As a sole proprietor, the forms you file depend on what your business does, but almost every sole proprietor needs Schedule C (Form 1040) to report business income and expenses, Schedule SE to calculate self-employment tax, and Form 1040-ES to send in quarterly estimated payments. Beyond those three, you may also need Form SS-4 to get an Employer Identification Number, Form 8995 or 8995-A for the qualified business income deduction, Form 8829 for a home office, and a separate set of payroll and information-return forms if you hire anyone. The IRS does not treat a sole proprietorship as a separate entity from its owner, so there is no standalone business return: everything flows into your personal Form 1040.
Schedule C: Business Income and Expenses
Schedule C is where you show whether your business made a profit or took a loss. You enter gross receipts at the top, subtract cost of goods sold if it applies, and deduct ordinary business expenses like advertising, supplies, insurance, rent, and utilities.1Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040)
The net profit or loss at the bottom moves to two places. It goes to Schedule 1 of Form 1040, where it feeds your overall taxable income, and it goes to Schedule SE, where it drives your self-employment tax calculation.1Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040) Keep receipts or digital records for every expense you deduct.
Schedule SE: Self-Employment Tax
Because no employer withholds Social Security and Medicare from your pay, you owe both halves yourself. The combined self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.2Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax You calculate it on Schedule SE, starting from your Schedule C net profit.
Before applying the rate, the IRS reduces your net earnings by 7.65% (multiplying by 0.9235). The 12.4% Social Security portion applies only up to $184,500 of net self-employment income in 2026.3Social Security Administration. Contribution and Benefit Base Earnings above the cap still owe the 2.9% Medicare tax, which has no ceiling.
Additional Medicare Tax
If your self-employment income tops $200,000 (or $250,000 filing jointly, $125,000 married filing separately), you owe an extra 0.9% Medicare tax on the amount above the threshold, bringing the top Medicare rate to 3.8%.2Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax4Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Deducting Half of Self-Employment Tax
Half of your self-employment tax comes back as an adjustment to income on Schedule 1, reducing your adjusted gross income and your income tax.5Internal Revenue Service. Topic No. 554, Self-Employment Tax You can claim it whether or not you itemize.
Form 1040-ES: Quarterly Estimated Payments
Sole proprietors pay in throughout the year using Form 1040-ES. You are generally required to make estimated payments if you expect to owe $1,000 or more when you file.6Internal Revenue Service. Estimated Taxes The payments cover both income tax and self-employment tax.
The four deadlines each year:
- April 15, covering income from January through March
- June 15, covering April and May
- September 15, covering June through August
- January 15 of the following year, covering September through December
If a deadline falls on a weekend or federal holiday, it moves to the next business day.7Internal Revenue Service. Estimated Tax
To avoid an underpayment penalty, your total payments for the year need to reach at least the smaller of 90% of your current-year tax or 100% of the tax on your prior-year return. If your prior-year AGI was above $150,000 ($75,000 married filing separately), the prior-year safe harbor rises to 110%.7Internal Revenue Service. Estimated Tax
Form 8995 or 8995-A: Qualified Business Income Deduction
Sole proprietors may qualify to deduct up to 20% of net business income under the qualified business income (QBI) rules. You claim it on Form 8995 or, at higher incomes, Form 8995-A. The deduction is available even if you take the standard deduction.8Internal Revenue Service. Instructions for Form 8995
For 2025, the simplified Form 8995 works if your taxable income before the QBI deduction is $197,300 or less ($394,600 married filing jointly). Above those thresholds you switch to Form 8995-A, which layers on additional limits based on your industry and payroll.8Internal Revenue Service. Instructions for Form 8995 The thresholds adjust for inflation, so check the current instructions.
Form 8829: Home Office Deduction
If you use part of your home regularly and exclusively for business, you can deduct a share of your housing costs. Two methods are available. The simplified method gives you $5 per square foot of office space, capped at 300 square feet, for a maximum $1,500 deduction and no separate form.9Internal Revenue Service. Simplified Option for Home Office Deduction The regular method uses Form 8829: you calculate the percentage of your home used for business and apply that percentage to actual expenses like mortgage interest, property taxes, utilities, and insurance. It takes more recordkeeping, but the deduction can be larger if your space is expensive relative to your home.
Form SS-4: Applying for an EIN
An Employer Identification Number is a nine-digit number the IRS assigns for tax filing and reporting. You apply for one on Form SS-4.10Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) A sole proprietor without employees can often use a Social Security number instead, but you need an EIN if you hire employees, open certain business bank accounts, or file excise tax returns.11Internal Revenue Service. Instructions for Form SS-4, Application for Employer Identification Number (EIN) Applying online through the IRS website is the fastest route and issues the number immediately; fax and mail also work but take longer.
Forms if You Hire Workers
Bringing on workers adds an ongoing set of forms. Which ones depend on whether they are employees or independent contractors.
Employees
For employees, you withhold federal income tax, Social Security, and Medicare from each paycheck and report those amounts on Form 941 every quarter.12Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return You also owe federal unemployment (FUTA) tax, reported annually on Form 940. Form 940 is required if you paid at least $1,500 in wages in any calendar quarter or had at least one employee for part of a day in 20 or more different weeks during the year.13Internal Revenue Service. 2025 Instructions for Form 940
At year-end, you file a Form W-2 for each employee and a Form W-3 to transmit the W-2s to the Social Security Administration. For 2026 wages, both forms are due by February 1, 2027, whether filed on paper or electronically.14Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
Independent Contractors
If you pay a contractor $2,000 or more during the tax year for services, you file Form 1099-NEC reporting the payments. That threshold rose from $600 for tax years beginning after 2025 and will be adjusted for inflation starting in 2027.15Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Form 1099-NEC is due to the IRS and the contractor by January 31 of the following year.
State, Local, and DBA Filings
Federal forms are not the whole picture. Most sole proprietors also need at least one state or local filing, and requirements vary by location and industry.
Many cities and counties require a general business license or occupational tax certificate before you start operating. The application usually asks for your business name and address, a description of your activities (often using a North American Industry Classification System code), and expected annual revenue. Regulated professions may need to supply a professional license number, and some localities require zoning approval or a fire safety inspection.
If you sell taxable goods or services, you generally register for a sales tax permit in each state where you have a tax obligation. A physical presence such as an office, warehouse, or employees typically triggers registration, and many states also impose a duty based on sales volume into the state under economic nexus rules that spread after the Supreme Court’s 2018 decision in South Dakota v. Wayfair. Permit fees range from nothing to around $100 depending on the state.
If you operate under any name other than your own legal name — a “doing business as” or DBA name — most jurisdictions require a fictitious business name statement, filed with the county clerk or through the Secretary of State. It records the trade name and the owner behind it. Fees and renewal periods vary, and some places require you to publish the name in a local newspaper for a set number of weeks after filing.
How Long to Keep the Records Behind Your Forms
The IRS recommends keeping business tax records for at least three years after you file the return they support. Some situations call for longer:
- Six years if you underreported income by more than 25% of the gross income shown on the return
- Seven years if you claimed a deduction for bad debt or worthless securities
- Indefinitely if you did not file a return for a given year
- Employment tax records for at least four years after the tax was due or paid, whichever is later
For property records tied to equipment or a vehicle used in the business, keep them until the statute of limitations runs on the year you sell or dispose of the property, since you will need them to calculate depreciation and any gain or loss.16Internal Revenue Service. How Long Should I Keep Records