10 Proven Tax Saving Strategies for Self-Employed

As a self-employed individual, you can feel overwhelmed, when you search for strategies to reduce your taxes. It is challenging to avoid paying the self-employment tax entirely.

However, you can reduce the amount of self-employment tax that you owe, you know? So, where do we start?

What is Self-employment tax?

As we know for most workers, the employee and employer have to pay Social Security & Medicare and split the cost. They would each pay 7.65 percent of the employee’s eligible wages.

As a Self-employed, in the eyes of the Internal Revenue Service (IRS) you are both the Company and the employee, so you are responsible for both halves, or 15.3% of earned income and that is known as self-employment tax.

Instead of feeling overwhelmed, you can start with the below 10:

1. Use the Section 105 – HRA Family Medical Expense plan to make your health insurance a tax-favored business deduction on your Schedule C.
   • If Married – Hire your spouse as an employee
   • If Single  – Form a C Corp to create a Business deduction
2. Employ your under-age-18 child to make taxable income disappear.
3. Employ your spouse without paying him or her a W-2 wage.
4. Rent your office, even your home office, from your spouse to save self-employment taxes.
5. Establish that an office in your home is your principal office to increase (yes, increase!) your vehicle deductions and also turn personal home expenses into business expenses.
6. Give yourself flowers, fruit, and books as tax-deductible fringe benefits.
7. Combine the home office and a heavy SUV, crossover vehicle, or pickup truck to grab big deductions this year.
8. Design a business trip that includes some personal days—weekend and standby days — days you treat as 100 percent business even though you don’t work on those days. 
9. Use the seven-day tax deduction travel rule to create a business trip that is 87 percent personal vacation.
10. Deduct your smartphone and provide smartphones to your employees as tax-free fringe benefits.

To Sum Up

Whether you choose to form an S-corp or use another approach, efficiently reducing your self-employment tax can be complicated.

The best way to do it may change from year to year, especially as self-employment tax rates and income subject to these rates can vary annually. 

Get the help of a tax professional who specializes in self-employment to make sure you file your taxes accurately.