Tax strategies for self-employed and freelancers
Sequence matters more than size. Work down this list in order.
Maximize deductions and retirement savings for independent workers. These are the 4 moves that usually matter first, what each one requires, and the questions to settle before you file.
Where to start
Ordered by how often each one matters for this group, not by the size of the deduction. Some can be put in place during the year. Some need an account or an entity opened before money moves. Some only work if the documentation exists before the deduction is claimed.
1. S-corp election
An S-Corporation election allows business owners to split their income between a reasonable salary (subject to payroll taxes) and distributions (not subject to self-employment tax). This can result in significant savings on the 15.3% self-employment tax.
| Potential savings | 10-15% of business income |
| Best fit | Self-employed individuals earning $50K+ in profit |
| Level | intermediate |
| Typical cost | $500 - $2,000/year for payroll and additional tax prep |
2. Solo 401(k)
A Solo 401(k), also known as an Individual 401(k), is a retirement plan for self-employed individuals with no full-time employees. It allows significantly higher contribution limits than a traditional IRA, plus the ability to take loans from your account and invest in alternative assets.
| Potential savings | High annual contribution ceiling with catch-up options |
| Best fit | Self-employed individuals with high income |
| Level | intermediate |
| Typical cost | $0 - $300/year depending on provider |
3. Section 179 expensing
Section 179 allows businesses to deduct the full purchase price of qualifying equipment and software purchased during the tax year, rather than depreciating it over time. The deduction limit and phase-out threshold are updated by the IRS each year.
| Potential savings | Up to $1,160,000 immediate deduction |
| Best fit | Businesses purchasing equipment, vehicles, or software |
| Level | beginner |
| Typical cost | Included in standard tax preparation |
4. Home office deduction
Deducts the business-use share of your home under the simplified or actual expense method.
| Level | beginner |
Common questions
What retirement accounts are available to the self-employed?
Solo 401(k)s and SEP IRAs both allow far higher contributions than an IRA. The solo 401(k) usually wins at lower profit levels because it adds an employee deferral on top of the employer contribution. Check the current-year limits before you fund either.
Can self-employed individuals deduct health insurance premiums?
Self-employed health insurance premiums are deductible as an adjustment to income, subject to the earned income limit. A health savings account adds a second, separate deduction if the plan qualifies.
Sources to check
Check primary guidance and your own records before you treat any page as a final answer.
- Current IRS forms, instructions, and publications for the relevant tax year
- Your actual account statements, payroll reports, entity records, and advisor memos
Do this next
- Read the guide for the first strategy on the list above.
- Check the qualification test against your own facts before you plan around it.
- Write down the records you would need, and start keeping them now.
- Take the one open question to a CPA rather than the whole list.
Other situations
Each page sequences the strategies for one kind of earner.
- W-2 employees. Tax strategies for salaried workers looking to reduce their tax burden.
- Real estate investors. Advanced strategies for rental property owners and flippers.
- Airbnb and short-term rental hosts. Specific tax benefits for short-term rental operators.
- High-income earners. Strategies for those in the highest tax brackets.
- Business owners. Tax optimization for entrepreneurs and company owners.
Educational content only. It is not individual tax, legal, or investment advice.