How to Legally Pay Less Taxes as a Freelancer or Business Owner

I remember my first year as a freelancer. I was so excited about making my own money, setting my own hours, and being my own boss. Then tax season hit. I was not ready for that bill. It felt like half of what I made was going straight to the government. No one had warned me about this.

But here is the good news. There are legal ways to reduce your taxes. If you are smart about it, you can keep more of your hard-earned money while still following the rules

Track Every Expense

Most freelancers and business owners pay more taxes than they should because they do not track their expenses. Think about this: Every dollar you spend on your business can lower your taxable income.

• Did you buy a new laptop for work? That is a deduction.
• Do you pay for internet to run your business? That is a deduction.
• Even smaller things like office supplies, software subscriptions, or a portion of your rent if you work from home can reduce your tax bill.

In my experience, the easiest way to track expenses is to use an app or software. If you try to remember everything at the end of the year, you will miss out on a lot of deductions.

Choose the Right Business Structure

Not all businesses are taxed the same. If you are a sole proprietor, meaning you work for yourself without an official business entity, you may be paying more than you need to.

Many freelancers choose to form an LLC or even an S-Corp. Why? Because it can reduce the amount of self-employment taxes they pay. With an S-Corp, for example, you can take part of your earnings as salary and part as distributions, which are taxed differently. This can save you thousands.

It sounds complicated, but trust me, once I switched to an LLC and elected to be taxed as an S-Corp, my tax bill went down and I was able to keep more of my income.

Use Retirement Accounts to Lower Taxes

A lot of people do not realize this, but saving for retirement can actually help you save on taxes too. If you put money into a SEP IRA, Solo 401(k), or another tax-advantaged retirement account, you can deduct that amount from your taxable income.

Let’s say you made $80k this year and you put $10k into a Solo 401(k). You are now only taxed on $70k instead of $80k. That is a huge savings. Plus, you are setting yourself up for a better future.

Hire Family Members or Outsource Smartly

If you run a small business and you have family members who help out, consider hiring them. Legally paying your spouse or kids for work they actually do can shift income and lower your tax burden.

For example, if your teenager helps with social media or admin work, you can pay them a reasonable salary. That money is now a business expense, and you might even keep more of it in the family instead of paying it to the IRS

And if you are paying independent contractors instead of full-time employees, that can also reduce payroll taxes. Another smart move that many business owners use.

Take Advantage of Tax Credits

Many people focus only on deductions, but tax credits are even better because they reduce the actual amount of tax you owe, not just your taxable income.

Some common tax credits for business owners include:

• Home office credit – if you work from home
• Health insurance premium credit – if you buy your own insurance
• Energy-efficient business credit – if you upgrade to eco-friendly equipment

It is worth looking into these because they can save you hundreds or even thousands of dollars each year.

Work with a Tax Professional