Go Back
When you're running a business, you have enough on your plate without adding taxes into the mix. But with tax season just around the corner, it’s time to start thinking about how to minimize your business’s tax burden, and that means understanding how business taxes work. No, this isn’t the most exciting topic in the world, but understanding how business taxes differ from personal taxes can help you maximize your deductions and save money. In this article corporate tax accounting, we’ll examine business taxes vs. personal taxes, how they differ, and why it matters for your small business.
Haven’s accounting services for small businesses can help you navigate the ins and outs of business taxes so that you can save time, reduce your stress, and focus on what you do best: running your business.
Table of Content
Should You Hire a Tax Professional for Your Business or Personal Income Taxes
Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
What are Business Taxes?
Business taxes refer to the taxes businesses must pay to engage in commercial activities. Government agencies typically impose these rules, and the regulations vary from state to state, country to country, and by entity type. The primary purpose of business taxes is to ensure companies pay their fair share of the costs associated with running a society.
This includes funding public services such as roads, schools, and hospitals. Business taxes also provide revenue for the government to invest in the economy through infrastructure projects and professional initiatives.
The Different Types of Business Taxes
Business taxes come in many forms. Here are the most common types of taxes that businesses must pay:
Income Tax
All businesses except partnerships must file an annual income tax return. Partnerships file an information return.
The form you use depends on how your business is organized. Refer to Business Structures to determine which returns you must file based on the type of business entity established.
Estimated Tax
Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer to the Estimated Taxes section.
Self-Employment Tax
Self-employment tax (SE tax) is a Social Security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the Social Security system. Social Security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Employment Taxes
As an employer with employees, you have specific employment tax responsibilities that must be fulfilled, including paying certain taxes and filing particular forms. Employment taxes include the following:
Social Security and Medicare taxes
Federal income tax withholding
Federal unemployment (FUTA) tax
Excise Tax
This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following.
Manufacture or sell certain products
Operate certain kinds of businesses
Use various types of equipment, facilities, or products
Receive payment for certain services
Related Reading
• Corporate Income Tax Filing Requirements by State
• TurboTax vs CPA
• How to Do Business Taxes
• Can a CPA Help With Tax Problems
• Do I File My LLC and Personal Taxes Together
• Tax Preparer vs CPA
What are Personal Taxes?
Personal taxes are what the government takes from you personally, based on what you earn. You pay individual taxes on income that includes wages and salaries, bonuses, and other earnings.
Personal income tax is typically deducted directly from your paycheck and used to fund public services, including healthcare, education, and infrastructure. Tax rates and rules can vary based on where you live, so personal taxes can differ significantly for individuals in different states or countries.
What Does Personal Income Tax Include?
Personal income tax applies to a wide range of income, not just your regular paycheck. Some examples include:
Salaries and wages: Earnings from your job, including bonuses and commissions.
Self-employment income: Earnings from freelancing or running your own business.
Investment income: Earnings from stocks, real estate, or dividends..
Rental income: Profits made from renting property.
Pension and retirement benefits: Withdrawals from retirement accounts or pensions (depending on local tax laws).
Other income: Things like royalties, lottery winnings, and some government benefits.
Not all income is taxable, though. Certain earnings might be exempt, depending on where you live.
Which Benefits Reduce Personal Income Tax?
There are plenty of ways to reduce the amount of personal income tax you owe. Here are some common ones:
Retirement contributions: Putting money into retirement accounts (like a 401(k) or IRA) might lower your taxable income.
Health insurance and medical expenses: Certain medical costs and insurance premiums may be eligible for tax deductions.
Education expenses: In some cases, you can deduct tuition fees or student loan interest.
Mortgage interest deductions: Homeowners can often deduct mortgage interest from their taxable income.
Charitable donations: Contributions to registered charities can help reduce your tax liability.
Dependent and family tax credits: Having dependents (like kids) could reduce your tax bill.
