Tips to Reduce Self-Employment Taxes
When you file freelance taxes, there are unique reporting requirements and deductions that may now apply to you. While you may be responsible for self-employment taxes, there are also a variety of write-offs you might be able to take advantage of to maximize your tax savings. Stay on top of your tax obligations and minimize your tax bill with this freelance tax guide.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- You're responsible for paying self-employment taxes, which fund Social Security and Medicare.
- You can deduct between 50% and about 57% of your self-employment tax payments to adjust your income.
- Forming an S Corporation can reduce your self-employment tax liability by allowing you to pay yourself a reasonable salary and distribute the remaining profits to yourself, which aren't subject to employment taxes.
- Be thorough in preparing your Schedule C to ensure you deduct every possible business expense, which must be ordinary, necessary, and not personal.
There are many advantages to self-employment in comparison to being employed by someone else, like being able to set your own hours and not having to punch in every morning. But, at the end of the day, your tax obligations are similar to those of employees.
Aside from the income tax, you'll need to pay self-employment taxes that support the Medicare and Social Security programs. These tax obligations can be daunting, but there are some ways the self-employed can reduce the amount they owe.
How can I reduce my self-employment taxes?
Here are a few tips for lowering your tax bill:
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Claim the SE tax deduction
When you are filling out your 1040, the IRS allows you to deduct a portion of the self-employment tax payments you make as an adjustment to income. You can deduct between 50 and approximately 57% of your self-employment tax payments. The precise amount depends on how much self-employment income you earn.
TurboTax Tip:
By lowering your net profit through deductions, you'll save money on your self-employment tax bill.
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File as an S Corp and save
If you create a corporation or limited liability company, making an S Corp election with the IRS might present some opportunities to reduce your self-employment tax liability. With an S Corp, you generally pay yourself a reasonable salary out of earnings. You can distribute any remaining profits to yourself and any other shareholders or partners or leave the money in the business. In certain situations, money in excess of your salary is subject to income taxes but not employment taxes.
For example, if you operate your business as a Sole proprietorship and you earn $100,000 for the year, self-employment tax is due on the entire amount. However, under the appropriate circumstances with an S Corp, the amount that exceeds the reasonable salary you make isn't subject to self-employment taxes.
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Reduce net profit with applicable deductions
Schedule C calculates your net profit from self-employment. You must include this as income on your 1040 and use it on Schedule SE to calculate your self-employment tax. Your net profit is equal to the gross receipts you earned minus your deductible business expenses. The lower your net profit number is, the lower your self-employment tax bill will be.
Therefore, to reduce your self-employment tax, you should be extremely thorough when preparing your Schedule C to help ensure you deduct every possible business expense. Your business expenses need to be ordinary and necessary to operate your business to be deductible. They can't be personal in nature. Common types of deductible business expenses include:
- office rent
- the cost of acquiring and maintaining a business vehicle
- telephone calls
- office supplies
- equipment
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Start planning for retirement
While retirement contributions don't directly reduce your self-employment tax, they do reduce your taxable income — often by a substantial amount.
Self-employed workers have access to several retirement plan options with much higher contribution limits than a standard IRA, including SEP-IRAs, Solo 401(k)s, and SIMPLE IRAs. For a side-by-side look at how these plans work and the 2025 contribution limits, read our guide on how to boost your retirement savings.
The earlier in the year you set up and start funding one of these accounts, the more time your contributions have to grow tax-deferred — and the more meaningful the tax savings on your return.
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Work with a tax expert to maximize your refund
Working with a tax expert can reduce your self-employment tax bill by uncovering deductions you'd otherwise miss, advising on whether an S Corp election makes sense for your income level, and ensuring your Schedule C is filed accurately.
Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Expert Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you. Backed by our Full Service Guarantee.
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