Video · Brian Kim
Sole Proprietorship Taxes Explained
Brian covers what sole proprietors and single-member LLCs need to know about self-employment taxes, the Schedule C, and estimated tax payments.
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Published on YouTube July 8, 2019 · 6:11 · Text on this page updated · About 6 min read
Key points from the video
- You are self-employed if you are not an employee: an independent contractor, a business owner, or someone doing their own thing. The key difference is that nobody withholds tax from your pay.
- Your first job is to set aside enough money for taxes. Many self-employed people get a surprise bill because no federal, Social Security, Medicare or state tax was taken out during the year.
- Your second job is to report correctly. Employees get a W-2; self-employed people may get a Form 1099 or nothing at all, and either way the income goes on Schedule C of Form 1040.
- Don't forget deductions. Business expenses go on Schedule C with your income, and you pay tax on the profit.
- Don't just save the tax money. Send it in during the year as estimated tax payments, which is what the IRS wants and how you avoid interest and penalties.
Summarized from Brian's own words in the video.
What's changed since this video
Video published July 8, 2019. Checked against current sources on October 13, 2026. These updates are from the ClearValue Lending Team, not Brian.
- Which 1099 you get Changed
In the video: Self-employed people receive a Form 1099-MISC, a Form 1099-K, or nothing.
Now: Pay for your services as a nonemployee is now reported on Form 1099-NEC. For payments made after 2025, a business only has to send one when it pays you $2,000 or more in a year, up from $600.
Sources: IRS — About Form 1099-NEC ; 26 U.S.C. § 6041 (information returns; $2,000 threshold) · as of
- Form 1099-K from payment apps Still current
In the video: Some self-employed people receive a Form 1099-K.
Now: Payment apps and online marketplaces must send a 1099-K when your payments for goods or services exceed $20,000 in more than 200 transactions. You must report all business income even without a form.
Source: IRS — Understanding your Form 1099-K · as of
- Social Security wage base New since the video
In the video: Not covered. The video says Social Security and Medicare apply.
Now: For 2026, self-employment tax's 12.4% Social Security part applies to the first $184,500 of combined wages and self-employment earnings. The 2.9% Medicare part has no cap.
Sources: SSA — Cost-of-Living Increase and Other Determinations for 2026 (Federal Register, Nov. 3, 2025) ; IRS — Self-employment tax (Social Security and Medicare taxes) · as of
- Qualified business income (QBI) deduction New since the video
In the video: Not covered.
Now: Sole proprietors may deduct up to 20% of qualified business income. The deduction was due to end after 2025; the 2025 tax law made it permanent.
Source: 26 U.S.C. § 199A (qualified business income deduction) · as of
Reader guide · ClearValue Lending Team
Self-employed taxes in 2026: a plain-English guide
Brian's six-minute video covers four questions: who counts as self-employed, what you need to do, how you report, and his two tips. This guide follows the same order. It adds the numbers for 2026 and the changes since July 2019, including new 1099 thresholds and a permanent QBI deduction. Each update links to the IRS or the law and shows the date we checked it.
Who counts as self-employed
Brian covers this in the video · watch from 0:27
Brian's definition is simple: if you are not an employee, you are probably self-employed. The practical difference is withholding. An employer takes tax out of every paycheck. When you work for yourself, nobody does.
The IRS says you are generally self-employed if any of these apply:
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself, including part-time work or gig work.
A side business counts. So does driving for a ride-share app or selling services online. If you own a single-member LLC and haven't elected to be taxed as a corporation, you are usually taxed as a sole proprietor too.
What you need to do: set money aside for two taxes
Brian covers this in the video · watch from 1:29
Brian's first rule is to keep enough money to pay your taxes. He sees many people hit with a surprise bill at the end of the year.
