How to sell a business comes down to five moves: clean up your books so buyers can trust your earnings, set a price based on what the business actually earns, find qualified buyers without tipping off your staff or customers, sign a letter of intent, and survive due diligence to a closing where the price, structure and taxes are spelled out. For most small owners, the smart plan starts about 12 months before you want to hand over the keys. The prep is where the money gets made.

If you’re searching how to sell a small business, how to sell my business, or how to sell a business fast, this is the same playbook. This is education, not legal, tax or investment advice. Bring in a CPA and a deal attorney before you sign anything.

What the market looks like right now

BizBuySell’s Q3 2026 Insight Report (published October 20, 2026) counted 2,132 small businesses sold in the quarter, down 7% from a year earlier, with a median sale price of $350,000. Buyer confidence fell to 49 and seller confidence to 47. The line from BizBuySell president Bob House that every seller should tape to the monitor: buyers are “gravitating toward businesses with reliable cash flow, clean financials, limited owner dependence, and a clear path to financing.”

Read that again. That sentence is your 12-month plan.

The 12-month exit plan at a glance

That timeline is a planning frame, not a promise. Some deals move faster. Plenty take longer, especially when financing is slow.

Step 1: Make your numbers buyer-proof

Most small businesses are priced on seller’s discretionary earnings (SDE) or, for bigger ones, EBITDA. SDE is your pre-tax profit with the owner’s salary and perks, interest, depreciation and genuine one-time costs added back. The buyer wants to know one thing: how much cash will this throw off for me?

Here’s what I’d fix first:

• Three years of financials that match your tax returns. If the P&L says one thing and the return says another, you’ve just handed the buyer a reason to cut the price.
• Personal spending out of the business. The family phone plan and the car you barely use for work make the profit look lower and the books look messy.
• Add-backs with receipts. Every add-back you claim needs proof. “Trust me” isn’t proof.
• Customer concentration. If one client is a big slice of revenue, buyers will discount for it or push for an earnout.

Once the numbers are clean, you can price it properly. I covered the methods, SDE multiples, EBITDA and asset value, in detail in how to value a small business. Use the national median as context, not as your asking price. Your business is worth what its earnings support.

Step 2: Make yourself less necessary

If you are the business, a buyer is buying a job they can’t do. That hurts price and it hurts financing, because lenders want to see the business survive without you.

• Write down how the core work gets done: sales, delivery, billing, hiring.
• Move key customer relationships to a manager or account lead.
• Put important vendor and customer agreements in writing, and check whether they can be transferred to a new owner.
• Take a real two-week break and see what breaks. Then fix it.

The succession readiness check most sellers skip

Here’s the uncomfortable part. Most owners think they’re ready to sell long before they are. Succession advisor Bill Pavelich works with owners in what he calls the fourth quarter of their business, the stretch after 10, 20 or 30 years when the exit is finally on the table. His line on that stage stuck with me: “It’s not about playing less, it’s about playing smarter.” You change the playbook. You don’t just run out the clock.

His bigger point is about control. When the business is ready, you pick the timing, whether that’s next year or seven years out. When it isn’t, the timing picks you. Bill breaks readiness into four pillars, and I’d score yourself on each one before you call a broker.

1. Owner readiness: are you the ceiling?

Bill’s test is a few blunt questions. How many decisions are you making that someone else could make? Are you solving every problem and bringing every solution? If you can’t answer straight, he pushes for 360 feedback from your team. One habit he uses to break the dependence: anyone who brings you a problem has to bring two possible solutions with it, good or bad. That cuts the knocks on your door and starts building the people a buyer will be relying on.

2. Financial readiness: can you afford to walk away?

Bill says plenty of owners, even ones who manage money for a living, haven’t done their own homework. As he puts it, “the plumbers always have the worst pipes in their house.” Know what you need from the sale before you set a floor price. Otherwise you’ll negotiate from fear.

3. Team readiness: will your people step up?

Here’s the contrarian bit. Owners worry the team can’t handle more. What Bill hears from the team is the opposite: why won’t the owner let us do that? When the owner finally hands it over, people usually get more engaged, not less. The hesitation is usually the owner’s, not theirs.

