New Business Tax Obligations: Your First-Year Checklist

Congratulations—you’re starting a business. Whether you’re launching a side hustle, going full-time with a freelance career, or opening a brick-and-mortar storefront in the Chaska area, the excitement of building something for yourself is real. But somewhere between writing your business plan and landing your first client, a familiar anxiety creeps in: what do I owe the IRS, and when?

Here’s the good news: new business tax obligations aren’t nearly as complicated as they seem once you understand the framework. The bad news—or really just the practical news—is that there are real deadlines, real penalties for missing them, and decisions you make in year one that will affect your tax situation for years to come. Getting them right from the start is worth the effort.

This checklist walks you through ten things every new business owner needs to handle in their first year. Bookmark it, work through it systematically, and don’t try to do it all at once.

Before we dive in: the information here is general in nature and hasn’t been customized for your specific situation. Tax obligations vary depending on your business type, structure, and circumstances. For personalized guidance, schedule a consultation—I work with a lot of new business owners and enjoy helping people get the foundation right.

1. Get Your EIN

An Employer Identification Number (EIN) is essentially a Social Security number for your business. The IRS uses it to identify your business entity for tax purposes, and you’ll need it for a surprisingly long list of things: opening a business bank account, filing business tax returns, hiring employees, applying for business licenses, and working with vendors who need to issue you a 1099.

Getting one is free and takes about ten minutes. Go directly to irs.gov and use the online application — you’ll receive your EIN immediately upon completing the application. Don’t use third-party services that charge a fee for this; the IRS provides it at no cost.

One common question: do I need an EIN if I’m a sole proprietor with no employees? Technically, you can use your Social Security number on Schedule C if you’re a one-person operation with no employees and no plans to form an LLC or corporation. But I generally recommend getting an EIN anyway. It keeps your SSN off paperwork you share with clients and vendors, which is a meaningful privacy protection. And if you ever hire someone or change your business structure, you’ll need one anyway.

Bottom line: Go get your EIN now, before you do anything else. It’s the foundation everything else is built on.

2. Choose and Register Your Business Structure

This is the decision that has the most long-term tax consequences, and it’s worth taking seriously. Your business structure determines how your income is taxed, what forms you file, whether you have liability protection, and how much self-employment tax you pay.

Here’s a practical rundown of the main options:

Sole Proprietorship is the default if you do nothing. You’re operating as yourself, there’s no state registration required, and your business income and expenses flow directly onto Schedule C of your personal Form 1040. Simple, but it provides no liability protection—your personal assets are exposed if the business is sued.

LLC (Limited Liability Company) is the most popular structure for new small businesses, and for good reason. In Minnesota, you register with the Secretary of State and pay a $135 filing fee. You get liability protection separating your personal assets from business debts, and by default the IRS treats a single-member LLC as a disregarded entity (meaning you still file Schedule C). A multi-member LLC is taxed as a partnership by default, filing Form 1065.

S Corporation is where things get interesting from a tax planning perspective. An S-corp isn’t a state-level entity type—it’s a tax election you make with the IRS by filing Form 2553. You can make an S-corp election on an LLC or a traditional corporation. The tax benefit: as an S-corp owner-employee, you pay yourself a reasonable salary (subject to payroll taxes), and any remaining profit passes through to you as a distribution that’s not subject to self-employment tax. For business owners netting $60,000 or more in profit, this can mean real savings.

Here’s a timing point that matters if you’re considering the S-corp election for 2026: the deadline to file Form 2553 for the S-corp election to be effective for the current tax year is the 15th day of the third month of the tax year—March 15 for a calendar-year business. Since this blog is publishing on March 25, the 2026 S-corp election deadline has already passed for most businesses. If you’re planning ahead for 2027, mark your calendar now. (There is a late election relief process, and sometimes the IRS grants relief—but don’t rely on that.)

When to consult a professional for entity selection: this decision actually benefits from two different professionals, and they play different roles. A business attorney is the right person to advise on the legal and liability side — whether you need the personal asset protection of an LLC or corporation, how ownership should be structured, and what your operating agreement should say. A tax professional is the right person to advise on the tax treatment side — specifically whether an S-corp election makes sense given your expected income, and what the ongoing tax compliance looks like for each structure. The two roles complement each other rather than overlap. If you’re choosing between sole proprietorship, LLC, and corporation, start with an attorney. Once that’s settled, a conversation with a tax professional about the S-corp election (or other tax elections) is the natural next step.

