When you manage a single‑person enterprise, every dollar you take in doubles as your tax. Fortunately, the tax code offers many chances to lower that burden if you plan ahead and keep up with deadlines. Below is a practical guide to proven methods that can help you keep more of your hard‑earned money.
- Pick the Correct Business Structure
Your structure 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: Delivers liability protection and flexible profit‑sharing. Income is routed through to your personal return, sidestepping double taxation.
- S‑Corp: Enables you to pay yourself a reasonable salary (subject to payroll taxes) and take the rest as dividends, potentially saving on self‑employment tax.
- Boost Deductions Early
The earlier you spot deductible expenses, the more you can lower 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 company.
- Retirement contributions (IRA, Solo 401(k), SEP‑IRA).
Preserve meticulous records—digital receipts, mileage logs, and a dedicated expense spreadsheet—so you can justify every deduction if the IRS asks.
- Exploit the Qualified Business Income Deduction
Under Section 199A, many small businesses can claim up to a 20% deduction on qualified business income. The deduction phases out for higher‑income taxpayers, but it can still shave a sizeable chunk off your liability if your earnings fall within the threshold.
- Hold Income, Accelerate Expenses
Tax timing is an underrated strategy. If you expect to be in a lower tax bracket next year—perhaps because you anticipate a dip in business activity—consider deferring invoicing until January. Conversely, purchase necessary equipment or pay for software subscriptions in December to claim the full deduction in the current year.
- Use Depreciation and Section 179
Large purchases such as computers, office furniture, or a new machine can be depreciated over several years. 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 create a huge instant tax benefit.
- 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, exempt from self‑employment tax.
- Maintain High Retirement Contributions
Solo retirement plans such as a SEP‑IRA or Solo 401(k) let you contribute up to 25% of your net earnings—often exceeding the limits on a traditional IRA. Contributions are tax‑deferred, and you can also claim a tax deduction for the contributions.
- Leverage Health Savings Accounts (HSAs)
If you have a high‑deductible health plan, an HSA delivers 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, offering a powerful way to reduce taxable income.
- Follow State and Local Rules
Many 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 site or consult a local tax professional to make sure you’re not missing a credit.
- Schedule Estimated Taxes
Solo companies often pay taxes quarterly through estimated tax payments. Underpaying can trigger penalties. Follow 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 considered capital expenditures instead of current expenses. For example, buying a computer can be capitalized and depreciated, whereas purchasing office supplies is a current expense. Recognizing these nuances can affect when and how you record costs.
- Keep an Eye on Emerging Tax Laws
Tax laws evolve. For example, recent proposals to alter the deduction for
法人 税金対策 問い合わせ business interest or tweak the thresholds for the Qualified Business Income deduction could influence your strategy. Keep informed via reputable news outlets, IRS updates, or by maintaining a relationship with a tax advisor.
- Work With a Qualified Tax Professional
While DIY software can handle 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. The cost of professional advice is often counterbalanced by the tax savings they secure.
- Document Your Rationale
In the event of an audit, having a clear, logical rationale for your deductions, business structure, and income deferrals simplifies the process. Keep a "tax strategy" file that explains your decisions, backed by receipts, contracts, and correspondence.
- Review Annually
Tax planning isn’t a one‑time job. Every year, assess 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 reduce 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 goals.
