A Step-by-Step Guide to Filing Business Taxes in 2026

Filing business taxes is a year-round process, not a once-a-year event, and the entity structure chosen by a business owner drives every subsequent tax obligation, from the forms filed to how income is taxed [1]. A sole proprietorship is the simplest structure and files business taxes on a personal return using Schedule C, while a single-member LLC is taxed federally as a sole proprietorship [1]. Both are pass-through entities, meaning income flows to the owner's individual return. A partnership is also a pass-through entity, with each partner reporting their share of income on a Schedule K-1 [1]. An S corporation is another type of pass-through entity, but owners must pay themselves a "reasonable salary" before taking distributions [1]. Tish Heiss, founder and CEO of PKH Advisors, PLLC, told NerdWallet that S corp elections are often made prematurely, sometimes based solely on advice found on social media [1]. The IRS will reclassify distributions if a high enough salary is not taken based on cash flow, Heiss explained [1]. The self-employment tax rate is 15.3% [1]. Heiss stated, "Many business owners view tax preparation as compliance. The businesses that achieve the best outcomes view taxes as an ongoing planning process. The difference between those two approaches can be thousands — or even tens of thousands — of dollars annually" [1]. The broader tax landscape continues to shift. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently extends the individual tax rates from the 2017 tax overhaul and raises the cap on the state and local tax deduction to $40,000 for taxpayers making less than $500,000, though the cap reverts to $10,000 after five years [3]. The Congressional Budget Office estimates the law will increase the budget deficit by $2.8 trillion by 2034 [3]. For business owners, understanding how capital gains are taxed remains critical. Short-term capital gains, on assets held for a year or less, are taxed at the investor's ordinary income tax rate, while long-term gains on assets held more than one year are taxed at a lower rate [4]. Karrin Sehmbi, an editor on NerdWallet's small-business team, has covered small-business software and lending since 2022 and has more than fifteen years of editorial experience [1]. Sally Lauckner, another editor on the team, joined NerdWallet in 2020 after serving as editorial director at Fundera and spending two years as a senior editor at SmartAsset [1].