Tax planning is one of the most dreaded tasks for business owners, but preparing well can save you significantly on what you owe to the IRS. Solopreneurs have a long list of deductions they can take to save money on their taxes if they know where to look. From Solo 401(k) tax deductions to business expenses and payroll costs, you can save more money at the end of the year.

Here are four tax planning tips to help solopreneurs keep more money in their pockets this year.

1. Solo 401(k) Tax Deductions

Self-employed retirement plans are absolutely crucial for securing any solopreneur’s financial future, and depending on the type of plan you choose, your contributions may be deductible. The good news is that Solo(k) contributions are tax deductible up to a certain amount – and that number is actually fairly generous.

For 2024, solopreneurs maxing out their contributions to a traditional Solo 401(k) can take a tax deduction of up to $69,000. This number rises to $76,500 if you are 50 or over and eligible for catch-up contributions. Of course, the ability to take this sizable Solo 401(k) tax deduction means that you won’t be contributing to any Roth accounts, but you can contribute or convert those contributions to Roth if you wish to still take advantage of the Roth feature.

Traditional Solo(k) accounts allow you to contribute pre-tax dollars to your retirement savings. In lieu of paying taxes right now when you might be in a higher tax bracket, you can pay taxes on the money when you withdraw it in retirement when you are in a lower tax bracket. If you think you’ll be in a higher tax bracket in retirement, it may be better to contribute to a Roth account.

Solo 401(k) tax deductions are a great way to make good use of your contributions. Your tax-free money can grow via compound interest as you make your way to your golden years. This often gives you a larger principal in your Solo(k), though you’ll have to pay taxes upon withdrawal.

2. Business Expenses

One of the simplest ways to minimize your expenses at the end of the fiscal year is to take as many tax deductions as your eligibility allows. If you spend money on your business throughout the course of the year, make sure you save those receipts!

In addition to Solo 401(k) tax deductions, there are tons of other deductions you can claim for your business ranging from a home office deduction to travel to office supplies.

A few of the most common deductions that solopreneurs tend to take include:

• Home office space (a portion of your home exclusively used as the principal place of business)
• Travel expenses including airfare, mileage on car, and meals while out of town
• A portion of utilities for a home office
• Vehicle costs used for business purposes (including gas, registration, parking fees, and insurance)
• Advertising and marketing costs
• Office supplies or software
• Equipment

Keeping tabs on how much you spend and whether you can deduct it from your taxes requires you to be extremely organized at the end of the fiscal year. If you have your business bank accounts tied up with your personal ones, it can make taking these business expense deductions far more difficult as you try to parse out what was used for business and what was a personal expense.

No matter what kind of solopreneur you are or what type of business you run, you should open a separate account for the company to draw from in order to keep finances straight.

3. Health Insurance Premiums and HSAs

Do you worry about how you’ll afford a major surprise medical bill? Preparing for routine and emergent medical services might be even easier than you think as a solopreneur. You can deduct the cost of your health insurance from your annual taxes. This includes more than just your basic health insurance costs – it also includes dental insurance and any long-term care policies.

If you choose a high-deductible health insurance plan, you also qualify to make contributions to a Health Savings Account (HSA). Once you set up an HSA, you will contribute pre-tax dollars that can be spent tax-free on qualified medical expenses.

The maximum HSA contribution for an individual is $4,150 for 2024. Families can contribute up to $8,300 and anyone over age 55 can make a $1,000 catch-up contribution.

4. Hire Your Kids

Do you want to teach your kids the value of the dollar and get them active in the day-to-day of running a business?

Hiring them to help out with simple business tasks is a great way for them to earn a few dollars, but it also presents a great opportunity for you as the business owner when it comes to taxes. Their pay can actually be a deduction on your income if you follow the guidelines.

You can hire your child between the ages of 7 and 22, but there are more benefits for those who are under 18. Children below this magic age often do not require you to withdraw FICA from their small salary. You can also pay them in cash instead of adding them to the payroll, but you will still follow the same hiring process as you would with any other employee.

Their pay acts as a business expense, meaning you can write it off on overall taxable income at the end of the year. Make sure you don’t overpay your child for simple tasks. While generosity is certainly appreciated, keep their salary reasonable for the tasks performed. The IRS will be sure to note that your deductions are too high if you claim high payroll for your hired child.

Keep in mind that if your child works more than 1,000 hours in a given plan year, they would be eligible to participate in the business’s retirement plan once they reach age 21. If you have a Solo 401(k), it would no longer be an option and you would have to convert to a standard 401(k) to accommodate the child’s eligibility.

Set Up Your Solo(k) Today

When you’re mired in everyday operations that keep your business thriving, it can be challenging to look ahead and think of your financial future. But it’s crucial for self-employed individuals to start saving for retirement as early as possible – not just to secure your quality of life in retirement, but also to optimize your tax planning with strategies like Solo 401(k) tax deductions.

At Retire4one, we’re a one-stop shop for your retirement planning built with a solopreneur’s needs in mind! Establishing a Solo 401(k) with us takes only 3-5 minutes and can be done completely online. We handle the 5500 form filing for all our customers, simplifying your tax management and saving you time. Plus, you’ll get access to advanced plan features typically only available to larger employers!

Get started right now or contact us today to learn more about how we can help you prepare for the future!