3. Understand Your Tax Obligations

When you work as an employee, your employer withholds taxes from your paycheck and sends them to the IRS on your behalf. You might get a refund in April, but you never have to think about writing a big check to the government.

When you run your own business, that automatic system disappears. You’re responsible for calculating and paying your own taxes, and the bill can be significant if you’re not prepared.

Here’s what you’re looking at as a self-employed person or business owner:

Self-employment tax (SE tax) is the biggest surprise for many new business owners. When you’re employed, you pay 7.65% of your wages toward Social Security and Medicare, and your employer matches that with another 7.65%. When you’re self-employed, you pay both sides—15.3% on your net self-employment income, up to the Social Security wage base ($176,100 for 2025), plus 2.9% Medicare on everything above that. You do get to deduct half of the SE tax on your personal return, which softens the blow somewhat, but this is a real and substantial obligation.

Federal income tax is calculated on your net business profit (revenue minus allowable deductions) and is taxed at your marginal rate based on your total taxable income. For most new business owners, this lands them somewhere in the 22% to 24% federal bracket, though it varies widely based on total household income.

Minnesota income tax applies to your business income as well. Minnesota has a graduated income tax with rates ranging from 5.35% to 9.85% for 2025. If you’re operating in Minnesota, expect to owe state tax on your net business profit on top of your federal liability.

Minnesota sales tax may apply if you’re selling taxable goods or certain services. If you haven’t already sorted out whether your business needs to collect and remit sales tax, that’s a separate conversation—check the Minnesota Department of Revenue’s guidance or ask a tax professional. Failing to collect required sales tax is a liability issue, not just a compliance annoyance.

The combined picture: A sole proprietor netting $80,000 from their business might pay roughly $11,300 in self-employment tax plus federal income tax of around $10,000-$14,000 plus Minnesota income tax of around $5,000-$7,000. That’s a combined liability of $26,000-$32,000 that doesn’t get withheld from any paycheck. Planning for it is essential.

4. Set Up Quarterly Estimated Tax Payments

Here’s the system that replaces payroll withholding for self-employed people and business owners: quarterly estimated tax payments. If you expect to owe $1,000 or more in federal taxes for the year after accounting for any withholding (from a spouse’s W-2, for example), you’re generally required to pay estimated taxes throughout the year.

The quarterly deadlines for 2026 are:

• April 15, 2026 (Q1 — January through March income)
• June 15, 2026 (Q2 — April through May income)
• September 15, 2026 (Q3 — June through August income)
• January 15, 2027 (Q4 — September through December income)

Yes, the Q1 deadline is the same as the regular tax filing deadline. No, that’s not a coincidence. And yes, it can create a cash flow crunch in April if you’re not prepared.

How to calculate what to pay: There are two safe harbor methods:

• Pay 100% of your prior year’s total tax liability (110% if your prior year adjusted gross income exceeded $150,000), spread across four equal payments.
• Pay 90% of your current year’s actual tax liability, estimating as you go.

For most new business owners in year one, you don’t have a prior year business tax liability to reference—so you’ll need to estimate your current year income and calculate accordingly. A rough rule of thumb: set aside 25-30% of your net business profit as you go. That covers most people’s combined self-employment, federal, and state tax obligations reasonably well.

How to pay: Use IRS Direct Pay for one-time payments, or EFTPS (Electronic Federal Tax Payment System) if you want to schedule payments in advance. For Minnesota, pay through the Minnesota Department of Revenue’s online payment portal using a bank account (free) or credit/debit card (fee applies).

The penalty for not paying: If you underpay your estimated taxes, the IRS charges an underpayment penalty based on the current interest rate applied to the amount you should have paid. It’s not catastrophic, but it’s real money—and entirely avoidable with planning.

5. Open a Business Bank Account

This one is non-negotiable. Open a dedicated business checking account and use it exclusively for business transactions.

I know it can feel unnecessary when you’re just starting out—especially if you’re a sole proprietor who technically doesn’t need legal separation between personal and business funds. But here’s what I see when clients come in without a business account: their bookkeeping is a nightmare, their tax return takes three times as long, and if they’re ever audited, they have almost no ability to substantiate their deductions.

