6 Ways Freelancers Can Reduce Their Tax Bill

Updated on May 26th, 2018

Freelancers can often find themselves dealing with a hefty tax bill, thanks to the self-employment task. By filing as a sole proprietor, individual workers don’t have the benefits afforded businesses, but they also have the burden of paying for their own health insurance. All of this combined can leave freelancers cash-strapped, especially around tax time.

But freelancers don’t have to pay a portion of every dime they earn. There are some things they can do to cut down on the amount they owe each year while also putting money into things that are important to them. Here are six ways freelancers can cut down on the taxes they owe each year.

Track Expenses

As a freelancer, the most important thing you can do is to claim every dollar you spend on your business. This includes the money you spend on office supplies, dues you pay to professional organizations, and trips you take in the course of running your freelance business. If you take a client to dinner, you can expense half of the cost of meals and entertainment. If you travel to another city to do research or interview for a freelance position, you can claim the mileage, lodging, and other travel expenses associated with the trip.

The key to maximizing your expenses is to track them carefully throughout the year. Save all of your receipts and keep a log of the money you spend to ensure you don’t miss anything. Every dollar you can show that you spent on your business is a dollar you won’t have to submit to the IRS as income. So look at this as a way to protect those dollars while also building your own business. Don’t be afraid to claim the square footage on your home office, as well as any laptops or mobile devices you use for business purposes.

Put Money Toward Retirement

Instead of paying money to the IRS each year, consider directing as much money as possible into a retirement account. It’s something you should be doing anyway. A solo 401(k) works similarly to a 401(k) plan you’d get through an employer, without the match. This will create a tax shelter for you that will help you direct your money toward your own future rather than toward the government.

There is a limit to how much you can direct toward a solo 401(k) each year. For 2015, that limit is $50,000 if you’re under 50 years of age and it increases to $55,000 if you’re 50 years of age or older. If a freelancer has a spouse, that spouse can also contribute to the plan for a total of as much as $100,000 each year maximum. While you likely won’t set this much money aside, it’s important to know the option exists.

Pay Quarterly

Once you’ve begun making a decent amount of money, you should make an effort to begin paying taxes quarterly. If you work with a tax preparer, that person can set this up, but you can estimate your amount due on your own, as well. This is true whether your freelance business is full- or part-time because it is based on how much you owe each year. If you owe more than $1,000 in a tax year, you’ll be required to pay quarterly taxes in the year that follows. This is also true if you expect to owe more than $1,000 in the current year.

What happens if you don’t pay quarterly taxes? At the end of the year, you’ll be hit with the full bill, with penalties and fined interest. The amount can be very costly, so it’s important to pay quarterly once you realize your freelance business is making thousands of dollars.


One tip recommended by experts to freelancers is that they incorporate as a business to move from sole proprietor to company. You can choose to do this as an S-Corp or as an LLC taxed as an S-Corp. It’s important to calculate the cost of filing as an individual or a business for your own area since business taxes in some areas can make this a more expensive proposition.

In addition to protecting you at tax time, this incorporation process can also protect your personal assets if a legal issue should arise related to your business. When you’re set up as a sole proprietorship, the IRS regards your business as personal, since the income you earn from your business is included on your personal tax return rather than as a return for a business.

Claim Medical Expenses

Without an employer, you’re on the hook for your own medical insurance premiums. Unless you’re fortunate enough to have a spouse with employer-provided medical benefits, this means you’ll be paying a fairly high price. In addition to the premiums you pay, you may find that you’re paying higher co-pays than you would through employer-provided insurance, as well as paying out of pocket for items like vision care and dental.

The good news is that you can claim all of those extras at tax time. If you buy a new pair of glasses or pay for a dental filling, save the receipts and claim them. That money will help reduce the amount you owe the IRS. While it isn’t the same as saving money through a group policy, it does help you add expenses to your return.


Many businesses have calculated the amount they can give each year to maximize their tax savings. They give just this amount to various charities. It spreads goodwill, builds the community, and helps their reputation. As a sole proprietor, you can use this same philosophy to channel your tax dollars toward charities you believe in.

As a sole proprietor, contributions you make personally are tax deductible on your personal income taxes. This includes contributions of cash or property, so those bags of used clothing you donate each year can be claimed. Just be sure you get a receipt and use the IRS’s guide for the amount you can claim for used item donations.

Tax time is never pleasant for anyone. But for freelancers, it can be especially stressful. By working throughout the year to prepare, freelancers can make that time less stressful and reduce the amount they owe.

Angela Ruth

Angela Ruth

Angela Ruth is a financial writer at Due. She has a passion for helping people get out of debt and live a better life.

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