It is hard to beat the freedom and flexibility of being a small business owner or freelancing and gig work. When you work for yourself, you are the boss. You can set your own hours, turn your home into an office, and even ditch going into “the office” and the daily commute.

That’s great, but there is one thing small business owners, freelancers, and gig people usually forget. Compared to their corporate counterparts, self-employed people face an additional tax burden, an expense that takes many of them by surprise. Since they aren’t employed by an employer who pays employer’s taxes on an employee, they have to pay self-employment taxes.

Note: If you end up falling behind on your taxes and the IRS or state claim you owe $10,000 or more, reach out to our tax law firm, and we’ll schedule a confidential consultation.

If you love the freedom of being your own boss but not the big tax bill, you need to think ahead. A little proactive planning can go a long way to keep more of your hard-earned money in your pocket and not Uncle Sam’s. Here are four smart strategies you can use to trim your tax liability and get more out of your freelancing and gig work.

#1. Fund a Health Savings Account

If you work for someone else, there is a good chance your boss picks up part of your health insurance costs, but small business owners, freelancers, and gig workers do not have that benefit. Self-employed people face additional challenges when it comes to health care. They face seeking affordable policies on the open market and trying to save money where they can.

The self-employed can save money and trim their tax bills with a Health Savings Account. Eligible individuals can contribute to a health savings account on a pre-tax basis. This tax savings can be a very big deal. It also creates a significant tax deduction while making their health care more affordable.

#2. Contribute to a Retirement Fund for the Self-Employed

Small business owners, freelancers, and gig workers need to look out for their own retirement, but plenty of options are available. The annual contribution limits on retirement plans for the self-employed are among the most generous around, so you may be able to shelter a significant portion of your earnings from the taxman.

If you have a tax ID for your business, you may be able to contribute to a solo 401(k). This plan works much like a traditional 401(k) plan, but the contribution limits could be even higher. Even if you do not have a tax ID, you can shelter part of your freelance or gig work income with a SEP-IRA or similar retirement plan.

#3. Take the Home Office Deduction

If you work out of your home, taking the home office deduction could save you a lot of money. If you are eligible for this valuable deduction, it creates deductions for things you already pay. You could write off a portion of your property taxes and other homeownership costs, reducing your tax bill and keeping more money in your pocket.

Remember to qualify as a Home Office you can deduct, it has to be used exclusively for your business, no personal use. There are specific rules regarding the home office deduction, so check with your tax preparer to make sure you qualify. If you can take the deduction, be sure to keep accurate records and take photos of the office in your home.

#4. Pay Estimated Taxes

No employer is taking your withholding taxes out of your paycheck when working for yourself. Instead, you have to make estimated tax payments each quarter. If you don’t make them, you will be penalized by the IRS and the Indiana Department of Revenue for not making them.

Perhaps, even more critical, when it comes time to pay your taxes, you could easily end up without enough money to pay your taxes when you come up to the deadline to file your tax returns. This is an easy way that people end up behind the eight-ball. I encourage people whose income may fluctuate, such as small business owners, freelancers, and gig workers, to find out what is their tax bracket. Then, each time they get paid, immediately send in an estimated payment. You multiply your tax rate multiplied by the amount you just got paid, Don’t forget to do the calculation for your Indiana tax rate, too. Send two payments, one to the United States Treasury and the other to the Indiana Department of Revenue. This procedure will keep you from spending money each time you get paid. That money no longer belongs to you. If you treat it like it’s still yours, you could quickly end up with no cash to pay both tax bills. There’s a reason why there are wings on a dollar bill. Don’t spend it. Send it when you earn it and avoid the headache of no money when it’s time to file your tax returns. Small business, freelance, and gig income can be notoriously unpredictable. One month it is great, while the next is terrible. Paying your estimated payments in this way will keep you out of harm’s way.

You face serious tax challenges as a self-employed individual, including the dreaded self-employment tax. That higher tax burden makes smart planning essential, and you can start that planning with the four tips listed above.

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