Self-Employed Tax Tips
Having said that, there are several strategies available for self-employed individuals to reduce their tax bill. This starts by taking advantage of deductions, credits, and smart tax planning strategies. Here are some key ways to lower your tax burden:
1. Maximize Business Deductions
As a self-employed individual, you can deduct all ordinary and necessary business expenses under Internal Revenue Code Section 162. These deductions include:
Vehicle Expenses – Deduct mileage using the standard mileage rate (for 2024, it’s 67 cents per mile) or actual expenses (gas, insurance, maintenance).
Office Supplies & Equipment – Deduct computers, printers, paper, and other work-related materials.
Marketing & Advertising – Website hosting, business cards, social media ads, etc. One thing we see is that so many small business owners neglect to deduct their online expenses pertaining to marketing and advertising. Don't let this be you!
Legal & Professional Fees – If you hire an accountant, lawyer, or consultant, these fees are deductible.
Business Travel & Meals – Travel expenses (flights, hotels) and 50% of business meals can be written off.
2. Take Advantage of Retirement Contributions
When is the best time to start preparing for retirement? Right now!
Here's some info to get you going as a self-employed individual:
Solo 401(k) – Contribute up to $69,000 (2024 limit) including employer and employee contributions.
SEP IRA – Contribute up to 25% of your net earnings, up to $69,000 for 2024.
Traditional IRA – Contribute up to $7,000 ($8,000 if 50+) for a deduction.
3. Deduct Health Insurance Premiums
If you pay for health, dental, or long-term care insurance for yourself, your spouse, or dependents, it’s 100% deductible.
Consider a Health Savings Account (HSA) if you have a high-deductible health plan. Contributions are tax-deductible.
4. Use the Qualified Business Income (QBI) Deduction
If you operate as a sole proprietor, LLC, or S-Corp, you may be eligible for the QBI deduction, which allows you to deduct up to 20% of your net income. However, be extremely cautious when taking this deduction as the IRS has been scrutinizing it lately.
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5. Keep Track of Depreciation
If you buy business equipment, machinery, or vehicles, you may qualify for:
Section 179 Deduction (write off the full cost of equipment in the first year)
Bonus Depreciation (for qualified business assets)
6. Pay Estimated Taxes to Avoid Penalties
Self-employed individuals must pay quarterly estimated taxes (April, June, September, and January).
Use IRS Form 1040-ES to estimate your payments and avoid a large tax bill at year-end.
This is often one area where self-employed individuals tend to struggle. Please reach out to us at Liberty Tax Defenders so we can help you on your way! 817-995-5008.
7. Set Up an LLC or S-Corp for Tax Benefits
LLC with S-Corp election: Instead of paying self-employment tax (15.3%) on all profits, you can pay yourself a reasonable salary and take the rest as distributions (which are not subject to self-employment tax). See one of our earlier blog posts on this topic: "S Corp or LLC?"
8. Work with Horton & Dennis, LLC Certified Public Accountants
Reach out to our subsidiary company at Horton & Dennis, LLC for all of your tax planning and tax preparation needs. We specialize in helping hard-working Americans keep more of their hard-earned tax money. To date, we've saved our clients almost $2 million!
Horton & Dennis LLC, CPAs in DFW
Cheers!
The Liberty Team
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