Part of the surprise is a second tax. Self-employed people pay income tax and self-employment tax. Self-employment tax is the Social Security and Medicare tax that an employer would normally split with you. When you work for yourself, you pay both halves.
| Part | Rate | Applies to |
|---|---|---|
| Social Security | 12.4% | Net self-employment earnings, up to $184,500 combined with any wages (2026) |
| Medicare | 2.9% | All net self-employment earnings, no cap |
| Additional Medicare | 0.9% | Earnings above $200,000 single or $250,000 married filing jointly |
| Total (usual case) | 15.3% | Social Security plus Medicare |
Two details lower the bite. Self-employment tax is figured on Schedule SE, not on your full profit. And you can deduct the employer-equivalent half of it when you work out your adjusted gross income. An employee can't deduct their share.
Self-employment tax applies once your net earnings from self-employment reach $400 for the year.
How your income is reported to you: W-2 vs 1099
Brian covers this in the video · watch from 1:29
An employee gets a W-2 showing wages and the tax withheld. Brian explains that a self-employed person gets a Form 1099, or nothing at all. Both are normal. Getting no form does not mean the income is tax free.
| Form | Who sends it | When (current rules) |
|---|---|---|
| 1099-NEC | A business that paid you for services as a nonemployee | Payments of $2,000 or more in a year, for payments made after 2025 |
| 1099-MISC | A business that paid you other kinds of income, such as rent | Generally $2,000 or more, for payments made after 2025 |
| 1099-K | A payment app or online marketplace | Over $20,000 in more than 200 transactions |
| 1099-K | A card processor, for card payments | Any amount |
| Nothing | Clients below the thresholds, or cash customers | You still report the income |
Because the form thresholds went up, many freelancers will now get fewer 1099s. Keep your own records of every payment. The IRS says that no matter the amount reported, you must report all income from selling goods or services.
Schedule C and your deductions
Brian covers this in the video · watch from 3:03
Your self-employment income goes on Schedule C, "Profit or Loss from Business," attached to your Form 1040. Brian's tip is not to forget the other half of Schedule C: your expenses. Income and expenses net out, and you pay tax on the profit.
An expense must be related to your business to be deducted. Common ones:
- Business driving. For 2026, the IRS standard mileage rate is 72.5 cents a mile for January 1 to June 30, and 76 cents a mile from July 1 to December 31.
- Supplies, software and equipment you use for the business.
- Advertising, website and phone costs for the business share.
- Professional fees, such as an accountant or a lawyer.
- A home office, if you use part of your home for business. The IRS has rules on what qualifies.
- Health insurance and retirement plan contributions for some self-employed people. These are taken on Form 1040, not Schedule C.
There is also a deduction after Schedule C. The qualified business income (QBI) deduction lets many sole proprietors deduct up to 20% of their qualified business income. It was due to expire after 2025. The 2025 tax law made it permanent and added a minimum deduction for some smaller amounts of business income.
Pay as you go: estimated tax payments
Brian covers this in the video · watch from 3:03
Brian's second tip is the most important. Don't just park tax money in a separate account and pay it all in April. Send it to the IRS during the year as estimated tax payments. If you don't, you will likely owe interest and penalties.
The IRS calls this "pay as you go." You generally must make estimated payments if you expect to owe $1,000 or more when you file.
| Income earned | Payment due |
|---|---|
| January 1 to March 31 | April 15 |
| April 1 to May 31 | June 15 |
| June 1 to August 31 | September 15 |
| September 1 to December 31 | January 15 of the next year |
How to avoid the penalty. Most taxpayers avoid it if they owe less than $1,000 after withholding and credits, or if they paid the smaller of 90% of this year's tax or 100% of last year's. Higher-income taxpayers have a stricter rule; see IRS Publication 505.
What the penalty costs. The IRS figures it like interest, using its published quarterly underpayment rate. That rate is the federal short-term rate plus 3 points. For October to December 2026, the IRS lists it at 7%.
How to pay. Online through your IRS account or IRS Direct Pay, by phone, through the IRS app, or by mail with Form 1040-ES. You can also pay more often, such as monthly, as long as enough is paid by each due date.
