Starting a business:
the financial side nobody tells you.

Section 1 · LLC vs S-Corp vs Sole Proprietor

Rule of thumb: start as sole proprietor. File for LLC once you have assets to protect or when your state's filing fees are trivial. Consider S-Corp election when net profit reliably exceeds $40,000 to $60,000 ($80,000+ in California).

Section 2 · Quarterly estimated taxes

Self-employed people pay federal taxes four times a year via IRS Form 1040-ES^[2].

• Underpayment penalty: the IRS charges interest if you owe more than $1,000 at year-end without enough withholding or estimated payments. The penalty is small but annoying.
• Safe-harbor rule: you can avoid the penalty by paying either (a) 90% of current-year tax liability or (b) 100% of last year's tax (110% if last year's AGIAdjusted Gross Income (AGI)Your total income minus certain deductions, used to calculate your tax bill.Full definition exceeded $150K) via timely estimates and withholding.
• Rule of thumb: set aside 25–30% of every payment received in a separate savings account designated for taxes. Transfer on the day the money arrives.
• States have their own estimated tax schedules. If you live in a state with income tax, you owe quarterly state estimates too.

Section 3 · Separate finances immediately

Business bank account separate from personal from day one. This matters for taxes (clean accounting), legal protection (commingling funds can pierce the LLC veil), and clarity (you know what the business is earning and spending).

• Business checking options: Mercury (fintech, good for online-first businesses), Relay (free multi-account setup), Bluevine, or any traditional bank's business account. Many are free with minimum-balance requirements.
• Business credit card: helps separate expenses and builds business credit over time. Amex Business or Chase Ink are common starter options.
• Bookkeeping software from day one. Wave is free. QuickBooks Self-Employed works for sole proprietors. FreshBooks is good for service businesses. Don't rely on bank statements alone; reconstructing a year's worth of transactions at tax time is miserable.

Section 4 · Solo 401(k), the power account

As a sole proprietor or single-member LLC with no employees (other than a spouse), you can contribute to a Solo 401(k) as both employee and employer^[3]:

Compare providers’ fees, investment options and plan features before opening. The 2026 Solo 401(k) limit is up to $72,000 before permitted catch-ups, subject to eligible earnings and coordination with deferrals at other jobs. It is not a guaranteed deduction for every business owner. ^[4]

Section 5 · Health insurance

• ACA marketplace is the default path. Losing employer coverage is a qualifying event. Subsidies are available based on income.
• Premiums are 100% deductible for the self-employed (as an above-the-line adjustment, not itemized). Keep records.
• HDHPHigh-Deductible Health Plan (HDHP)A health-plan category with statutory deductible and out-of-pocket rules. HSA eligibility also depends on other conditions. Special 2026 rules cover qualifying bronze and catastrophic plans; verify the plan and your own eligibility rather than relying on its deductible alone.Full definition + HSAHealth Savings Account (HSA)A health savings account available only when eligibility requirements are met. Federal tax benefits depend on contribution limits and qualified medical expenses. Health coverage, other coverage and Medicare enrollment can affect eligibility; state tax treatment can differ.Full definition remains a great combination: lower premiums, triple tax advantage on the HSA, and the shoebox strategy for long-term tax-free investing.
• QSEHRA becomes relevant if you eventually hire employees: it lets a small business reimburse employee health costs tax-free.

Section 6 · Deductions that matter

• Home office. A dedicated space (not the kitchen table) used regularly and exclusively for business. Square-footage method or actual-expense method. The simplified option allows $5/sq ft up to 300 sq ft ($1,500 max).
• Equipment and software. Laptop, monitor, chair, cameras, software subscriptions. Section 179 or bonus depreciation may allow immediate expensing.
• Phone and internet. Business-use portion. Most self-employed people take 50–80% if the phone/internet is used heavily for business.
• Professional development. Books, courses, conferences, subscriptions, professional memberships.
• Business mileage. Not commuting. Meetings, client visits, business errands. Current IRS standard mileage rate is 76 cents per mile for July-December 2026 (72.5 cents for January-June; verify at IRS.gov)^[5].
• Keep every receipt. Digital photos work. Expensify, Wave, or QuickBooks will OCR and categorize.

Section 7 · The Bitcoin angle

For a sole proprietor, revenue minus deductible business expenses generally equals net profit; income tax and self-employment tax calculations begin from that profit, not gross receipts. The cash-flow path: ^[6]

1. Business receives revenue.
2. Record deductible costs and estimate net profit; set a tax reserve using expected federal income tax, self-employment tax and applicable state taxes, less withholding and credits. A percentage reserve is only a budgeting estimate. ^[6]
3. Pay yourself via transfer from business to personal checking.
4. From personal checking, max Solo 401(k), then max Roth IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition (if income-eligible), then DCADollar-cost averaging (DCA)Investing a fixed amount on a regular schedule, such as $50 every payday, regardless of price. It spreads out when money enters the market and buys more units when prices are low, but it does not guarantee a better price than investing all at once, a profit or protection against loss.Full definition remaining into Bitcoin.

Businesses holding Bitcoin on the balance sheet is a more advanced topic (accounting treatment, tax implications of realized vs unrealized gains, fair-value accounting per FASB 2023 rule change). MicroStrategy pioneered the model; small businesses are beginning to copy it. If you want to go there, hire a CPA who has done it before.