The IRS doesn’t care how earnest you were about which expenses were business-related. They care whether you can document it. “I paid for this with my personal card and I’m pretty sure it was for the business” is not documentation.

Beyond audit protection, a business account makes everything cleaner: tracking income, paying vendors, documenting mileage reimbursements, and eventually applying for business credit or financing.

To open the account, you’ll typically need your EIN, your business registration documents (if you formed an LLC or corporation), and photo identification. Most local banks and credit unions offer basic business checking, and there are also online options with low or no fees that work well for small businesses.

6. Set Up Your Bookkeeping System

Start your bookkeeping system on day one. Not “when things get complicated.” Not “once I’m making real money.” Day one.

Here’s why this matters practically: every expense you record now—with a date, amount, vendor, and business purpose—is a deduction you can defend. Every expense you try to reconstruct from memory six months later is a deduction you might lose.

For software, you have solid options at every price point:

• QuickBooks Online is the industry standard and integrates with almost everything. It runs $30-$70 per month depending on the plan, and it’s what most bookkeepers and accountants work in.
• Wave is free and surprisingly capable for straightforward small business finances—income tracking, expense categorization, invoicing, and basic reporting.
• FreshBooks works particularly well for service-based businesses that need invoicing features alongside bookkeeping.

At minimum, track these things consistently: all income received and when, all business expenses with receipts, business mileage (the 2025 standard mileage rate is 70 cents per mile), and any assets you purchase for the business.

When to hire a bookkeeper: If you’re spending more than two to three hours per week on bookkeeping, getting behind regularly, or making decisions without reliable financial data, it’s time to bring in professional help. JCT Tax Solutions offers bookkeeping services specifically designed to integrate with tax preparation—which means fewer surprises at tax time and more strategic planning throughout the year. If that’s something you’d like to explore, reach out and we can talk through what would make sense.

7. Know Your Deductible Startup Costs

Startup costs deserve their own section because they have specific tax rules that trip up a lot of new business owners.

The definition matters: Startup costs are expenses you incur before your business officially opens—market research, advertising to build awareness before launch, training employees before opening day, consultant fees to investigate the business, travel to scout locations, and professional fees for planning purposes. Once your business is open and operating, those same types of expenses become ordinary business expenses with different (usually more favorable) treatment.

How the deduction works: Under IRC Section 195, you can deduct up to $5,000 of startup costs in your first year, but only if your total startup costs are $50,000 or less. For every dollar your startup costs exceed $50,000, that $5,000 immediate deduction phases out dollar-for-dollar. If your startup costs hit $55,000 or more, you get no immediate deduction at all. Any costs you can’t deduct immediately get amortized over 180 months (15 years), starting in the month your business opens.

Organizational costs are a separate category. If you formed an LLC, corporation, or partnership, the costs associated with forming that entity—legal fees for drafting formation documents, state filing fees, costs of organizational meetings—are organizational costs under IRC Sections 248 and 709. They get their own $5,000 immediate deduction with the same $50,000 phaseout, separate from your startup cost deduction. This is a commonly overlooked planning opportunity.

What doesn’t qualify as a startup cost: Capital assets—equipment, computers, furniture, vehicles—are not startup costs. They’re capitalized and depreciated (or potentially deducted immediately under Section 179 or bonus depreciation, but that’s a separate analysis). Don’t make the mistake of lumping equipment purchases in with startup costs.

The practical takeaway: Track every pre-opening expense separately from your post-opening business expenses. Keep receipts and document the date and business purpose. Your first-year tax return will need that breakdown, and reconstructing it later is painful.

Let me put some numbers around this. Say you spent $8,000 on market research, pre-launch advertising, and consultant fees before opening your bookkeeping firm, plus $2,500 in legal fees to form your LLC. Your startup costs ($8,000) and organizational costs ($2,500) are both under the $50,000 threshold, so you can deduct $5,000 of startup costs and $2,500 of organizational costs in year one—a $7,500 combined deduction you wouldn’t get if you misclassified those expenses as something else.

8. Understand Employees vs. Independent Contractors

If you’re going to pay other people to help you run your business, you need to get the classification right. The difference between an employee and an independent contractor isn’t a choice you make based on what’s convenient—it’s a legal determination based on the actual working relationship, and misclassification is one of the IRS’s most actively pursued issues for small businesses.