A simple system that works
Putting Brian's two tips together, here is a routine many self-employed people use.
- Open a separate business bank account so every sale and expense is in one place.
- Each time you're paid, move a share into a tax savings account. Base it on last year's return, your expected profit and your state's tax.
- Track expenses as they happen, in a spreadsheet or bookkeeping software.
- Each quarter, work out your estimated tax with the Form 1040-ES worksheet and pay it by the due date.
- At year end, file Form 1040 with Schedules C and SE, and claim the payments you made.
Your Schedule C matters beyond tax. When a self-employed person applies for funding, lenders usually read the net profit on Schedule C, not total sales. Big deductions lower your tax, but they also lower the income a lender sees. See can a sole proprietor get a business loan.
Next steps
Educational information, not tax or legal advice. ClearValue Lending is an education and comparison platform; it does not prepare tax returns. Tax rules change; confirm current figures with the IRS or a tax professional.
Questions viewers ask
Who is considered self-employed by the IRS?
Generally anyone who carries on a trade or business as a sole proprietor or independent contractor, a member of a partnership in business, or anyone otherwise in business for themselves, including part-time and gig work.
What is the self-employment tax rate for 2026?
15.3%: 12.4% for Social Security on the first $184,500 of combined wages and self-employment earnings in 2026, plus 2.9% for Medicare on all of it. An extra 0.9% Medicare tax applies above $200,000 single or $250,000 married filing jointly.
Where do I report self-employment income?
On Schedule C of your Form 1040, with your business expenses. You figure self-employment tax on Schedule SE. You report the income whether or not you received a 1099.
Do I have to report income if I didn't get a 1099?
Yes. The IRS says you must report all income from selling goods or services, no matter what was reported to you. Businesses now only have to send a Form 1099-NEC for payments of $2,000 or more made after 2025.
When will I get a Form 1099-K?
A payment app or online marketplace must send one when your payments for goods or services exceed $20,000 in more than 200 transactions. A card processor sends one for card payments of any amount. Some platforms send them below the threshold.
When are estimated tax payments due?
April 15, June 15, September 15 and January 15 of the following year, each covering income earned in the period before it. If a date falls on a weekend or holiday, the next business day counts.
How do I avoid the estimated tax penalty?
Most taxpayers avoid it if they owe less than $1,000 after withholding and credits, or if they paid at least the smaller of 90% of this year's tax or 100% of last year's tax. Higher-income taxpayers have a stricter prior-year rule.
Is the QBI deduction still available?
Yes. The 20% qualified business income deduction was scheduled to end after 2025. The 2025 tax law removed the end date, so it continues for 2026 and later years.
Can I deduct the self-employment tax I pay?
Partly. You can deduct the employer-equivalent half of your self-employment tax when you figure your adjusted gross income. Employees can't deduct their share of Social Security and Medicare tax.
Full transcript
From YouTube's auto-generated English captions, cleaned for punctuation and paragraphs. Brian's words are unchanged except for clear caption errors; text in [brackets] marks an editor's insertion or audio the captions did not catch.
Read the full transcript (994 words)
Editor's note: Brian mentions a website for more information; that refers to his tax practice's site at the time. Form names in the transcript are as he said them in 2019. Nonemployee pay is now reported on Form 1099-NEC (see the guide below).
Intro watch from 0:00
Welcome back to our channel, ClearValue Tax. My name is Brian Kim, I'm a certified public accountant, and today we're going to be talking about taxes for the self-employed people. This video is perfect for other people who are new to this, or they're just completely lost, they don't know what to do. Well, we're gonna tell you exactly what we, what you need to do. We're gonna make this video really quick. It's not gonna go over your head. If you want more information, you can go to our website in the link below. So we're gonna go over four key points,
Who is a self-employed person watch from 0:27
and we're gonna, we're gonna just fly right through this, and it's gonna be quick and painless. So what are those four things? Those four things are: one, who is a self-employed person; what do you need to do; how do you report your taxes; and what are some tips. Okay, so the first one: who the heck is a self-employed person? Basically, you know, you're not an employee. That's all that it is. So you're a self-employed person, you're typically in the independent contractor, a business owner, or you're just doing your own thing. Basically, you're not an employee. So, you know, forget these classifications, forget this technical jargon.