Work-related deductions: Job-related expenses, such as travel or equipment purchases, may be deductible.
Haven: Full-Stack Finance for Startups
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services.
Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline - all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses.
Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
Related Reading
• How to Lower Tax Liabilities
• Business Tax Compliance
• Small Business Sales Tax Exemption
• Small Business Tax Planning
• How to Find a Good CPA
• CPA vs Tax Accountant
• Tax Loopholes for Small Business
• Small Business Tax Preparation Checklist
• LLC vs C Corp for Startup
• Ecommerce Sales Tax
Business Taxes vs Personal Taxes: How Are They Different?
Personal taxpayers typically file Form 1040, but business owners face a more complex landscape of tax forms, depending on their business structure. Sole proprietors still use Form 1040, but report their income via Schedule C. C corporations, on the other hand, file Form 1120. S corporations use Form 1120S. Partnerships submit Form 1065, an information return.
Nonprofits must file Form 990. In addition to these, many business owners also need to file Form 1040-ES for quarterly estimated taxes, as well as handle other forms such as payroll tax filings and state-level business tax returns. Personal tax filings are far simpler by comparison.
Personal Taxes vs Business Taxes: You’re Dealing with More Frequent Deadlines
Most individuals only worry about April 15 each year. Business taxes come with a far more demanding calendar. Estimated tax payments are due four times a year:
January 15
April 15
June 15
September 15
Payroll tax deadlines may fall monthly or semi-weekly, depending on your payroll schedule. Business return deadlines vary, typically falling in March, April, or May, depending on your entity type and fiscal year. Missing a deadline can result in penalties; unlike personal tax filers, who can often set it and forget it, business owners need to manage their time carefully throughout the year.
Personal Taxes vs Business Taxes: You Have Far More Opportunities for Deductions
Personal deductions are relatively limited, think mortgage interest, student loan interest, or medical expenses. Business deductions are expensive and highly tailored to your operations. You can deduct:
Business use of your home (home office deduction)
Business mileage or vehicle use
Startup costs (up to $5,000 in the first year)
Business meals (typically 50% deductible)
Office supplies, software, tools, and professional services
As long as an expense is ordinary and necessary for your business, it’s usually deductible. But you must track and document these expenses carefully. The IRS may ask for proof during an audit, and receipts, invoices, and logs are your best defense.
Personal Taxes vs Business Taxes: Tax Rates and Structures Differ Significantly
Personal income tax is based on a progressive rate system, with rates ranging from 10% to 37%. If you’re self-employed, you also pay 15.3% in self-employment tax (covering both the employer and employee portions of Social Security and Medicare).
Corporations, on the other hand, pay a flat federal tax rate of 21%. But that’s just the start; many states and municipalities impose their corporate taxes. Understanding how your business is structured (sole proprietorship, partnership, LLC, S corp, or C corp) is essential to forecasting your total tax liability and avoiding surprises come tax time.
Personal Taxes vs Business Taxes: The Responsibility Shifts Entirely to You
If you're a W-2 employee, your employer handles everything from withholding income taxes to submitting Social Security and Medicare contributions. You just file your return once a year. But when you’re running a business, you’re the employer, and that means you handle everything. You’re responsible for:
Calculating and submitting your own estimated taxes
Paying self-employment taxes
Filing payroll taxes (if you have employees)
Meeting all federal, state, and local filing requirements
There’s no safety net. Failing to fulfill even one obligation could result in interest, penalties, or more severe consequences. That’s why many business owners invest in tax software or work with an accountant to stay compliant.
Should You Hire a Tax Professional for Your Business or Personal Income Taxes
If you earn a W-2 income and take the standard deduction, you can get by with tax prep software to file your annual return. But for founders, personal tax profiles can be complicated. Once you involve equity compensation, international reporting obligations (e.g., FBAR, FATCA), or material charitable contributions, the stakes rise fast.
