Running a small business means you are the owner, the bookkeeper, the payroll department and the tax planner, often on the same afternoon. The decisions you make about entity type, owner pay, equipment and record keeping decide how much tax you pay and how much trouble you have if the IRS or Illinois asks questions. This page is a practical overview for owners in Naperville, Aurora and across Chicagoland, and for owners elsewhere whom we serve remotely.
What you file depends on your entity
| Entity | Federal return | Who pays the income tax |
|---|---|---|
| Sole proprietor or single-member LLC | Schedule C with Form 1040 | The owner |
| Partnership or multi-member LLC | Form 1065 and Schedules K-1 | The partners |
| S corporation | Form 1120-S and Schedules K-1 | The shareholders |
| C corporation | Form 1120 | The corporation, and shareholders on dividends |
Calendar-year partnerships and S corporations generally file by March 15, and C corporations by April 15, unless extended. Late partnership and S corporation returns carry a penalty per owner per month; see S corporation and partnership late-filing penalties. If you are unsure whether to change entities, read entity selection and our business formation service.
Owner pay and payroll
A sole proprietor takes draws and pays self-employment tax on net profit. An S corporation owner who works in the business must be paid reasonable wages through payroll before taking distributions; see reasonable compensation. Once you have employees, you must deposit withheld income tax and Social Security and Medicare tax on schedule, file quarterly and annual returns, and issue W-2s and 1099s by January 31. Unpaid trust fund taxes can lead to personal liability under the trust fund recovery penalty. Our payroll services cover federal, Illinois and local filings.
Confirm whether workers are employees or contractors using the IRS's behavioral, financial and relationship factors. The $2,000 threshold for Form 1099-NEC and 1099-MISC applies to payments made after 2025 ($600 before), and the Form 1099-K threshold is back to more than $20,000 and more than 200 transactions.
Rules that changed recently
- Depreciation. Property acquired and placed in service after January 19, 2025 qualifies for 100 percent bonus depreciation. Section 179 allows up to $2,500,000 for 2025 ($2,560,000 for 2026), reduced once purchases pass $4,000,000 ($4,090,000 for 2026). See depreciation and Section 179.
- QBI deduction. The 20 percent deduction is permanent, with a minimum deduction of $400 starting in 2026 for qualifying active owners.
- Research costs. Domestic research costs, which can include software development, are deductible in the year paid for tax years beginning after 2024.
- Accounting method. A business with average annual gross receipts of $31 million or less (2025) can generally use the cash method and skip full inventory accounting; the limit is $32 million for 2026. See cash vs. accrual.
Deductions, credits and retirement plans
Common deductions include rent, wages, insurance, software, advertising, professional fees, a home office, vehicle costs and equipment. Items of $2,500 or less per invoice item can often be expensed under the de minimis safe harbor. Use an accountable plan so that reimbursing an owner-employee does not create taxable wages. Check the small business credits, such as credits for employer health coverage, research and, starting in 2026, an expanded employer child care credit and a permanent paid family and medical leave credit.
For retirement, a SEP IRA can be set up as late as your return's due date, including extensions; a SIMPLE IRA generally must be set up by October 1; and a solo 401(k) or defined benefit plan may allow larger deductions. See retirement plans for business owners.
Illinois items
Retailers must register for Illinois sales tax and file Form ST-1 monthly, quarterly or annually, with quarter-monthly payments for larger filers. Employers register for Illinois withholding and unemployment insurance. Illinois also offers an elective pass-through entity tax for partnerships and S corporations, whose credit passes to owners on the Illinois return. Whether the election helps depends on current law and the owner's federal position, so decide before the filing deadline. See Illinois.
Year-end checklist for 2026
Equipment must be placed in service, not just ordered, by December 31 to count for 2026. Make the fourth estimated payment by January 15, 2027, review payroll totals before W-2s, collect W-9s from contractors, and reconcile books. If you need working capital, lenders ask for clean statements; see working capital and bank loans.
Common mistakes
- Mixing personal and business spending.
- Missing payroll deposits because cash was tight.
- Unsupported cash deposits and cash expenses.
- Forgetting sales tax or local licenses.
- Treating a loan as income, or income as a loan.
How we can help
We prepare business and owner returns, run payroll, keep books, and work as a part-time finance partner for owners who need monthly reports. See business tax preparation, bookkeeping and virtual CFO and advisory. This page is general information, not advice for your situation.
Frequently asked questions
Do I need an S corporation?
Not necessarily. It can reduce self-employment tax once profit is steady, but it adds payroll and state costs. Run the numbers first.
Can I deduct 100 percent of a new truck or equipment?
Often, if it qualifies and is acquired and placed in service in time, but vehicle limits and business-use percentage can reduce the deduction.
What is a trust fund tax?
Income tax and the employee share of Social Security and Medicare tax withheld from wages, which you hold for the government.
Official sources
- IRS: Business tax provisions under the Working Families Tax Cuts
- IRS: Publication 334, Tax Guide for Small Business
- IRS: Rev. Proc. 2025-32 (2026 inflation adjustments)
- IRS: Retirement plans for self-employed people
- FinCEN: Beneficial ownership information reporting
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.