There's Still Time to Save Before the Deadline: Essential Moves for Independent Pros

As the tax deadline approaches, independent workers still have time to make smart financial moves that can significantly reduce their tax burden. Whether you're a freelancer, consultant, or small business owner, taking proactive steps now can help you keep more of your hard-earned money. Here’s what you need to know to maximize your tax savings before the filing deadline.

1. Elect as an S-Corp: Even for Last Year!

One of the biggest tax-saving strategies for independent workers is electing S-Corporation (S-Corp) status for their LLC. If you haven't done this yet, you may still be able to file a late S-election and have it retroactively applied to January 1, 2024 (or even 2023, depending on your situation).

Why an S-Corp?

When operating as a sole proprietor or single-member LLC, you pay self-employment tax (15.3%) on all your net income.

With an S-Corp, you pay yourself a “reasonable salary” (subject to payroll taxes), but any additional profit you take as a distribution is not subject to self-employment tax.

According to Formations' 2023 Tax Savings Report, electing S-Corp status saved self-employed professionals an average of $9,040 per year.

How to File a Late S-Election

• File Form 2553 with the IRS and indicate a reasonable cause for the late filing.

• The IRS often allows retroactive S-Corp elections if the entity was operating as one in practice (paying owner wages, filing payroll taxes, etc. The Formations team can help you navigate this).

• If you act before the tax deadline, you may still be able to backdate your election to the beginning of 2024 resulting in thousands in tax savings.

2. Maximize Business Deductions

Every dollar you deduct from your taxable income lowers your tax bill. Key deductions include:

• Home Office Deduction: If you work from home, you can deduct a portion of your rent/mortgage, utilities, and internet.

• Business Mileage: Keep track of miles driven for business purposes. Many independent workers overlook this, but it can save you hundreds to thousands.

• Health Insurance Premiums: If you're self-employed and pay for your own health insurance, those costs are deductible.

• Software & Tools: Anything used for your business (like accounting software, marketing tools, or subscriptions) is deductible.

3. Contribute to a Retirement Plan

Tax-advantaged retirement contributions can reduce your taxable income while helping you save for the future. Options include:

• Solo 401(k): Contributions are tax-deductible, and you can contribute as both an employer and employee.

• SEP IRA: Allows contributions of up to 25% of your net earnings, up to $69,000 for 2024.

• Traditional IRA: Contributions may be deductible, depending on your income level.

4. Leverage Health Savings Accounts (HSA)

If you have a high-deductible health plan, contributing to an HSA provides a triple tax advantage:

• Contributions are tax-deductible.

• Growth is tax-free.

• Withdrawals for medical expenses are tax-free.

5. Ensure You’re Making Estimated Tax Payments

Independent workers don’t have taxes withheld from their income like W-2 employees do. If you haven’t been making quarterly estimated tax payments, be prepared for a hefty tax bill—and potential penalties. To avoid this, set up automated quarterly payments based on your expected earnings.

6. Work with a Tax Professional

Self-employed taxes are complex, and missing out on key deductions or strategies can cost you thousands. If you’re unsure whether a late S-election applies to you or need guidance on maximizing deductions, a tax professional can ensure you’re optimizing your savings. Ask your CPA for help navigating your options, or reach out to Formations. We're always here to help.