By Harlan Storey​

Is there anything better than being your own boss? You make your own hours, take vacation when you want, and choose whether to wear pants to work. Sounds like a dream, right?

Ask any self-employed professional to name a downside to working for themselves, and they’ll probably mention taxes.

Tax time can be a headache. As your own employer, you’re responsible for making estimated tax payments to the IRS. Along the way, you’re secretly hoping you won’t get hit with an enormous tax bill at the end of the year.

As with any business, there are things you can do to reduce the amount of taxes you have to pay come tax time. Here are a few ways you can save big tax dollars as a self-employed professional.

Choose The Right Business Structure

There are four common types of business structures:

Sole Proprietorship: This is the most popular (and easiest) type of business structure. There’s only one owner and no distinction between personal and business assets.

Partnership: Two or more people make up a partnership. Like a sole proprietorship, there’s no difference between personal and business assets.

Limited Liability Companies (LLCs): LLCs protect the owner’s personal assets from company debts or obligations. They can be set up as sole proprietorships, partnerships, or corporations.

Corporations: There are two types of corporations: C corporations and S corporations. Typically, companies that are large and plan on going public are classified as C corps. C corps are taxed at both the corporate and individual level. Small businesses are typically classified as S corps, and they avoid double taxation.

If you’re unsure about which structure is right for you, talk to a professional. They’ll be able to tell you which structure should result in the biggest tax relief.

Know Your Deductions

According to the IRS, business expenses can only be deducted if they’re “both ordinary and necessary.” (1)

• Common tax deductions for the self-employed include:
• Office supplies (such as a computer, desk, chair, pens)
• Office expenses (such as rent, utilities, internet, phone)
• Travel expenses (such as vehicles, mileage, business lunches, parking)
• Membership fees (for professional organizations or subscriptions)
• Professional help (such as an attorney or accountant)
• Advertising and marketing expenses
• Healthcare premiums (including contributions to Health Savings Accounts)
• Retirement plans (such as an IRA, Solo 401(k), SEP)
• Stay Organized

Filing taxes can be a pain if you’re not keeping track of expenses, receipts, and invoices throughout the year. If you need help keeping up with these items, use an online accounting software package. These packages track expenses for you, so tax time is less of a headache.

Here’s another headache-reducing tip. Use a business checking account for business-related transactions. Even if you’re a solo operation, direct-deposit your income into your business checking account and then transfer money to your personal accounts. This is an easy way to keep track of your inflows and outflows throughout the year.

Keep in mind, taxes aren’t automatically taken out of your income. You need to set aside 30-40% of each paycheck for taxes. You can use a self-employment tax calculator to estimate payments to the IRS. Just remember, these tools are meant to be guidelines. You may still end up owing money at the end of the year.

The Bottom Line

You pour your heart and soul into running a successful business, but you don’t have to do it alone. Storey & Associates is here to help you maximize your tax benefits so you can focus on what really matters—running your business. Want to talk more about the services we can offer you as a self-employed professional? Get in touch with us today by calling 330-526-8944 or shoot us an email at info@storeyassociates.com. Or, if you prefer, you can quickly and easily click here to schedule your free initial consultation online.

About Harlan

Harlan Storey is president and founder of Storey & Associates with more than 30 years of experience providing financial counsel to individuals, families, and small businesses. With a background as an estate planning attorney also providing tax services, Harlan now advises a clientele consisting of corporate executives, medical professionals, small business owners, and retirees. He specializes in income tax planning, business exit strategies, estate and insurance planning, asset allocation, and career transitions. In addition to his role as a financial advisor, Harlan is a member of the firm’s investment committee and manages the operations of the business. Harlan is a CERTIFIED FINANCIAL PLANNER (CFP®), member of the Financial Planning Association (FPA), and graduated from the University of Akron with degrees in accounting and law. Harlan was one of the earliest members of the National Association of Personal Financial Advisors (NAPFA), showing his commitment to fee-only financial planning. Harlan and his wife reside in North Canton, Ohio, and are the parents of two adult children. He enjoys spending time outdoors, running, kayaking, and tending to their two horses. Learn more about Harlan by connecting with him on LinkedIn.

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(1) https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses