Tax Basics for Individuals & Small Business Owners
Tax season doesn't have to be stressful. Whether you're filing for the first time or managing a growing business, understanding the essentials — documents, deadlines, deductions, and recordkeeping — helps you file confidently and avoid costly mistakes. This guide covers everything you need, from W-2 vs. 1099 income to IRS transcripts and home office deductions.
2025 Tax Guide
Individuals & Small Business
April 15
Individual Filing Deadline
Federal returns due; extensions push to Oct 15
5%
Late-Filing Penalty
Per month of unpaid tax, up to 25% maximum
10 Yrs
Keep Your Records
Standard IRS audit window is 3 years; keep records 10 years for potential extensions
$5
Simplified Home Office
Per sq ft, up to 300 sq ft on Schedule C
Essential Documents to Gather Before You File
Preparation is everything. Collect your Social Security Number or ITIN for yourself and dependents, last year's tax return, and banking details for direct deposit. Then round up all income forms and deduction receipts before you sit down to file.
Income Documents
Form W-2 — wages and withheld taxes from employers
Form 1099-NEC — freelance and contractor income
1099-INT / 1099-DIV — interest and dividend income
Mileage logs and business receipts (self-employed)
W-2 vs. 1099 Income: Know the Difference
Your tax obligations differ significantly depending on how you earn income. Employees have taxes withheld automatically; contractors must handle withholding and quarterly payments themselves. Misclassifying your status can be costly.
W-2 Employee
Employer withholds income, Social Security & Medicare taxes
Employer pays their share of payroll taxes
May receive benefits: health insurance, 401(k)
No quarterly estimated tax payments required
1099 Contractor
No taxes withheld — you are responsible for all tax payments
Pays both employee and employer share of SE tax (~15.3%)
Must make quarterly estimated tax payments (Form 1040-ES)
Can deduct eligible business expenses to reduce taxable income
Tax Pro vs. DIY Software: Which Is Right for You?
DIY Tax Software Works Well When...
You have one W-2 and take the standard deduction
No self-employment, rental, or investment income
No major life changes (marriage, divorce, inheritance)
You're comfortable navigating guided tax software
Hire a Tax Preparer When...
You own a business, rental property, or have multiple income streams
You want to maximize deductions and minimize audit risk
Major life events occurred this year (sale of home, divorce, estate)
You're unsure about tax law changes affecting your situation in 2025
"Unless you have accounting experience, hiring an accountant is recommended to stay compliant." — QuickBooks
Home Office Deduction: Do You Qualify?
Self-employed taxpayers and small business owners may deduct a home office — but only if it meets strict IRS criteria. The space must be used exclusively and regularly as your principal place of business. A spare room dedicated 100% to work qualifies; a shared family space does not.
Regular Method
Allocate actual home expenses (mortgage/rent, utilities, insurance) proportionally by the percentage of your home used for business. Requires detailed records of all home expenses and square footage.
Simplified Method
Deduct $5 per square foot of your dedicated office space, up to a maximum of 300 square feet ($1,500 maximum). Easier to calculate — no need to track every home expense separately.
The home office deduction cannot exceed your business net income — it will not create a loss. See IRS Publication 587 for complete eligibility rules.
Filing Deadlines & Late Penalties at a Glance
1
March 15
Partnerships & S-Corps file or extend
2
April 15
Individuals, sole proprietors & C-Corps file or extend
3
Quarterly
Estimated tax payments due (Apr, Jun, Sep, Jan)
4
September 15
Extended Partnership and S-Corp returns due - no further extension
5
October 15
Extended individual returns due — no further extensions
Missing a deadline without filing an extension triggers a failure-to-file penalty of 5% per month (up to 25% of unpaid tax). More than 60 days late? A minimum penalty over $525 applies. Note: an extension gives you more time to file, not to pay. Pay as much as you can by April 15 to minimize the 0.5%/month failure-to-pay penalty and accruing interest.
Recordkeeping & IRS Transcripts
Keep Records 10 Years
The standard IRS audit window is 3 years from filing. If you underreported income by more than 25%, that extends to 6 years. Keep all records for 10 years to cover potential extensions and ensure full compliance.
Always Keep Filed Returns
Copies of past returns help you prepare future filings, verify prior-year AGI for e-filing, and amend returns if errors are discovered. Store digital backups securely in addition to paper copies.
IRS Transcripts for Lenders
An IRS tax transcript summarizes your filed return data without revealing sensitive information like full Social Security numbers. Lenders request transcripts (via Form 4506-T or IRS Online Account) to verify income during mortgage or loan applications.
Frequently Asked Questions
What documents do I need to file?
Your SSN/ITIN and dependents' IDs, last year's tax return, and all income forms (W-2, 1099s). Add deduction support: Form 1098 (mortgage interest), 1098-T (tuition), 1095-A (health insurance), 1099-B (investment sales), and receipts for charity and medical expenses.
Can I deduct my home office?
Only if the space is used exclusively and regularly for business. Choose the regular method (prorated actual expenses) or the simplified method ($5/sq ft, max 300 sq ft) on Schedule C. Shared or occasional-use spaces do not qualify under IRS rules.
What if I file late?
Without an extension, expect a 5% failure-to-file penalty per month (up to 25%). After 60 days, a minimum penalty applies. Extensions give extra time to file — not to pay. Always pay what you can by the original deadline to minimize penalties and interest charges.
What is an IRS transcript?
A free summary of your filed return — line-by-line data without sensitive personal details. Lenders request it (especially for mortgages) to verify your income and filing status. Request yours anytime through IRS Online Account or Form 4506-T at no cost.
Ready to File with Confidence?
Understanding your tax obligations is the first step toward financial peace of mind. Whether you need help organizing records, navigating self-employment taxes, or resolving an IRS issue, JR Shelton Bookkeeping & Consulting Services is here to help. We specialize in tax planning, QuickBooks Online bookkeeping, S-Corp strategy, and IRS resolution — so you can focus on what matters most.
Tax Planning
Year-round strategy to minimize your tax liability
QuickBooks Bookkeeping
Accurate records so tax season is never a scramble
S-Corp Strategy
Maximize savings with the right business structure
IRS Resolution
Expert guidance for audits, notices, and back taxes