How Does Starting a Business Affect Taxes?

Starting a business means you'll likely owe self-employment tax on your profits and need to make quarterly estimated tax payments. You can deduct startup costs — up to $5,000 in the first year, with the rest amortized over 15 years. The entity structure you choose (sole proprietor, LLC, S corp) significantly affects how you're taxed. Keep business and personal expenses completely separate. Good bookkeeping from day one saves you enormous headaches at tax time.