4. Client readiness: will they stay without you?

Every serious buyer asks some version of the question Bill keeps hearing: “How do I know your clients are gonna stay?” If every key relationship runs through you, that’s a discount. Start handing clients to the people who’ll still be there, and let those relationships settle well before the sale.

Then find your lowest pillar and work on it first. Bill’s approach is a 90-day readiness sprint: assess where you are, build the strategy, then go after the highest priorities with the greatest return. You don’t have to fix everything at once. You do have to start.

One more pattern he sees over and over. What looks like pride or ego in a seller (“nobody can do it the way I do”) is usually fear underneath: fear of change, of the unknown, of what happens to the people who built it with you. When that belief shows up, he asks a simple question: “Do you know that to be an absolute truth? Or is it your truth?” Most owners have never tested it. Test it now, while you still have 12 months, not in the middle of due diligence.

Succession advisor Bill Pavelich built his free Succession Readiness Assessment for advisory practices, but the questions work for any owner thinking about an exit. It scores you on owner, financial, team and client readiness in about five minutes.

Step 3: Broker or sell it yourself?

A good business broker brings buyers, keeps the process confidential, screens tire-kickers and keeps the deal moving. You pay for that, usually as a success fee that’s a percentage of the sale price, sometimes with an upfront retainer. Read the listing agreement for the length of the exclusive and the “tail,” which is how long after the agreement ends you’d still owe a fee to a buyer they introduced.

Selling it yourself can work when you already know the buyer: a key employee, a competitor, a supplier, a customer. Even then, don’t go it alone on the paperwork. You still need a deal attorney and a CPA.

Step 4: Know who’s on the other side of the table

• Individual buyers buying themselves a business, often with an SBA-backed loan. They care about steady cash flow and whether a lender will finance it.
• Strategic buyers, like competitors or companies in a nearby market, who may pay more because they can cut costs or cross-sell.
• Financial buyers, such as search funds, private equity and family offices, who show up more as deals get bigger.
• Insiders, like a partner, family member or management team, who already know the business but may need seller financing.

Whoever it is, think like their lender. A careful buyer will ask you to prove every number before they make a serious offer, so have the proof ready before they ask.

Step 5: Market it quietly

Leaks kill value. Staff get nervous, competitors whisper to your customers, and suppliers tighten terms. So:

1. Start with a blind teaser that doesn’t name the business.
2. Get a signed NDA before you share the detailed information package.
3. Qualify buyers on funds and experience before you take a meeting.
4. Tell key employees on your timeline, usually close to the finish, and think about stay bonuses for the people a buyer can’t lose.

And keep running the business hard. Revenue that slips during the sale gives the buyer a reason to re-price.

Step 6: LOI, due diligence and closing

The letter of intent (LOI) sets the price, structure, exclusivity period and main conditions. Most of it is non-binding, but it frames everything that follows, so don’t sign a vague one.

Then comes due diligence. The buyer and their lender go through your financials, tax returns, contracts, leases, employees, licenses and any legal issues. Have a clean data room ready before the LOI is signed. Surprises found here get turned into price cuts.

The purchase agreement is the final deal. Watch these terms:

• Asset sale or stock sale. Buyers usually prefer assets, sellers often prefer stock. The difference can change what you keep after tax. I broke it down in asset sale vs stock sale.
• Seller financing. Carrying a note can widen your buyer pool and help a deal get funded, but you’re now a lender. Get security and personal guarantees.
• Earnouts. Part of the price paid later if the business hits targets. Define the targets tightly or expect a fight.
• Escrow or holdback, reps and warranties, non-compete and transition period. These decide how much of the price you actually keep and how long you stay tied in.

Step 7: Plan the taxes before you sign

The price on the LOI isn’t what lands in your account. In an asset sale, both buyer and seller must report how the price is split across asset classes on IRS Form 8594. That split matters. Some of it may be taxed as long-term capital gain, which the IRS taxes at 0%, 15% or 20% depending on income, while other parts, like depreciation recapture or a consulting agreement, can be taxed as ordinary income.

If you carry a seller note, the installment method may let you report part of the gain as payments arrive, as explained in IRS Publication 537. State tax, the 3.8% net investment income tax and your entity type all change the final number. Get your CPA modeling this before you agree to a structure, not after.

