When you run a one‑person company, every dollar you earn is also your tax bill. Luckily, the tax code contains numerous ways to cut that burden, as long as you plan ahead and meet deadlines. Below is a practical guide to proven methods that can help you save more of your hard‑earned money.
- Choose the Right Business Structure
Your entity determines how you’re taxed. Sole proprietorships are simple but expose personal assets to liability. If you’re comfortable with extra paperwork, consider forming an LLC or an S‑Corporation.
- LLC: Provides liability protection and flexible profit‑sharing. Income flows through to your personal return, thus avoiding double taxation.
- S‑Corporation: Permits you to pay yourself a reasonable salary (subject to payroll taxes) and take the remaining profits as dividends, 節税対策 無料相談 possibly saving on self‑employment tax.
- Boost Deductions Early
The sooner you identify deductible expenses, the more you can reduce taxable income. Common deductions for solo entrepreneurs include:
- Home office deductions (a share of rent, utilities, insurance, and internet).
- Vehicle mileage or actual vehicle expenses if you use a car for business.
- Professional services: legal, accounting, consulting fees.
- Health insurance premiums paid directly by the business.
- Retirement contributions (IRA, Solo 401(k), SEP‑IRA).
Keep detailed records—digital receipts, mileage logs, and a dedicated expense spreadsheet—so you can support every deduction if the IRS asks.
- Leverage the Qualified Business Income Deduction
Section 199A allows many small businesses to claim up to a 20% deduction on qualified business income. The deduction phases out for higher‑income taxpayers, but it can still trim a large portion of your liability if your earnings fall within the threshold.
- Delay Income, Accelerate Expenses
Tax timing is an underexploited strategy. If you foresee being in a lower tax bracket next year—possibly because of a dip in business activity—consider deferring invoicing until January. Alternatively, buy necessary equipment or pay for software subscriptions in December to claim the full deduction this year.
- Apply Depreciation and Section 179
Major purchases like computers, office furniture, or a new machine can be written off over several years via depreciation. Section 179 permits you to write off the full cost of qualifying equipment in the year it’s placed in service, up to a limit that changes each year. This can yield a massive immediate tax advantage.
- Manage Payroll Taxes
If you operate as an S‑Corp, you must pay yourself a "reasonable salary." The IRS scrutinizes this closely; a salary that's too low can trigger penalties. Once you set a defensible salary, the remaining profits are taxed only once, at the corporate level, and then at your personal rate on dividends, which are exempt from self‑employment tax.
- Maximize Retirement Contributions
Solo retirement plans, like a SEP‑IRA or Solo 401(k), let you contribute up to 25% of your net earnings—often surpassing the limits of a traditional IRA. Contributions are tax‑deferred, and you can even get a tax deduction for the contributions.
- Use Health Savings Accounts (HSAs)
If you have a high‑deductible health plan, an HSA offers triple tax advantages: contributions are tax‑deductible, growth is tax‑free, and withdrawals for qualified medical expenses are tax‑free. The contribution limits are generous and can be a powerful way to lower taxable income.
- Keep Up with State and Local Rules
Numerous states offer small‑business tax credits, research and development incentives, or low‑income tax rates for sole proprietors. Check your state’s department of revenue website or consult a local tax professional to ensure you’re not missing a credit.
- Arrange for Estimated Taxes
Single‑owner companies often pay taxes quarterly via estimated tax payments. Not paying enough can trigger penalties. Employ the IRS’s "Safe Harbor" rule: pay at least 90% of the current year’s tax or 100% of the previous year’s tax (110% if your income exceeded $150,000).
- Examine a Tax‑Efficient Business Expense Strategy
Some expenses are more tax‑efficient when treated as capital expenditures instead of current ones. For example, buying a computer can be capitalized and depreciated, whereas purchasing office supplies is a current expense. Knowing these nuances can affect when and how you record costs.
- Watch Emerging Tax Laws
Tax legislation is evolving. For example, recent proposals to modify the deduction for business interest or to adjust the thresholds for the Qualified Business Income deduction could impact your strategy. Stay updated through reputable news sites, IRS updates, or by keeping a relationship with a tax advisor.
- Work With a Qualified Tax Professional
Although DIY software can manage basic filings, a seasoned CPA or tax attorney can uncover deductions you might miss, advise on legal structures, and help you navigate complex areas such as payroll and retirement plans. Professional advice costs are often offset by the tax savings they secure.
- Document Your Reasoning
In case of an audit, having a clear, logical rationale for your deductions, business structure, and income deferrals simplifies the process. Maintain a "tax strategy" file that explains your decisions, supported by receipts, contracts, and correspondence.
- Conduct an Annual Review
Tax planning isn’t a single‑time task. Each year, review your income, expenses, and business goals. Adjust your structure, contributions, and deduction strategy accordingly to keep your tax liability as low as possible.
By combining these approaches—structuring your company wisely, maximizing deductions, timing income and expenses, and staying current with tax law—you can dramatically decrease the tax burden on a one‑person company. The key is disciplined record‑keeping, proactive planning and periodic consultation with a tax professional. The money you save can be reinvested in your business, used for personal enjoyment, or saved for future plans.