What's the difference? The difference is that nobody's holding taxes from your paychecks. Basically, [do] you even have a paycheck? So that's the difference. Nobody's taking taxes, withholding taxes from you every pay period. That's the biggest difference. Okay, so this is, this
What do you need to do watch from 1:29
ties in to my second points: what do you need to do as a self-employed person? You need to do two things. First thing, make sure you have enough money to cover your taxes. You know, I see so many people getting in trouble because they forget that nobody's holding taxes from each payment they receive. So at the end of the year, when they go to do their taxes, they have a surprise tax bill, even though they should have seen it coming. Because as an employee, you know, you have taxes taken out of your paycheck every paycheck: federal taxes, Social Security, Medicare, [and] state. Here, you're self-employed person, nobody's doing that for you.
So you got to make sure that you have enough money set aside to cover your taxes. You know, that's your responsibility as a self-employed person. Okay, number two of what do you need to do: you need to make sure that you're reporting your taxes correctly. You're a self-employed person. You know, this ties in with my point number three that we're gonna cover. So point number three: how do you report your taxes? An employee receives a W-2, and then they put this in taxable wages on their individual income tax return. Here, you're not an employee, you're not getting the W-2. You're a self-employed person. You're either getting a 1099-MISC, you're getting a 1099-K, or you're getting nothing. Yeah, that's a self-employed person. So if you
Tips watch from 3:03
get one of those, or you don't get any of those, you're reporting your income on your individual income tax return, the 1040. You're reporting it on Schedule C. That's where it goes, your self-employment income: Schedule C. Okay, what are some tips? This is the last point, we're, we're almost, almost done. What are some tips? Your income goes on Schedule C of your tax return, but so do your deductions. Do not forget your deductions, because deductions, that's what's saving you money. So any expense, any expense or your expenses related to your self-employment activity, you know, if, if they're related, use them as deductions, because deductions, they're gonna reduce your taxable income, and it's ultimately saving you money.
So don't forget your deductions. Deductions go on Schedule C along with your income, then they net together, and you pay taxes on your profits. Okay, if you need help with your deductions, if you want more information about actual deductions, you know, we have another video for that. You can also visit our websites. So our tip number two is regarding estimated tax payments. So again, this circling back to our, our previous comments about setting aside money for taxes: if you have the money readily available, send them in as estimated tax payments. Because, okay, if you are just setting aside your money, you're like, okay, I made all this money, you know, throughout the course [of] a year, I know I'm gonna have a big tax bill at the end of the year, you know, I'm expecting it.
Rather than just expecting it and then just paying that lump sum at the end of the year when you're doing your tax return, send them in throughout the course of the year as estimated tax payments. Why? It's because you'll save money on interest and penalties. If you don't do estimated tax payments, most likely you're gonna get charged interest and penalties. So, you know, rather than just saying, oh, I'm gonna set this money aside in a separate checking account, or I'm gonna stick it under my mattress, cuz I'm gonna expect a big tax bill, I'm gonna just label it tax money, no, no, it's better to just send it in during the year as estimated tax payments.
Save yourself some money on interest and penalties, because that's what the IRS wants. The IRS wants you to send in estimated tax payments throughout the course of the year, as you earn your income. Okay, so if, again, if you want more information, check our website out. If you found this helpful, please give us a thumbs up. If you know someone who's lost about the situation and they need help, you know, please share this with them, and please subscribe, since we're answering questions from our subscribers. Thank you so much for tuning in. We look forward to making more videos. Hope you find this helpful. Take care.
Where the ClearValue Lending team would start
Brian's video covers the strategy. Here's where our published methodology points business owners next — chosen for fit, not commissions.
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