Mistakes that cost sellers the most

• Pricing off a friend’s sale or a headline median instead of your own earnings.
• Waiting until you’re burned out, so the business is already sliding when you list.
• Letting books, contracts and leases stay messy until diligence.
• Signing a loose LOI with a long exclusivity period.
• Ignoring what happens after the wire hits: taxes, your estate plan and what you’ll do on Monday.

Selling a business is usually the biggest financial event of an owner’s life. Give it the same preparation you’d give a launch. Twelve months of boring cleanup is how you get paid full price.

Frequently Asked Questions

How long does it take to sell a small business?

It varies by size, industry and financing, but many sales take several months to a year once listed, plus prep time before that. Starting about 12 months ahead gives you time to clean up the books and reduce owner dependence.

Can I sell my business without a broker?

Yes, especially if you already have a buyer like an employee, competitor or customer. You’ll still want a deal attorney and a CPA for the letter of intent, purchase agreement and tax structure.

How do I know what my business is worth?

Most small businesses are valued as a multiple of seller’s discretionary earnings or EBITDA, adjusted for growth, risk and owner dependence. A broker’s opinion of value or a formal valuation gives you a defensible number.

What taxes do I pay when I sell my business?

It depends on deal structure and how the price is allocated. Parts may be long-term capital gain taxed at 0%, 15% or 20%, while other parts can be ordinary income. State tax and the 3.8% net investment income tax may also apply.

When should I tell my employees I’m selling?

Usually late in the process, once a deal is close, so leaks don’t hurt the business. Many sellers tell key managers earlier and offer stay bonuses so the people a buyer depends on stick around.

How do I know if I’m ready to sell my business?

Check four areas, a framework from succession advisor Bill Pavelich: owner readiness (can the business run without you making every decision), financial readiness (can you afford to step away), team readiness (will key people stay and step up) and client readiness (will customers stay once you’re gone). Start with your weakest area.

S corp vs C corp comes down to how your profit gets taxed. An S corporation passes its profit through to your personal return, so it’s taxed once, while a C corporation pays a flat 21% federal corporate tax and then you pay tax again on any dividends you take out. For most owner-operated businesses that pay out their profit, the S corp keeps more money in your pocket. The C corp wins when you plan to raise venture capital, reinvest most of the profit, or sell stock that could qualify for the QSBS exclusion.

People also phrase this as C corp vs S corp, S corporation vs C corporation, or “should I be an S corp or a C corp.” Same decision. Below I run the actual 2026 federal math at $100K, $200K and $500K of profit so you can see the gap in dollars, not adjectives. This is education, not tax or legal advice. Run your own numbers with a CPA before you file anything.

The short version: one layer of tax or two

Every corporation starts life as a C corp for federal tax purposes. An S corp isn’t a different kind of company at the state level. It’s a tax election you make with the IRS on Form 2553. An LLC can also file that election and be taxed as an S corp, which is how a lot of small owners end up here.

The S corp rules come straight from the IRS S corporations page: a domestic corporation, no more than 100 shareholders, only allowable shareholders (no partnerships, corporations or nonresident aliens) and only one class of stock.

The $200K math: S corp vs C corp side by side

Here’s the example everybody actually wants. One owner, single filer, $200,000 of profit before paying themselves, a non-service business, 2026 federal rates, standard deduction, no other income, no state tax. In both cases the owner takes an $80,000 salary. That salary number is an assumption for the example, not a recommendation.

As an S corp:

• Payroll tax on the $80,000 salary, both halves: about $12,240.
• Profit that passes through after salary and the employer’s payroll tax: about $113,880.
• The 20% qualified business income deduction knocks about $22,780 off taxable income, because the owner is under the 2026 threshold.
• Federal income tax on everything: about $29,800.
• Total federal tax: about $42,000.

As a C corp that pays out all its profit:

• Same salary, same payroll tax: about $12,240.
• Corporate tax at 21% on the remaining $113,880: about $23,900.
• The leftover $89,970 goes out as a qualified dividend, taxed at 15%: about $13,500.
• Personal income tax on the salary: about $8,770.
• Total federal tax: about $58,400.

That’s roughly $16,400 a year more tax for the C corp in this setup. That’s the double tax people talk about, and at this profit level it isn’t close.

