SMALL BUSINESS TAX GUIDE

Self-Employment & Side Business Taxes

A side business can bring new opportunities—and tax obligations that do not disappear just because no employer withholds taxes for you.

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Who is considered self-employed?

The IRS generally includes sole proprietors, independent contractors, and people carrying on a trade or business, even part-time. A person may be self-employed for one activity and an employee for another.

How is business profit reported?

Many sole proprietors and individual owners of default-classified single-member LLCs report business income and eligible expenses on Schedule C. Net profit or loss flows into the individual federal income tax return. Different entities use different forms.

What is self-employment tax?

Self-employment tax generally covers Social Security and Medicare taxes for people working for themselves, in addition to applicable income tax. The IRS generally requires a return when net earnings from self-employment are $400 or more, although other filing requirements can apply even below that amount.

Do I need estimated tax payments?

Because tax may not be withheld from business income, estimated payments may be required during the year. The IRS generally uses four payment periods, and penalties may apply when payments are insufficient or late. The amount and timing depend on your full tax situation.

Which expenses can I deduct?

Business expenses generally must be ordinary and necessary. Personal expenses are not automatically deductible just because they were paid from a business account. Special rules can apply to home offices, vehicles, equipment, meals, and start-up costs.

What records should I maintain?

Track all income, business bank activity, receipts, invoices, mileage when relevant, estimated tax payments, and payments to contractors. Reconcile accounts regularly and keep personal and business transactions clearly separated.

Educational overview of U.S. federal tax rules; not individualized tax or legal advice. Tax rules and filing requirements can change, and exceptions may apply. North Carolina and other state rules may differ. Last reviewed October 2026.

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