What New Business Owners Need to Know About Federal Taxes in 2025

Starting a business is an exciting venture, but along with the opportunities come responsibilities—especially when it comes to taxes. As a new business owner, it’s crucial to understand the federal tax landscape to avoid costly mistakes and ensure your company is compliant. Here’s a breakdown of key federal tax considerations that every new business owner should be aware of in 2025.

1. Choosing the Right Business Structure

One of the first steps when starting a business is deciding what structure to choose. Your business structure impacts how you file your taxes, your liability, and your access to certain tax benefits. The most common structures include:

• Sole Proprietorship: The simplest structure where the business is owned and operated by a single individual. Income is reported on your personal tax return, and you are responsible for both income and self-employment taxes.
• Partnership: If you’re starting your business with one or more partners, a partnership may be the best structure. Partnerships pass profits and losses through to the individual partners, who report them on their personal returns.
• Limited Liability Company (LLC): An LLC provides the liability protection of a corporation but with the tax flexibility of a sole proprietorship or partnership. It can be taxed as a disregarded entity, partnership, or corporation.
• S Corporation (S Corp): An S Corp can help minimize self-employment taxes and is popular for small business owners. It allows the business’s income, deductions, and credits to pass through to shareholders, avoiding double taxation.
• Corporation (C Corp): A C Corp is a separate tax-paying entity. While it offers the best liability protection, the company faces double taxation—once at the corporate level and again when dividends are distributed to shareholders.

Consulting a tax professional can help you select the right structure based on your business goals, as this decision will affect how you file your taxes and what kind of deductions and credits are available to you.

2. Employer Identification Number (EIN)

Almost all businesses need an Employer Identification Number (EIN), also known as a federal tax identification number. It’s used to identify your business for tax purposes, and you’ll need it for filing taxes, hiring employees, and applying for business licenses. You can apply for an EIN online at no cost through the IRS website.

Even if you don’t plan to hire employees, having an EIN is still important for establishing your business’s identity. An EIN is also necessary if you’re forming a partnership, corporation, or LLC.

3. Federal Income Tax: Estimated Payments

Unlike employees who have taxes withheld from their paychecks, business owners are typically required to pay taxes quarterly through estimated tax payments. This includes income tax and self-employment tax (Social Security and Medicare taxes). If you expect to owe $1,000 or more in taxes when you file your return, you’ll need to make estimated tax payments to the IRS.

The due dates for estimated taxes in 2025 are:

• April 15, 2025
• June 15, 2025
• September 15, 2025
• January 15, 2026

Failure to make timely payments can result in penalties and interest. Use IRS Form 1040-ES to estimate your tax payments.

4. Self-Employment Taxes

As a business owner, you’ll likely need to pay self-employment taxes (SE taxes) in addition to regular income tax. Self-employment taxes cover your contributions to Social Security and Medicare. In 2025, the rate for self-employment tax is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.

If your net earnings exceed a certain threshold, you’ll also pay an additional 0.9% Medicare tax. This makes keeping track of your earnings essential to understanding what you owe.

5. Tax Deductions for Business Expenses

One of the advantages of owning a business is the ability to deduct certain expenses. Common business deductions include:

• Start-up costs: You can deduct up to $5,000 in business start-up costs in your first year, with the remainder amortized over 15 years.
• Office supplies and equipment: The cost of office supplies, computers, and other equipment can be deducted.
• Business use of your home: If you work from home, you may be able to deduct a portion of your rent or mortgage, utilities, and other home expenses based on the percentage of your home used for business.
• Vehicle expenses: If you use your car for business, you can deduct either actual expenses or use the standard mileage rate.
• Employee wages and benefits: The wages you pay employees, as well as benefits like health insurance and retirement contributions, are deductible business expenses.

Keep detailed records of all business expenses, as they will be crucial when you file your taxes and maximize your deductions.

6. Payroll Taxes

If you hire employees, you’ll need to manage payroll taxes. These taxes include:

• Social Security and Medicare taxes (FICA taxes): As an employer, you’re required to match employee contributions to these taxes, which are withheld from their paychecks.
• Federal Unemployment Tax Act (FUTA): This tax funds unemployment compensation for workers who lose their jobs.
• Employee Withholding: You must withhold federal income tax from your employees’ wages and submit it to the IRS.

You’ll need to file payroll tax returns, such as Form 941 (Employer’s Quarterly Federal Tax Return), and issue Form W-2 to your employees at the end of the year.

7. Tax Filing Deadlines

Filing deadlines are important to remember to avoid penalties and interest. For individual business owners (sole proprietors and partners), the tax filing deadline is typically April 15. If you’ve elected to have your business taxed as a corporation (S Corp or C Corp), different deadlines apply, generally falling between March 15 and April 15, depending on your entity type.

8. Tax Credits and Incentives

In addition to deductions, there are tax credits available to help reduce your overall tax liability. Some common tax credits include:

• The Work Opportunity Tax Credit (WOTC): This credit is available for hiring individuals from certain targeted groups, such as veterans or individuals receiving government assistance.
• Research and Development (R&D) Tax Credit: If your business is engaged in qualified research activities, you might qualify for this credit to offset the costs of innovation.
• Energy-efficient credits: If your business invests in energy-efficient equipment or property, you could be eligible for tax credits.

Conclusion: Stay Ahead of Your Tax Obligations

Navigating federal taxes can be complex, but understanding these key considerations will help you stay compliant and avoid surprises. As a new business owner in 2025, taking the time to plan ahead and set up the right systems for managing your taxes is essential to your business’s long-term success.

Contact us today at LosAngelesCPA.org, or give us a call at (323) 902-1000. You can also reach us by email at dmitriy@losangelesCPA.org. Let us help you navigate the 2025 tax season with confidence.