Now flip one assumption. If the C corp leaves that $89,970 inside the company to fund growth instead of paying it out, this year’s federal bill drops to about $44,900. That’s close to the S corp number. The dividend tax doesn’t disappear. It waits until you take the money out.

How the gap moves at $100K and $500K

Totals include federal income tax, both halves of payroll tax, the 21% corporate tax and dividend tax, plus the 3.8% net investment income tax where the dividend pushes income over $200,000. Brackets, the $16,100 standard deduction, the 15% dividend bracket and the $201,750 QBI threshold come from the IRS 2026 inflation adjustments in Rev. Proc. 2025-32. These are simplified estimates. Your state, your filing status, your retirement contributions and your real salary will change them.

Look at the $500K row. That’s the one place the C corp wins this year, and only if the money stays in the business. If you’re going to spend it, you pay the second layer eventually.

When the S corp keeps more of your profit

• You take most of the profit home each year.
• You’re one owner or a small group of US owners.
• You don’t plan to raise venture money.
• Your profit is high enough that saving payroll tax on distributions beats the extra cost of running payroll.

The catch is salary. The IRS says S corps must pay a shareholder-employee reasonable compensation for the work they do before taking non-wage distributions. Paying yourself $20,000 on $300,000 of profit to dodge payroll tax is the classic audit flag. If you haven’t set your number yet, start with how to pay yourself as a business owner and get your CPA to document why the salary fits the job.

When a C corp is the better call

You’re raising venture capital

This one isn’t really a tax decision. VC funds are usually partnerships, they want preferred stock, and many have foreign or corporate investors. An S corp can’t have any of that. If you plan to raise a priced round, you’ll almost certainly be a C corp, and it’s cleaner to start there than to convert later.

QSBS can make the exit nearly tax-free

Section 1202 lets owners of qualified small business stock exclude gain on a sale, and only C corp stock qualifies. For stock issued after July 4, 2025, the current law excludes 50% of the gain after three years, 75% after four and 100% after five, up to the greater of $15 million or 10 times your basis per company. The company’s gross assets can’t top $75 million when the stock is issued, and some fields, like health, law, consulting and other businesses built on an employee’s skill or reputation, don’t qualify. If you’re building something to sell for eight figures, that alone can outweigh years of double tax.

You’ll reinvest almost everything

If every dollar goes back into hiring, product and inventory, 21% on retained profit can beat an owner’s 32% or 35% personal bracket. Just be honest with yourself about whether you’ll really leave the money in.

Switching later costs time and money

You can change your mind, but it’s not free. If you revoke an S election, you generally have to wait five years before electing again unless the IRS consents. Going from C corp to S corp can trigger a built-in gains tax if the company sells appreciated assets within five years of the switch. Timing matters too. A new S election generally has to be filed within 2 months and 15 days after the start of the tax year it covers, per the Form 2553 instructions. So pick based on where the business is going over the next five years, not just this year’s tax bill.

What I’d do

1. If you’re profitable, owner-run and taking most of the money home, start with the S corp math and a defensible salary.
2. If you’re raising money or building for a big exit, form a C corp early and track your QSBS dates from day one.
3. If you’re in the middle, model both at your real numbers, including state tax, and decide with a CPA before the election deadline.

The worst version is picking an entity because a friend did, then paying for it every April. Get the math done once and properly.

Frequently Asked Questions

Is an S corp or C corp better for a small business?

For most owner-run businesses that pay out their profit, an S corp costs less in federal tax because profit is taxed once. A C corp usually fits companies raising venture capital, reinvesting most profit, or aiming for a QSBS exit.

How much tax does an S corp earning $200,000 pay?

The S corp itself usually pays no federal income tax. In our simplified 2026 example with an $80,000 salary, the owner’s total federal tax, including payroll tax, came to about $42,000. Your number depends on salary, state and filing status.

What is the C corp tax rate in 2026?

C corporations pay a flat 21% federal corporate income tax. Dividends paid to owners are taxed again on their personal returns, usually at 15% or 20%, plus the 3.8% net investment income tax above certain income levels.

Can an S corp take money from investors?

Only within tight limits. An S corp can have up to 100 shareholders, generally US individuals and certain trusts and estates, and just one class of stock. That rules out most venture funds and preferred stock.

