What Taxes Does a New Accounting Firm Pay? A Complete Guide
Learn the federal, state, and local taxes new accounting firms must pay, including income, payroll, and self-employment taxes, with practical steps.
Starting an accounting firm brings a new set of financial responsibilities, and taxes are among the most critical. As a new firm owner, you must navigate federal income tax, self-employment tax, payroll taxes if you have employees, and possibly state and local taxes. This guide breaks down each tax, what you owe, and how to handle it in your first year.
Federal Income Tax
Your firm’s structure determines how you pay federal income tax. Most new accounting firms start as sole proprietorships, partnerships, LLCs, or S corporations. Each has different tax treatment.
- Sole Proprietorship/LLC (single-member): Profits are reported on your personal tax return (Form 1040, Schedule C). You pay income tax at your individual rate, which ranges from 10% to 37% for 2026.
- Partnership/Multi-member LLC: The firm files an information return (Form 1065), but profits flow through to partners’ personal returns. Each partner pays income tax on their share.
- S Corporation: The firm files Form 1120-S, but profits flow through to shareholders. You must pay yourself a reasonable salary, which is subject to payroll taxes, and remaining profits are taxed at your individual rate.
Estimated taxes: Because taxes are not withheld from your income, you must make quarterly estimated tax payments to the IRS (Form 1040-ES). For 2026, the due dates are April 15, June 15, September 15, and January 15, 2027. If you expect to owe more than $1,000, you must pay estimated taxes or face penalties.
Self-Employment Tax
If you are a sole proprietor, partner, or LLC member, you pay self-employment tax, which covers Social Security and Medicare. For 2026, the rate is 15.3% on net earnings up to $176,100 (Social Security wage base), plus 2.9% Medicare on all earnings above that. This is in addition to income tax.
Example: If your firm nets $100,000, you owe $15,300 in self-employment tax, plus income tax on that amount. You can deduct half of the self-employment tax as an adjustment to income.
Payroll Taxes
If you hire employees, you must withhold and pay payroll taxes. This includes:
- Federal income tax withholding: Based on each employee’s W-4.
- Social Security and Medicare (FICA): 7.65% from employee wages and a matching 7.65% from you as employer.
- Federal unemployment tax (FUTA): 6% on the first $7,000 of each employee’s wages, but you get a credit for state unemployment taxes, often reducing it to 0.6%.
You must deposit these taxes using the Electronic Federal Tax Payment System (EFTPS) on a semi-weekly or monthly schedule, depending on your liability. File Form 941 quarterly to report wages and taxes.
State and Local Taxes
State taxes vary widely, but most states impose an income tax on business profits. Some states, like Texas and Nevada, have no state income tax but may have franchise or gross receipts taxes. Check your state’s department of revenue for specifics.
- State income tax: Rates range from 0% to 13.3% (California’s top rate). Many states follow federal rules for pass-through entities.
- Franchise tax: Some states, like California and Delaware, charge a minimum annual tax for LLCs and corporations, often $800 or more.
- Sales tax: If you sell products or certain services, you may need to collect sales tax. Most accounting services are exempt, but if you sell software or training, check your state.
- Local taxes: Some cities, like New York City, impose their own business income tax. Research your local requirements.
Property and Other Taxes
If you own office space or equipment, you may owe property tax. Personal property taxes on computers, furniture, and fixtures vary by state and county. Some states offer exemptions for small businesses, so check with your local assessor.
Tax Deadlines and Payments: A Quick Reference
| Tax | Form | Due Dates (2026) |
|---|---|---|
| Estimated federal income tax | 1040-ES | Apr 15, Jun 15, Sep 15, Jan 15, 2027 |
| Self-employment tax | Included in 1040-ES | Same as above |
| Payroll tax deposits | EFTPS | Semi-weekly or monthly |
| Payroll tax return | 941 | Apr 30, Jul 31, Oct 31, Jan 31 |
| Federal unemployment tax | 940 | Jan 31, 2027 |
| State income tax | Varies | Varies (often same as federal) |
| Franchise tax | Varies | Varies (often annual) |
Practical Steps to Get Started This Week
- Choose your entity structure: If you haven’t already, decide whether to operate as a sole proprietorship, LLC, or S corp. This affects all your taxes. Consult a CPA or tax attorney.
- Get an EIN: Apply for an Employer Identification Number from the IRS, even if you have no employees. You’ll need it for banking and tax filings.
- Set up accounting software: Use QuickBooks or similar to track income and expenses. This will make tax preparation easier.
- Open a separate business bank account: Keep business and personal finances separate to simplify tax reporting.
- Calculate your first estimated tax payment: Use last year’s income (if any) or a projection. Pay at least 100% of last year’s tax liability to avoid penalties.
- Register with your state: Check if you need a state tax ID, sales tax permit, or franchise tax registration.
FAQ
Q: Do I need to pay estimated taxes in my first year? Yes, if you expect to owe more than $1,000 in federal taxes. You can base your first payment on a projection. To avoid penalties, pay at least 100% of your prior year’s tax liability (if you had any) or 90% of your current year’s liability.
Q: Can I deduct startup costs? Yes, you can deduct up to $5,000 in startup costs in your first year, with the remainder amortized over 180 months. This includes legal fees, marketing, and equipment.
Q: What is the difference between an LLC and an S corp for taxes? An LLC is a pass-through entity by default, but you can elect S corp status. With an S corp, you must pay yourself a reasonable salary, which is subject to payroll taxes, but remaining profits are not subject to self-employment tax. This can save money if your profits are high.
Q: Do I have to collect sales tax on my accounting services? In most states, professional services like accounting are not subject to sales tax. However, if you sell products, like software or books, you may need to collect. Check your state’s rules.
The Bottom Line
New accounting firms face a complex tax landscape, but understanding the basics helps you plan. You’ll pay federal income tax, self-employment tax, and possibly payroll taxes, plus state and local taxes. Start by choosing your entity, getting an EIN, and setting up a system for estimated payments. Work with a tax professional to ensure compliance and minimize your burden. The key is to stay organized and meet deadlines to avoid penalties. With the right approach, you can focus on growing your practice while staying on top of your tax obligations.