13,500
Estimated tax savings at 28%: $3,780
Estimates only. Startup costs use 2025 §195 rules. Section 179 limit: $1,220,000. Bonus depreciation: 40% in 2025 (declining annually). Equipment depreciation uses simplified MACRS approximation. Consult a CPA before making tax decisions.
More tools for year one
The calculators above cover your immediate exposure. These tools help you think through structure, compensation, and retirement — decisions that are cheaper to get right in year one.
Entity Structure Analyzer
See whether an S-corp election saves you money at your current profit level.
Open tool CompensationS-Corp Salary Calculator
Find a defensible W-2 salary before you set payroll — wrong comp creates IRS exposure.
Open tool EstimatesQuarterly Estimate Planner
Turn your income into a quarterly payment schedule you can actually follow.
Open tool RetirementRetirement Contribution Maximizer
Solo 401(k) or SEP-IRA? See which plan lets you shelter more at your income level.
Open tool DeadlinesYear-Round Tax Calendar
Every business tax deadline in one place — quarterly, annual, and state.
Open tool Cash flowBusiness Cash Planner
How much cash should you hold in the business before taking distributions?
Open toolOnce you're profitable
Is an S-corp right for you?
The S-corp election can eliminate a significant portion of your SE tax by splitting profit into W-2 salary and distributions. But it's not free — payroll costs, extra compliance, and state fees can offset the savings below a certain profit level.
Run the Entity Structure Analyzer to see whether your numbers make it worth it, then talk to a CPA before you elect.
Typical S-corp breakeven
Payroll costs exceed SE tax savings
Run the numbers — sometimes worth it at $60k+
SE tax savings typically exceed compliance costs
Common first-year questions
Do I have to pay estimated taxes even if I'm not sure I'll owe anything?+
If you expect to owe $1,000 or more in federal taxes after withholding and credits, yes. The safe harbor is paying either 90% of this year's tax or 100% of last year's tax (110% if last year's AGI exceeded $150,000). In year one with no prior year return, aim for 90% of what you estimate you'll owe.
When is the S-corp deadline? Can I elect partway through the year?+
To be taxed as an S-corp for a given year, you generally need to file Form 2553 by March 15 of that year (or within 75 days of forming the entity). Late elections are sometimes granted if you can show reasonable cause, but it's not guaranteed. Don't miss the deadline and assume you can fix it.
I mixed business and personal expenses this year. Is it too late to fix it?+
It's not too late, but the longer you wait, the harder it gets. If you paid for business expenses from a personal account (or vice versa), you can categorize them correctly in your books — you just need a paper trail. Going forward, open a dedicated business account and never run personal charges through it.
My startup costs were under $5,000. Do I still need to amortize?+
If your total startup costs are under $50,000, you can deduct up to $5,000 immediately in year one. If actual costs are under $5,000, you deduct the full amount in year one — no amortization needed. The 180-month amortization only applies to the amount not taken as an immediate deduction.
Can I deduct a home office if I'm a sole prop using Schedule C?+
Yes. The home office deduction is available to self-employed individuals on Schedule C (Form 8829 for the actual method). W-2 employees cannot use it — that deduction was suspended under TCJA through 2025. If you have both W-2 income and self-employment income, only the self-employment portion qualifies.
What's the first thing I should do if I haven't done any tax planning yet?+
Estimate your SE tax exposure using the calculator above, then figure out whether you've paid enough in estimates. If you haven't, you still have time to make a catch-up payment. After that, run the entity structure analyzer — if an S-corp would save you money, the election deadline may be coming up soon.
Go deeper
Related reading
LLC vs S-Corp: Which Structure Is Right for You?
The difference between the legal structure and the tax election — when the S-corp election saves money and what it actually costs to run.
Read Tax planningSelf-Employment Tax Explained
SE tax is 15.3% on top of income tax — how it's calculated and the three ways to reduce it.
Read S-corp planningHow to Elect S-Corp Status
Form 2553, the March 15 deadline, late election relief, and payroll setup in the first month.
Read Tax planningIndependent Contractor Taxes: What You Owe
Going from W-2 to 1099 — what the full tax bill looks like and the three moves that reduce it most.
ReadWork with Matt
Ready to build a plan?
Entity structure, salary, estimates, retirement — these decisions compound. Getting them right in year one costs less than fixing them later.
Tax services provided through Matt Reese, CPA. This page is educational and does not constitute tax or investment advice.