Can I switch from an S corp to a C corp later?

Yes. You can revoke the S election, but you generally can’t elect S status again for five years without IRS consent. Plan the switch with a CPA, ideally before a funding round.

Why do startups use C corps instead of S corps?

Investors want preferred stock and many funds are partnerships or have foreign partners, which S corps can’t accommodate. C corp stock can also qualify for the Section 1202 QSBS exclusion on a future sale.

The QBI deduction, formally the qualified business income deduction under section 199A, lets you deduct up to 20% of your qualified business income from a sole proprietorship, partnership or S corporation on your 2026 personal return. It’s capped at 20% of your taxable income, figured before the QBI deduction, minus net capital gain (increased by any qualified dividends). If your 2026 taxable income before the deduction is at or below $201,750 ($403,500 if you’re married filing jointly, $201,775 if you’re married filing separately), you use the shorter Form 8995, and a specified service trade or business is still treated as qualified.

You’ll also hear it called the section 199A deduction or the pass-through deduction. It reduces income tax, not self-employment tax, and it doesn’t apply to C corporation profits or wages you earn as an employee. The figures below come from the IRS 2026 Instructions for Form 8995 (draft, catalog 69662S, dated June 17, 2026) and the 2026 draft of Schedule A (Form 8995-A). Those drafts are what the IRS has published for the 2026 tax year; your CPA should confirm the final versions when you file.

What counts as qualified business income (and what doesn’t)

Qualified business income is the net profit from a domestic trade or business that you operate as a sole proprietor, partner or S corporation shareholder. It includes the ordinary income, deductions and losses tied to that business, after things like the deductible part of self-employment tax, self-employed health insurance and retirement plan contributions.

Just as important is what the IRS says is not QBI. Wages you receive as an employee don’t count. Reasonable compensation from an S corporation doesn’t count. Guaranteed payments to a partner, and payments a partner receives for services other than in their capacity as a partner, don’t count. Capital gains, most interest and dividends, and income that isn’t effectively connected with a U.S. trade or business are out too.

That S corporation piece is the one I see founders miss. The salary you pay yourself is ordinary wage income. It never becomes QBI. Only the profit left after that salary can qualify.

2026 QBI deduction thresholds and which form to file

The income number that matters is your 2026 taxable income before the QBI deduction, not your business’s gross revenue and not your adjusted gross income.

At or below the first column, you use Form 8995, the simplified computation, as long as you aren’t a patron of a specified agricultural or horticultural cooperative. Above that number, you use Form 8995-A. In the band between the two columns, a specified service business is only partly in, and you complete Schedule A (Form 8995-A). Above the second column, that specified service business doesn’t qualify for the deduction at all.

One more cap applies to everyone, including people under the threshold: the whole QBI deduction can’t be more than 20% of your taxable income before the deduction, minus net capital gain. A big capital gain in the same year can shrink the write-off even if your business profit looks healthy.

The SSTB phaseout: why a consultant and a product company are treated differently

A specified service trade or business, or SSTB, is the IRS’s list of service fields that lose this deduction once your taxable income climbs high enough. The 2026 Form 8995 instructions name health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, and trading or dealing in securities, partnership interests or commodities. The list also includes a narrow “reputation or skill” category: endorsement income, fees for licensing your name or likeness, and appearance fees.

If you’re under the threshold, an SSTB is treated like any other qualified business. Cross into the phase-in range and only an applicable percentage of that business still counts, shrinking as your income rises. Cross the upper number and the SSTB is out.

Here’s a simple teaching example, with made-up numbers, so you can see the fork in the road. Say you’re single, you run a consulting practice, and your QBI is $180,000.

• If your taxable income before the QBI deduction is $190,000, you’re under the $201,750 threshold. Twenty percent of $180,000 is $36,000, and 20% of $190,000 is $38,000, so the deduction is $36,000.
• If that same practice produces taxable income of $290,000, you’re above $276,750. The consulting income is from an SSTB, and it no longer qualifies. The QBI deduction from that business is zero.

Now change only the business. Same person, same $180,000 of QBI and $290,000 of taxable income, but the company sells a product and isn’t an SSTB. The deduction doesn’t vanish. It gets tested against the wage and property limit instead.

