Head Start for 2025: A Complete Tax Guide for Small Business Owners
As the calendar turns and the 2025 tax season comes into focus, many small business owners and entrepreneurs are asking the same questions: What can I deduct? What form do I need? Should I restructure my business for better tax treatment? Fortunately, Black Tech Link’s Grow Up Series recently hosted a comprehensive session designed to answer all of these questions—and more.
Presented in partnership with the County of San Diego’s Health and Human Services Agency, this special workshop was led by Patricia Hoggart, an enrolled agent and tax advisor at H&R Block. With her detailed insights and years of experience, Patricia broke down the complex world of small business taxes in a way that was digestible, informative, and empowering.
Understanding Entity Structures
The type of entity you select for your business matters far beyond formation paperwork—it can determine how you’re taxed, what liabilities you’re exposed to, and how investors or partners can participate in your business. Patricia covered the full range of structures:
Sole Proprietorship: Easy to start, minimal paperwork, but no liability protection.
General Partnership: Similar to a sole proprietorship, but with two or more people involved. Liability is shared and unlimited.
LLC (Limited Liability Company): Offers personal liability protection, and can be taxed as a sole proprietorship, partnership, or corporation.
S-Corporation: Allows for pass-through taxation and avoids self-employment tax, but requires strict compliance, including paying reasonable salaries.
C-Corporation: A separate legal entity that pays its own taxes and can issue stock. Offers strong liability protection and is best for scaling businesses.
Forms and Filings: Know What to Submit
Each business structure comes with specific IRS forms:
Schedule C (Form 1040) for sole proprietors and single-member LLCs.
Form 1065 and Schedule K-1 for partnerships and multi-member LLCs.
Form 1120S and Schedule K-1 for S-Corps.
Form 1120 for C-Corps (a true corporate tax return).
Patricia walked through each form with clarity, showing where income, expenses, and owner compensation are reported. The visual examples of IRS forms made it easier to understand what numbers go where and how the IRS distinguishes between entity types.
Taxes and Self-Employment
A major takeaway from the session was understanding how self-employment tax impacts your overall tax liability. Sole proprietors, general partners, and LLC owners taxed as individuals must pay both income tax and self-employment tax. This often surprises new business owners, as it increases tax owed by roughly 15.3% on net income.
S-Corps, however, can reduce this burden by requiring owners to pay themselves a reasonable salary (subject to employment taxes) and treat the remaining income as distributions, which are not subject to self-employment tax. It’s a powerful tool—but not one to use lightly. Patricia emphasized the importance of IRS compliance and the need for tax planning with professionals before making the switch.
Deductions: Know What You Can Write Off
A large portion of the presentation focused on legitimate tax deductions for small businesses. These include:
Rent and utilities for business space
Office supplies and software
Equipment purchases (computers, printers, tools)
Employee wages and benefits
Business loan interest
Continuing education expenses
Business travel (transportation, lodging, 50% of meals)
Vehicle expenses (standard mileage or actual expenses)
Insurance premiums
Retirement plan contributions (IRAs, SEPs, SIMPLEs)
Patricia also clarified the difference between startup costs (incurred before launching the business) and operating costs (recurring business expenses). While startup costs can be deducted, they are subject to limitations and may need to be amortized over 15 years depending on the total amount.
Business Use of Home
If you’re running your business out of your home, you may be eligible for the home office deduction. To qualify, the space must be used regularly and exclusively for business. Patricia explained how to calculate the square footage, deduct a portion of rent or mortgage, utilities, insurance, and repairs. However, the deduction cannot be used to create a loss—meaning it can only reduce your income to zero, not below.
Retirement and Long-Term Planning
Many small business owners overlook retirement planning, but Patricia emphasized its importance—especially when comparing LLC and S-Corp structures. While S-Corp owners avoid self-employment tax, they contribute less to Social Security unless they pay themselves a decent salary. Without setting aside funds in a 401(k) or SEP IRA, S-Corp owners may shortchange their future retirement benefits.
On the other hand, LLC owners pay into Social Security through self-employment tax and might rely on those benefits later in life. The key, according to Patricia, is proactive planning—setting up retirement accounts and working with a tax professional to optimize contributions and reduce current-year taxes.
Tax Credits Worth Exploring
Patricia covered several powerful credits that can lower your tax bill:
Qualified Business Income Deduction (QBI): Available to most entities (except C-Corps), allowing a 20% deduction on net business income.
Clean Vehicle Credit: Up to $7,500 for eligible purchases.
Small Employer Pension Credit: Up to $5,000 for setting up a retirement plan.
California College Access Credit: A 50% credit on charitable donations made to California scholarship programs.
These credits offer meaningful savings and should be factored into your year-end tax strategy.
1099s, Payroll, and Worker Classification
Understanding the difference between an employee and a contractor is essential. Misclassification can lead to major penalties. If you control when, where, and how someone works, they are likely an employee—and you are responsible for payroll taxes and withholdings.
If they are independent contractors (provide their own tools, set their schedule, etc.), you must issue a 1099-NEC for payments over $600. All 1099s and W-2s must be submitted to the IRS and recipients by January 31st.
Final Tips for Success
Patricia wrapped the session with practical advice:
Keep detailed and organized records.
Track income and expenses using accounting software.
Maintain a mileage log if you deduct vehicle expenses.
Respond promptly to IRS or state notices.
Work with a tax professional early—don’t wait until April.
If your business incurs a loss, that loss can often be carried forward to offset future income. Tax rules are complex, but with the right knowledge and team, you can take advantage of every opportunity while staying in compliance.
Whether you’re just getting started or planning to scale, this workshop was packed with crucial information to help small business owners get ahead in 2025. Watch the full video to get every detail, and connect with professionals like Patricia Hoggart for personalized guidance. Your business—and your peace of mind—deserve it.
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