Freelancers, 1099 contractors and gig workers face unique challenges when it comes to taxes: itemizing all business expenses, covering their own Social Security and Medicare taxes and a lack of an employer to withhold taxes. That last one catches a lot of first-year freelancers off-guard, leading to a big tax bill in April.
“A lot of people think if they made less than $14,600, which is the standard deduction for single filers, they don’t have to pay,” said Bill Park, founder of TaxHakr.
But, according to the IRS, anyone with net earnings (after subtracting business expenses) of $400 or more is liable for self-employment taxes.
Fortunately, with some advance planning, freelancers can lower their tax bill and save hundreds of dollars.
Make Sure To Claim the QBI
Under the Tax Cuts and Jobs Act (TCJA) of 2017, business owners, including sole proprietors, can write off 20% of their business income through the Qualified Business Income (QBI) deduction. This is a below-the-line deduction, so it doesn’t reduce your Adjusted Gross Income (AGI) or affect your tax bracket, but it can reduce the amount you owe the IRS.
For You: 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth
Trending Now: 9 Low-Effort Ways To Make Passive Income (You Can Start This Week)
Consider Converting To an S-Corp
Freelancers are responsible for paying the full 15.3% of Social Security and Medicare (FICA) taxes, while W-2 employees split the cost with their employer. By structuring your business as an S-Corp, you only pay FICA taxes on the portion of profits you take as a salary.
“You pay yourself a [reasonable] wage and that’s where the tax benefit comes in,” Park said.
He suggested that freelancers who have earned roughly $30,000 to $40,000 for the year should consider speaking to a professional about filing as an S-corp the following year, especially if they expect their business to continue growing.
Open a SEP-IRA or Solo 401(k)
It’s important for freelancers to consider retirement savings, especially since they don’t have an employer matching their contributions. Opening a SEP-IRA or solo 401(k) plan reduces your tax liability, since you can deduct the contributions.
Enroll in an HSA
A health savings account has multiple benefits for freelancers. “If you [shop] the insurance marketplace, choose a health insurance plan that’s HSA-qualified,” Park said.
Your contributions to the plan become top-line deductions to reduce your tax liability and allow you to pay for medical costs with what are, essentially, pre-tax dollars.
Track All Your Deductions
Freelancers have access to many business-related deductions that W-2 employees can’t write off, including home office expenses, marketing costs and mileage. But maintaining careful records is key. Park recommended setting up a daily, weekly or monthly accounting process so you’re not relying on memory when you file taxes.
“Keep track of your things. You can’t expect to win the financial game if you’re guessing at your financials,” he said.
More From GoBankingRates
- 5 Tax Loopholes the Ultra-Wealthy Use That Most Americans Don't Know About
- I'm an Accountant: 6 'Big Beautiful Bill' Tax Changes That Will Benefit the Middle Class
- 6 Safe Accounts Proven to Grow Your Money Up to 13x Faster
- 25 Places To Buy a Home If You Want It To Gain Value
This article originally appeared on GOBankingRates.com: 5 Tax Strategies That Could Save Freelancers Hundreds in 2026