The W-2 wage and qualified property limit above the threshold

Once your taxable income before the QBI deduction is above the threshold, the 20% figure for each qualified business can be limited to the greater of 50% of the W-2 wages that business paid, or 25% of those W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of its qualified property. Inside the phase-in range, that limit comes in gradually. Above the top of the range, it applies in full. Under the threshold, it doesn’t apply at all.

This is where a lean one-person company can get a surprise. A sole proprietor who pays no W-2 wages and holds little depreciable property may have a full 20% deduction under the threshold and a much smaller one, or none, once income is high enough for the limit to apply. Don’t hire people or buy equipment just to chase a tax deduction. If your profit is climbing toward the threshold, sit down with a CPA before year end and look at the real numbers, not a rule of thumb.

Keep going with the product-company example. $180,000 of QBI, $290,000 of taxable income, single filer, no capital gain. Twenty percent of the QBI is $36,000. If that company paid $40,000 of W-2 wages and has no qualified property, 50% of those wages is $20,000, so the QBI component is limited to $20,000. If it paid no W-2 wages and has no qualified property, that limit is zero. Same profit. Different payroll facts. Different deduction.

The new $400 minimum deduction for 2026

New in the 2026 Form 8995 instructions is a minimum deduction. If your aggregate QBI from qualified trades or businesses in which you materially participate (in the sense of section 469(h)) is at least $1,000, you get a QBI deduction of at least $400. Material participation is required for this minimum. It is not required for the regular QBI deduction.

For most founders with real profit, $400 isn’t the story. It’s a floor for smaller active side businesses. The IRS added lines on the 2026 Form 8995 to compute it. Don’t assume it applies if you don’t materially participate, and don’t stretch a hobby into a trade or business to get it.

What this means if you pay yourself from an S corporation

This is not another entity-choice article. If you’re already comparing an S corp vs LLC, you know the election is about payroll tax on wages versus distributions. For the QBI deduction, that same split does two jobs, and they pull in opposite directions.

Reasonable compensation is not QBI, so a larger salary shrinks the profit that can receive the 20% deduction. Above the threshold, though, W-2 wages are also what feed the wage limit. Paying yourself nothing can hurt that test. Paying yourself everything can leave little QBI. There’s no magic percentage in the IRS instructions, and anyone who sells you one is guessing. The job is to pay a salary you can defend, then let a CPA run the QBI math on the leftover profit.

How to actually use the QBI deduction this year

You claim it on your personal return, Form 1040, after you complete Form 8995 or Form 8995-A. It isn’t a business-return deduction, and you can take it whether you itemize or take the standard deduction. It does not lower the profit that self-employment tax is figured on.

Before year end, do three practical things. First, estimate your 2026 taxable income before the QBI deduction, not just your revenue, so you know whether you’re under the threshold, in the phase-in range or over the top. Second, if you have more than one business, get clear on which of them, if any, is an SSTB. Third, if you’re close to a threshold, talk to a CPA about the actual levers you still have, including retirement contributions and the timing of income and expenses. This belongs on your list of year-end tax moves, not something you first look at in April.

I’m not your tax advisor, and this isn’t advice for your return. The IRS draft instructions are the source for every 2026 dollar figure in this article. Use them with a CPA who can apply the rules to your filing status, your entity and your numbers.

Frequently asked questions

What is the QBI deduction?

The QBI deduction, or section 199A deduction, is a personal income tax deduction of up to 20% of qualified business income from a sole proprietorship, partnership or S corporation, limited to 20% of taxable income before the deduction minus net capital gain.

What are the 2026 QBI deduction thresholds?

For 2026, you use Form 8995 if taxable income before the QBI deduction is at or below $403,500 married filing jointly, $201,775 married filing separately, or $201,750 for all other returns. Above those amounts, you use Form 8995-A.

Does a specified service trade or business get the QBI deduction?

Yes, if your taxable income before the deduction is at or below the 2026 threshold. In the phase-in range only part of the SSTB qualifies. Above $553,500 joint, $276,775 married filing separately, or $276,750 for other returns, the SSTB doesn’t qualify.

Is the QBI deduction $400 for everyone in 2026?

