HACKER Q&A
📣 nodesocket

Self employed owners, what are your tax saving tips and tricks?


I run and own a small DevOps consulting company operating as a single member LLC (disregarded entity for federal tax purposes). What are some federal tax saving tips and tricks (of course all kosher and legal)?

- I use QuickBooks Self Employed and keep track of all deductions such as travel, office space, computer equipment, software, hosting, food, internet, cell phone, car miles and lease, etc.

- Opened and fully fund (up to limits) a SEP (Simplified Employee Pension Plan) each year.

- Currently rent so can’t take advantage of any home owning deductions.

- Single, not married so none of those deductions


  👤 Judson Accepted Answer ✓
It's been mentioned, but a solo-401k would likely allow you larger tax-deferred contributions than a SEP, depending on income (Can defer ~$57k on $200k w/ solo-401k).

I have one at Fidelity, it's free and I would recommend them. Vanguard / Schwab / ETrade offer similar prototype plans.

Since you're in TN, the standard LLC + S-Corp playbook w/ 'reasonable' salary + remaining as distributions isn't going to net very much after state taxes.

You didn't specifically mention a _home_ office, but it becomes valuable if it is your principal place of business. Miles between home office and other offices become deductible. A proportional % of your rent, utilities, and if you owned the home - mortgage interest.

If you're able to max the 401k and are generally young/healthy, you could pick up a high deductible healthcare plan and open an HSA. Fidelity is also one of the best HSA accounts, so that's convenient. After age 65, an HSA basically becomes a Traditional IRA (Except for unfortunate CA/NJ residents). Some folks use the HSA as an emergency fund and pay medical out of pocket, but keep enough receipts that they could withdraw a few months of expenses if needed. (An HSA is basically self-managed, not like an FSA where you have to submit claims and such if you paid out of pocket).

If you open a solo-401k and roll your SEP into it (Fidelity supports this), you can also make a $7k non-deductible contribution to a tIRA and then convert it to a Roth. It won't lower your federal tax, but will build a tax-free retirement base (+ protection from creditors / civil suit). Can also use this as an emergency fund since Roth _contributions_ are able to be withdrawn tax-free.

(If you don't roll the SEP into the 401k, you cannot do non-deductible tIRA -> Roth conversion without paying taxes on earnings of your entire IRA pool).


👤 nickfromseattle
Use the Profit First methodology (Google it) and set aside 30% of whatever you pay yourself into a separate checking account called 'taxes' as you pay yourself. Don't touch this money, it's not yours. The result is you can always easily cover your tax bills.

👤 downvoteme1

👤 yes_rabbit
I only declare 8k/month for payroll(96k/yr). The rest i take as distributions.