Small business tax prep: Tips, tools and deadlines for 2026

Published Tuesday 23 December 2025

Table of contents

• Set aside time to prepare
• Know your business entity and required forms
• Gather important documents
• Understand small business tax deductions
• Review your tax situation
• Choose a tax preparation method
• Compare costs: DIY vs professional tax preparation
• Key tax deadlines and timeline
• Streamline your tax prep with organized financial management
• FAQs on small business tax preparation

Key takeaways

• Start tax preparation early by dedicating specific time to gather documents, review your tax situation, and identify potential credits and deductions that could lower your tax bill.

• Understand your business entity type (sole proprietor, LLC, or S corporation) to determine which specific IRS forms you need and ensure you meet all filing requirements for your structure.

• Maintain organized records throughout the year by collecting all income forms, business expense receipts, and supporting documentation in one central location to streamline tax preparation and maximize eligible deductions.

• Choose between DIY tax software for simple situations or professional tax preparation services for complex business structures, considering that a skilled professional can often save you more than their fee through identified tax opportunities.

Set aside time to prepare

Tax preparation planning saves time and reduces costly mistakes during tax season. Dedicating specific time prevents last-minute stress and missed deadlines.

Break your tax prep into manageable tasks:

• Gather documents: Collect all tax-related paperwork and business expense records
• Review your situation: Identify potential credits and deductions you can claim
• Prepare and submit: Complete your tax return using your organized information

Starting early can give you more time to review the tax credits and deductions (such as contributing to an IRA) that are available, potentially resulting in a lower tax bill.

Know your business entity and required forms

Your business structure – whether you're a sole proprietor, limited liability company (LLC), or S corporation – determines how you file your taxes. Each entity has different requirements and uses specific IRS forms, so it's important to know which ones apply to you.

For example, sole proprietors report business income and expenses on Schedule C, which you file with your personal tax return. According to the Internal Revenue Service (IRS), you are generally required to file if your net earnings of $400 or more come from self-employment. Understanding your entity's requirements from the start helps you gather the right information and avoid filing errors.

Gather important documents

Document gathering means collecting all tax-related paperwork needed to accurately report your business income and expenses. Having organized records ensures you claim all eligible deductions and avoid filing errors.

Essential documents for small business tax preparation:

• Income forms: 1099s for interest, dividends, and rents. If you pay independent contractors for services, you may also need to file Form 1099-NEC to report those payments.
• Business records: Accounting summaries of all business expenses and activities
• Tax forms: Entity-specific forms based on your business structure
• Receipts and invoices: Supporting documentation for claimed deductions

Understanding financial terms helps with tax preparation. You can use the financial statement guide for more detail.

One way to keep track of all your tax-related documents and accounting records is to create a folder or digital file where you store everything in the one place. You can automate capturing important data and store documents in online accounting software like Xero. These methods help you keep important paperwork together and include all relevant information on your tax returns.

Understand small business tax deductions

Tax deductions can lower your taxable income, which means you'll pay less in taxes. As a small business owner, you can deduct expenses that are both ordinary and necessary for running your business.

Common deductions include home office expenses, vehicle mileage, business travel, and the cost of supplies, as well as specific write-offs like the Self-Employed Health Insurance Deduction. Keeping detailed records of these expenses throughout the year makes it easier to claim every deduction you're entitled to at tax time.

Review your tax situation

Tax situation review means assessing business changes that affect your tax obligations and available deductions. Annual changes can trigger new filing requirements or unlock additional tax savings opportunities.

Key changes that impact your taxes:

• Business structure changes: New entity types require different forms and tax rates
• Location changes: Moving states means complying with new tax laws and regulations
• Income changes: Significant revenue shifts may affect your tax bracket and deductions
• Employee additions: Hiring staff triggers payroll tax obligations and new deductions

Review any changes with a tax professional or accountant so you can claim all available deductions and credits and file your returns accurately.

By reviewing your tax situation and researching available credits and deductions, you can potentially save money on your taxes. Budgeting for taxes is crucial. Learn how to create a small business budget to prepare.

You also need to keep up to date with changes to any tax laws that might affect you. Use the Internal Revenue Service (IRS) website to stay informed about federal tax laws and regulations. Check the website periodically throughout the year to make sure you're aware of any changes that may affect you. You may want to keep an eye on your state's tax laws as well.

Choose a tax preparation method

Tax preparation method refers to choosing between do-it-yourself (DIY) software or professional services based on your business complexity and needs. The right choice depends on your tax situation, budget, and comfort level with tax requirements.

DIY tax software works best when:

• Simple tax situation: Straightforward income and standard deductions
• Budget constraints: Lower cost option for basic tax needs
• Time availability: You can dedicate time to learn the software

Professional tax preparation offers:

• Complex tax expertise: Navigate changing tax laws and regulations
• Accuracy assurance: Ensure compliance and avoid costly mistakes
• Tax planning advice: Identify savings opportunities you might miss
• Peace of mind: Professional review reduces audit risk and penalties

Compare costs: DIY vs professional tax preparation

Deciding between doing your taxes yourself and hiring a professional often comes down to cost and complexity. DIY tax software is typically more affordable and works well for straightforward tax situations.

Hiring a tax professional, like a certified public accountant (CPA), costs more but can provide significant value. They offer expertise on complex issues, help you identify more tax-saving opportunities, and give you peace of mind that your taxes are filed correctly. A skilled professional can often save you more than their fee in the long run.

Key tax deadlines and timeline

Staying on top of tax deadlines helps you meet your obligations and reduce the risk of penalties. The Internal Revenue Service (IRS) notes that you generally meet the standard if you pay at least 90% of the tax for the current year or 100% of the tax from the prior year.

For most small businesses, tax season is something you manage throughout the year. You may need to pay estimated taxes quarterly throughout the year, as the IRS generally requires these payments if you expect to owe tax of $1,000 or more when your return is filed.

Streamline your tax prep with organized financial management

Effective small business tax preparation starts with organized financial records throughout the year. By maintaining accurate bookkeeping and following a systematic approach, you reduce stress, save money, and ensure compliance.

Your tax preparation success depends on:

• Early planning: Start preparation months before deadlines
• Organized records: Keep documents and receipts systematically filed
• Professional guidance: Get expert help for complex situations
• Year-round management: Maintain financial records consistently

With Xero cloud-based accounting software, you can automatically organize your financial data, track business expenses, and generate the reports you need for tax preparation. With bank reconciliation, expense categorization, and professional integrations, you can confidently manage your taxes year-round.

Make managing your small business finances easier and get one month free with Xero.

FAQs on small business tax preparation

Still have questions about getting your small business taxes in order? Here are answers to some common concerns.

How much does a tax preparer cost for a small business?

Hiring a tax preparer for a small business usually costs between $500 and $2,500. Fees depend on the complexity of your business, the quality of your records, and the preparer's experience. While hourly rates can be between $150 and $500, many professionals offer a flat fee for tax return preparation.

Is a CPA worth it for a small business?

Yes, for many small businesses, a Certified Public Accountant (CPA) is a valuable investment. A CPA can help you navigate complex tax laws, maximize your deductions, and provide strategic advice for financial planning. The money they can save you often outweighs the cost of their services.

How can I make tax preparation easier next year?

The key to simpler tax prep is good record-keeping. Use accounting software to track your income and expenses in real time throughout the year. This keeps your financial data organized in one place, so you're not scrambling to find documents when tax season arrives.