No. The $400 figure is a minimum, and only if your aggregate QBI from businesses you materially participate in is at least $1,000. Most founders with real profit will use the regular 20% computation, which is usually larger.

Does the QBI deduction reduce self-employment tax?

No. It is an income tax deduction on your Form 1040. It does not reduce net earnings from self-employment, so Schedule SE is still figured on the full profit.

Can I claim the QBI deduction if I operate as an S corporation?

Yes, on the profit that passes through to you, but not on the reasonable compensation the S corporation pays you. That salary is wage income, not qualified business income.

An HSA for self-employed people works the same way it does for employees: if you’re covered by a qualifying high-deductible health plan, you can open a health savings account on your own, put in up to $4,400 for self-only coverage or $8,750 for family coverage in 2026, and deduct it on your tax return without itemizing. You don’t need an employer. You just lose the payroll tax break employees get, because your contribution doesn’t reduce self-employment tax.

People search this a bunch of ways: “can self-employed people have an HSA,” “HSA for freelancers,” “HSA for 1099 contractors,” “HSA deduction for self-employed.” Same answer for all of them. This is education, not tax or health advice, so check your situation with a tax pro before you contribute.

Can you have an HSA if you’re self-employed?

Yes. Plenty of freelancers and solo founders assume an HSA is an employee perk because they first heard about it through a corporate benefits package. It isn’t. The account belongs to you, not your employer. Under IRS Publication 969, you can contribute for any month where:

• You’re covered by a high-deductible health plan (HDHP) on the first day of the month.
• You don’t have other health coverage that disqualifies you.
• You aren’t enrolled in Medicare.
• Nobody can claim you as a dependent.

Notice what’s not on that list. Your job title. Whether you have a boss. Whether you file a Schedule C or run an S corp. The test is about your health coverage, not your employment.

Most of the confusion comes from people opening the account and assuming that makes them eligible. It doesn’t. The plan does. If you haven’t sorted out your coverage yet, start with my guide to health insurance for self-employed people, then come back here to set up the account.

2026 and 2027 HSA contribution limits

The IRS adjusts these every year. Here are the current numbers from Rev. Proc. 2025-19 (2026) and Rev. Proc. 2026-24 (2027, released May 29, 2026).

You don’t have to fund it all in January. For 2026, you can keep contributing up to the April 15, 2027 tax filing deadline, which gives you time to see how the year actually went before you decide how much to put in.

What changed in 2026: bronze and catastrophic plans now count

This is the part a lot of older HSA articles miss. Before 2026, many bronze plans didn’t qualify as HDHPs because their out-of-pocket limits were too high or they covered some things before the deductible. Catastrophic plans never qualified.

That changed with the One Big Beautiful Bill Act. According to IRS Notice 2026-5, starting January 1, 2026, bronze and catastrophic plans available as individual coverage through an Exchange are treated as HDHPs. For self-employed people who buy their own coverage, that’s a big deal. A lot of people who were locked out of an HSA last year can open one now.

Two other changes from the same law are worth knowing:

• Direct primary care. A direct primary care arrangement no longer knocks you out of HSA eligibility as long as the fees stay under the limit, which is $150 a month ($300 if it covers more than one person) for 2027 per Rev. Proc. 2026-24.
• Telehealth. HDHPs can cover telehealth before you hit the deductible without costing you eligibility. The law made that rule permanent.

One caution. Not every health arrangement is insurance. If you’re in something that isn’t an Exchange bronze or catastrophic plan or a plan that meets the HDHP rules, don’t assume it qualifies. Check before you contribute.

How the HSA deduction works for a sole proprietor

When you’re self-employed, you contribute with after-tax money and then take the deduction on your return. You report contributions on Form 8889, and the deduction flows to Schedule 1 as an adjustment to income. You get it whether you itemize or not.

Here’s the catch nobody tells freelancers. That deduction lowers your income tax, but it doesn’t lower your Schedule C profit, so it doesn’t touch self-employment tax. An employee who funds an HSA through payroll skips income tax and the payroll taxes on that money. You don’t get the second part.

Is it still worth it? For most people with a qualifying plan, yes. You’re still getting a deduction going in, tax-free growth, and tax-free withdrawals for medical costs. That’s a better deal than almost any other account you’ll touch. Just know the real number before someone tells you it’s “triple tax-free” and leaves out the self-employment part.

