When you run a one‑person company, every dollar you make also counts as tax. Thankfully, the tax code is packed with options to ease that burden, given you plan ahead and meet deadlines. Here is a practical guide to proven methods that can help you retain more of your hard‑earned money.
- Select the Appropriate 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.
- Limited Liability Company: Gives liability protection and flexible profit‑sharing. Income flows through to your personal return, 法人 税金対策 問い合わせ thus avoiding double taxation.
- S‑Corp: Permits you to pay yourself a reasonable salary (subject to payroll taxes) and take the remaining profits as dividends, possibly saving on self‑employment tax.
- Increase Deductions Quickly
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 outlays if you use a car for business.
- Professional services: legal, accounting, consulting fees.
- Health insurance premiums paid directly by the business.
- Retirement contributions such as IRA, Solo 401(k), SEP‑IRA.
Maintain meticulous records—digital receipts, mileage logs, and a dedicated expense spreadsheet—so you can prove every deduction if the IRS asks.
- Exploit 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.
- Hold Income, Accelerate Expenses
Tax timing is a seldom‑used strategy. If you anticipate being in a lower tax bracket next year—maybe due to a dip in business activity—consider deferring invoicing until January. In contrast, acquire necessary equipment or pay for software subscriptions in December to claim the full deduction this year.
- Exploit Depreciation and Section 179
Large purchases such as computers, office furniture, or a new machine can be depreciated over several years. Section 179 enables you to write off the full cost of qualifying equipment in the year it’s placed in service, up to a limit that fluctuates annually. This can yield a massive immediate tax advantage.
- Handle 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 take a tax deduction for the contributions made.
- 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 site or consult a local tax professional to make sure you’re not missing a credit.
- Prepare for Estimated Taxes
Solo companies often pay taxes quarterly through estimated tax payments. Underpaying can trigger penalties. Apply 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).
- Consider a Tax‑Efficient Business Expense Strategy
Certain expenses prove more tax‑efficient when treated as capital expenditures rather than current ones. For instance, buying a computer can be capitalized and depreciated, while purchasing office supplies is a current expense. Knowing these nuances can affect when and how you record costs.
- Keep an Eye on Emerging Tax Laws
Tax statutes evolve. For example, recent proposals to adjust the deduction for business interest or modify the thresholds for the Qualified Business Income deduction could impact your strategy. Remain informed 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. The expense of professional advice is often outweighed by the tax savings they secure.
- Record 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.
- Perform an Annual Review
Tax planning isn’t a one‑time job. Every year, assess your income, expenses, and business goals. Modify 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 objectives.
