Starting a small business: how much tax might you pay?

Once you earn $400 or more in self-employment income, the IRS requires a self-employment tax that is 15.3% applied to 92.35% of net earnings, and you may also owe regular federal and state income tax; estimated quarterly payments are required if you expect to owe $1,000 or more.

Starting a small business brings added tax responsibilities that often surprise new creators and gig workers. The IRS requires those with $400 or more in self-employment income to pay self-employment tax in addition to regular income tax. The self-employment tax is framed as 15.3% of net earnings, split between Social Security and Medicare, and is calculated on 92.35% of profit rather than the full amount. The article also notes the IRS generally does not arrest people for honest mistakes on their taxes. Key tax facts: - Self-employment tax totals 15.3% and is applied to 92.35% of net profit; it breaks down to 12.4% for Social Security and 2.9% for Medicare. - You may deduct half of your self-employment tax when calculating your income tax liability. - If you expect to owe $1,000 or more for the year, the IRS expects quarterly estimated payments; the article lists 2025 deadlines as April 15, June 16, Sept. 15, and Jan. 15, 2026. - Some business expenses can reduce taxable income if they are ordinary and necessary for the work; the home office deduction is described as $5 per square foot up to 300 square feet or the option to use actual expenses. - The article notes a common practice is to set aside roughly 25%–30% of receipts for taxes and to keep receipts and documentation for deductions. Summary: Self-employment adds a federal self-employment tax on top of regular income tax, and that combined burden is often larger than what W-2 employees see. The article describes common deductions, estimated-payment rules, and record-keeping practices, and it reports that people with variable income often work with tax professionals. Undetermined at this time.