IRS Schedule C / Form 1120S / IRC Section 199A QBI Deduction
U.S. Federal & State Business Tax Guide for Small Businesses 2026
Complete guide to U.S. small business taxes: sole trader Schedule C, S-Corp Form 1120S pass-through, 20% Section 199A QBI deduction, state corporate income tax rates, and quarterly estimated payments (Form 1040-ES).
Overview
U.S. small business owners choose their tax treatment based on entity type. Sole proprietors report business income on IRS Schedule C (Form 1040) and pay 15.3% self-employment tax. S-Corporations file Form 1120S with pass-through income to shareholders avoiding double taxation. The Tax Cuts and Jobs Act 2017 introduced the Section 199A Qualified Business Income (QBI) deduction allowing eligible pass-through entities a 20% deduction on qualified business income. C-Corporations pay the flat 21% federal corporate rate.
Key Facts & Statutory Reference
| Item | Detail | Statutory / Official Source |
|---|---|---|
| C-Corp Federal Rate | 21% flat rate on all taxable income | IRC Section 11(b) |
| S-Corp | Pass-through — shareholders pay personal rate | IRC Subchapter S |
| Section 199A QBI | 20% deduction on qualified business income (pass-throughs) | IRC Section 199A (TCJA 2017) |
| SE Tax (Sole Trader) | 15.3% — 12.4% SS + 2.9% Medicare | IRC Section 1401 |
| Quarterly Estimates | Form 1040-ES — due April/June/September/January | IRC Section 6654 |
Frequently Asked Questions (FAQ)
Section 199A allows eligible self-employed persons and pass-through entity owners (sole proprietors, partnerships, S-Corps) to deduct up to 20% of their qualified business income from federal taxable income. The deduction phases out for high earners in specified service trades.
C-Corps pay a flat 21% federal corporate income tax on profits. When profits are distributed as dividends, shareholders also pay personal income tax (double taxation). S-Corps are pass-through entities — profits flow directly to shareholders who pay personal income tax only once, avoiding double taxation.