For founders, common red flags for self-preparation include:
RSUs, ISOs, NSOs, or SAFEs: Handling equity compensation, especially when it’s vesting or being liquidated, has nuanced tax consequences. Incorrect treatment can lead to underpayment penalties or even double taxation.
K-1s from multiple ventures: If you’re involved in multiple partnerships or investment entities, integrating Schedule K-1s accurately and on time is challenging.
Significant year-over-year income shifts: This can trigger IRS reviews. A tax pro can help structure income recognition to avoid red flags.
Foreign accounts or residencies: If you bank abroad or hold dual citizenship, the U.S. reporting regime becomes more complex (including Forms 8938 and 114).
In short, if your tax profile mirrors that of a typical founder, with multiple sources of income, equity-heavy investments, and often cross-border transactions, a tax professional isn’t just helpful; it’s almost a requirement for compliance and strategic planning.
Business Taxes: No Longer Optional at Scale
Unlike personal returns, business tax preparation quickly becomes non-trivial, even for relatively lean early-stage companies. A single misstep can result in fines, audits, or missed opportunities for savings.
Here’s where a qualified tax professional makes a tangible difference:
Entity Structure and Tax Positioning
Your entity type (e.g., C-corp, S-corp, LLC) fundamentally alters how income is taxed. While many founders begin with a Delaware C-corp for venture readiness, tax elections (such as 83(b)) or S-corp status, where appropriate, can have long-term consequences. Professionals help you time and execute these correctly.
Multi-State and Nexus Compliance
As soon as you have remote employees, contractors, or customers in multiple states, your business may create "nexus" in those states. This triggers additional income tax, sales tax, and franchise tax obligations that DIY software typically misses.
An experienced tax adviser will track where you're exposed and register the business appropriately, or help you proactively avoid triggering nexus prematurely.
Tax Credits and Deductions
Too many startups underclaim what they're entitled to:
R&D Tax Credit: A critical non-dilutive resource. But claiming it requires understanding which activities qualify under IRS rules, how to document them, and how to coordinate with payroll if you’re offsetting the employer portion of Social Security tax.
Startup Expense Deductions: Up to $5,000 in eligible pre-launch costs can be deducted in the first year of operation. Many founders miss this window or misclassify expenses.
Depreciation and Amortisation: Especially relevant for hardware-heavy or IP-focused startups, these deductions require careful recordkeeping and strategic asset classification.
Employment Taxes, 1099 Compliance, and International Risks
Startups often straddle the line between contractors and employees, but the IRS does not. Misclassification can result in retroactive payroll taxes and penalties. A tax adviser can help ensure your team structure doesn’t become a liability.
If you’ve hired offshore developers or contractors, Form 1042-S withholding rules may also apply. These are complex and subject to treaty considerations. Failing to navigate them correctly exposes the business to fines and, in extreme cases, permanent withholding tax liabilities.
Why Founders Need a Tax Pro Early
For founders, hiring a tax professional is rarely about routine data entry. It’s about strategy, risk management, and efficiency. While personal returns may still be manageable in some cases, business tax complexity escalates rapidly.
Hiring a qualified tax professional, ideally one experienced with startups, venture-backed entities, and international operations, can pay for itself many times over in avoided penalties, captured credits, and better structural decisions.
Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
When it comes to business taxes vs personal taxes, it’s essential to understand that they differ significantly. Business taxes are based on the income your business generates. Individual taxes are based on your income, which may include revenue generated from your business.
Haven: Full-Stack Finance for Startups
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services.
Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline - all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses.
Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
Related Reading
• Best Accountants for Small Business
• Best Outsourced CPAs for Startups
• Corporate Tax Planning Strategies
• Accounting for Tech Companies
• Sales Tax Complaince Outsourcing for Business Startups
• Bench vs Pilot
• Is Rent Tax Deductible for Business
• Can I Deduct Tax Preparation Fees
• Are Business Loan Payments Tax Deductible
• How Long to Keep Business Tax Returns
• How to File Taxes When One Spouse Owns a Business