If someone is an employee: You’re responsible for withholding federal and state income taxes, withholding and matching Social Security and Medicare taxes (7.65% each side), paying federal and state unemployment taxes, issuing a W-2 by January 31 of the following year, and potentially providing workers’ compensation coverage under Minnesota law.

If someone is an independent contractor: Your obligations are simpler. Collect a Form W-9 from them before you pay them. If you pay them $600 or more during the calendar year, issue a Form 1099-NEC by January 31. You don’t withhold anything—they’re responsible for their own taxes.

How do you know which one they are? The IRS uses a set of factors (sometimes called the 20-factor test, though it’s evolved into a more streamlined analysis) that looks at three main categories: behavioral control (do you control how they do the work?), financial control (do you control the business aspects of their work, like how they’re paid and whether they work for other clients?), and type of relationship (is there a written contract? Do they get benefits?). The more control you exercise over the worker, the more likely they’re an employee.

When in doubt, consult a professional before you start paying people. Reclassifying workers after the fact—especially if the IRS does it for you—comes with back taxes, penalties, and interest that can dwarf whatever you thought you were saving.

9. Know Your First-Year Filing Requirements

When April rolls around, what exactly do you need to file? The answer depends on your business structure.

Sole Proprietorship (or single-member LLC taxed as a disregarded entity): Your business income and expenses are reported on Schedule C, which is an attachment to your personal Form 1040. You also file Schedule SE to calculate self-employment tax. Everything flows through your personal return, which is due April 15 (with extensions available to October 15, though taxes owed are still due April 15).

Partnership (or multi-member LLC taxed as a partnership): The partnership files Form 1065, which is an informational return due March 15. The partnership itself doesn’t pay income tax—instead, each partner receives a Schedule K-1 showing their share of income, deductions, and credits, which they report on their individual returns. If you miss the March 15 partnership deadline, the penalty is $245 per partner per month—it adds up fast.

S Corporation: An S-corp files Form 1120-S, also due March 15, and issues a Schedule K-1 to each shareholder. As an S-corp owner who works in the business, you’re also an employee—you’ll receive a W-2 for your salary, and the company files regular payroll tax returns throughout the year (Form 941 quarterly, Form 940 annually).

When to seriously consider professional help for business returns: Partnerships and S-corporations are genuinely complex. The rules around basis, at-risk limitations, passive activity, and reasonable compensation for S-corp owners are areas where errors create real problems down the road. Even if you’re comfortable doing your own personal return, I’d encourage you to have a professional prepare your first business entity return and then evaluate from there whether it’s something you can handle yourself going forward.

10. Year-Round Planning Pays Off

Here’s what I’ve seen working with small business owners: the ones who have the best tax outcomes aren’t necessarily the ones with the most complex strategies. They’re the ones who planned ahead, tracked everything, made good structural decisions early, and worked with a tax professional throughout the year rather than just at filing time.

Year-round planning means catching quarterly estimated payment issues before they become underpayment penalties. It means timing equipment purchases to maximize deductions. It means knowing in October whether you should contribute to a SEP-IRA before year-end rather than discovering in March that you missed the window. It means not being surprised by a five-figure tax bill in April.

At JCT Tax Solutions, we work with small business owners as a genuine partner throughout the year—not just as a tax preparer in March and April. That includes bookkeeping support to keep your records clean, quarterly check-ins to review your estimated tax position, and strategic planning conversations when you’re making decisions that have tax implications.

If you’re starting a business this year and want to build that partnership from the beginning, let’s talk. Getting the foundation right in year one is so much easier than cleaning up problems later.

Ready to get your new business tax obligations squared away? Whether you’re still deciding on a structure, need help setting up your bookkeeping, or want someone to walk you through your first estimated tax payment, JCT Tax Solutions is here. Contact us to schedule a consultation, and let’s make sure your business starts on solid tax footing.

The information in this article is general in nature and hasn’t been customized for your specific tax situation. Business tax rules vary significantly based on your entity type, state of operation, industry, and individual circumstances. Dollar amounts and thresholds referenced reflect 2025 and 2026 tax year figures where applicable and are subject to change. For personalized advice regarding your new business tax obligations, please schedule a consultation with us—we’d love to help you get started on the right foot.