HSA for S corp owners and partners

Run an S corp or a partnership? The rules shift a little, according to Publication 969:

• S corp, 2% or more shareholder: HSA contributions the S corp makes for you are treated as guaranteed payments. The company deducts them, they’re included in your income, and you can then deduct the contribution on your own return.
• Partners: Contributions a partnership makes to your HSA, when treated as distributions, aren’t deductible by the partnership. You deduct them on your own return if you’re eligible.

The paperwork for this gets fiddly fast. If you’re paying yourself through an S corp, have whoever runs your payroll set it up correctly instead of guessing.

How to set up an HSA when you’re self-employed

1. Confirm your plan qualifies. Check that your health plan is an HDHP, or an Exchange bronze or catastrophic plan for 2026 and later. Your insurer or the plan documents should say.
2. Open the account yourself. Banks, credit unions and brokerages offer HSAs directly to individuals. Compare fees and whether you can invest the balance, not just hold it in cash.
3. Pick a contribution amount. Stay under the limit for your coverage type. If you also have an HSA through a spouse’s or side job, all contributions count toward the same cap.
4. Automate it. Set up a monthly transfer from your business or personal account, the same way you’d handle your tax set-asides.
5. Keep your receipts. You need records showing withdrawals paid for qualified medical expenses.
6. File Form 8889. Report contributions and withdrawals every year you have activity.

If you’re already building a retirement plan for your business, think of the HSA as its partner. The solo 401k vs SEP IRA decision handles retirement. The HSA handles health costs, now and later.

Mistakes that cost self-employed people money

• Contributing without a qualifying plan. No HDHP on the first of the month, no contribution for that month.
• Going over the limit. Excess contributions generally face a 6% excise tax every year they stay in the account.
• Using it for non-medical stuff. Withdrawals for non-qualified expenses are taxed as income and may get an extra 20% tax unless you’re 65 or older, disabled or another exception applies.
• Paying premiums from it. You generally can’t use HSA money for health insurance premiums. The exceptions include COBRA, coverage while you’re on unemployment, long-term care insurance, and Medicare premiums once you’re 65.
• Mixing it up with the premium deduction. The self-employed health insurance deduction covers your premiums. The HSA deduction covers your contributions. They’re separate, and you may qualify for both.
• Leaving it all in cash. If your HSA can be invested and you can cover small medical bills out of pocket, letting it grow is one of the smartest long-term moves available to someone without an employer plan.

I’ll be honest about the real mistake, though. It’s knowing all this and never opening the account. People read about the HSA, nod, and then let another open enrollment pass. The rules don’t help you until you act on them.

Frequently asked questions

Can I open an HSA if I’m self-employed?

Yes. You can open an HSA on your own as long as you’re covered by a qualifying high-deductible health plan, have no disqualifying coverage, aren’t on Medicare and can’t be claimed as a dependent.

What is the HSA contribution limit for 2026?

For 2026, the limit is $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up if you’re 55 or older. For 2027, it rises to $4,500 and $9,000.

Do HSA contributions reduce self-employment tax?

No. A self-employed person’s HSA deduction is taken on Schedule 1 and lowers income tax, but it doesn’t reduce Schedule C profit, so self-employment tax stays the same.

Is a bronze plan HSA-eligible in 2026?

Yes, if it’s available as individual coverage through an Exchange. Under the One Big Beautiful Bill Act and IRS Notice 2026-5, bronze and catastrophic Exchange plans count as HDHPs starting January 1, 2026.

What is the deadline to contribute to an HSA for 2026?

You can make 2026 contributions up until the April 15, 2027 tax filing deadline for most calendar-year filers.

Can I pay health insurance premiums with my HSA?

Generally no. The main exceptions are COBRA coverage, coverage while you’re receiving unemployment, long-term care insurance and Medicare premiums if you’re 65 or older.

Here’s my take. If you’re self-employed and on a qualifying plan, the HSA is one of the few tax breaks built for exactly your situation, and most freelancers still ignore it. Check your plan, open the account, and automate the deposit. Ten minutes this week beats another year of meaning to get to it.