For the Self-Employed and Small Business Owners

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An employee’s tax is mostly decided by the employer. A business owner decides nearly everything: how the business is taxed, how much is salary, what the business buys and when, who it employs, and how much goes into a retirement plan. That control is the opportunity, and the list below is long because the opportunities are. It is also where the IRS looks hardest, so each therapy comes with the condition that makes it hold up.

The ordering is by payoff for a typical owner with $80,000 to $400,000 of profit. The first two are worth five figures a year at the upper end of that range; the last two are housekeeping that keeps the others from being disallowed.

1. The Biggest Deduction Available to Anyone: Your Own Retirement Plan

The IRS calls them: §401(k), §408(k), §408(p), §412

Dose for 2026: solo 401(k): $24,500 employee deferral (plus $8,000 catch-up at 50, $11,250 at 60–63) plus 25% of W-2 wages or 20% of net SE income as the employer share, to a combined $72,000 (verify 2026 limits); SEP: 25% / 20%, same cap, no deferral; SIMPLE: $17,000 deferral plus a 3% match; defined benefit plan: an actuarially determined amount, often $150,000 to $300,000 a year for an owner over 50 with steady income.

A sole proprietor netting $150,000 can put about $52,000 into a solo 401(k) and deduct it; at a 24% bracket plus Colorado that is $14,700 of tax deferred, and the Roth option inside the 401(k) lets the deferral grow tax-free instead. The solo 401(k) must exist by December 31 to accept deferrals for the year (the employer contribution can wait until the return is filed); a SEP can be opened and funded up to the extended due date. For an owner over 50 with $400,000 of profit and no employees, a defined benefit plan layered on a 401(k) can shelter more than half the income. Full article: Tax Breaks for Retirement Savers.

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2. The S Election, at the Right Income

The IRS calls it: §1362, and reasonable compensation

Dose: above roughly $100,000 of net profit, an S corporation paying the owner a reasonable salary and distributing the rest saves the 15.3% (then 2.9%) on the distribution portion. At $200,000 of profit with a defensible $95,000 salary, about $14,000 a year of payroll tax, less the cost of payroll and a corporate return.

Below $100,000 the salary absorbs most of the profit and the election saves little while adding cost and complexity, which is the office rule. The salary has to be defensible (our reasonable compensation page shows how), and the owner’s retirement plan contributions are now measured by the salary, not the profit, which cuts against therapy 1. Run both. Full articles: Should I Become an S Corporation? and Business Entities.

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3. Keep the 20% QBI Deduction

The IRS calls it: §199A, now permanent

Dose: 20% of qualified business income, no questions asked below $201,750 single / $403,500 joint of taxable income; above, limited by W-2 wages and property, and eliminated for specified service businesses above $276,750 / $553,500.

Two things shrink it without anyone noticing: QBI is profit after the SE-tax deduction, self-employed health insurance and retirement contributions, so a big SEP contribution lowers the deduction; and an S corporation salary is excluded from QBI, so the S election lowers it too. Both are still usually worth doing, but the net saving is less than the headline. Above the thresholds, the planning flips: a retirement contribution that drops taxable income back under the threshold can restore the deduction, and for a non-service S corporation the salary becomes the W-2 wages that keep it. Full article: The QBI Deduction.

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4. Hire Your Children, and Maybe Your Spouse

The IRS calls it: §3121(b)(3)(A); §162 for the spouse

Dose: a child under 18 on a sole proprietor’s payroll: no FICA, no FUTA under 21, $16,100 tax-free to the child, a deduction to the parent at the parent’s rate, and a Roth IRA for the child. A spouse on payroll: a second solo 401(k) participant ($24,500 deferral plus 25% employer share), and health insurance through the business as an employee benefit.

The child’s work must be real and the pay reasonable; paying a 12-year-old $20,000 to “model” for the website has been disallowed. The spouse on payroll owes FICA (it’s a wash within the family except for the Social Security credits earned), and the benefit is the retirement plan slot and a §105 medical reimbursement plan if the spouse is the only employee. Full article: Family employment rules.

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5. The Home Office

The IRS calls it: §280A(c)

Dose: $5 a square foot up to 300 square feet, no recordkeeping; or the business percentage of the home’s actual costs plus depreciation, which can be several thousand dollars. Either way it also reduces self-employment income, unlike the QBI deduction.

Exclusive and regular use of the space, and the home is the principal place of business or the place where the administrative work is done with no other fixed location. The contractor who works at job sites and does the estimates at home qualifies. S corporation owners get it through an accountable-plan reimbursement, not on Form 8829. Full article: The Home Office Deduction.

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6. Vehicles: The 6,000-Pound Line

The IRS calls it: §179(b)(5), §168(k), §280F

Dose: a vehicle over 6,000 pounds GVWR used more than 50% for business: $32,000 of §179 plus 100% bonus on the rest, in the year of purchase; under 6,000 pounds, capped at about $20,400 the first year. Or the standard mileage rate, 72.5¢ a mile for 2026 (verify), with no depreciation to track or recapture.

Expensing a $75,000 truck in a 35% bracket year saves $26,000 of tax in year one and nothing after; the mileage rate on 20,000 business miles a year is $14,500 a year for as long as the truck runs. For a vehicle that will be kept and driven a lot, mileage often wins over five years; for a high-income year and a vehicle that will be replaced in three, expensing wins. Business use must be substantiated with a log; dropping to 50% or less triggers recapture. Full article: Depreciation Decisions.

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7. The HSA, Paid by the Business

The IRS calls it: §223

Dose: $4,400 self-only / $8,750 family for 2026, plus $1,000 at 55 (verify), deductible above the line (and for an S corporation owner, deductible through W-2 wages); tax-free growth; tax-free withdrawals for medical expenses at any time in the future; no required distributions.

With a high-deductible plan, the HSA is the only account that is deductible going in, tax-free growing, and tax-free coming out. The therapy is to pay current medical bills from checking, keep the receipts, invest the HSA, and reimburse yourself decades later. The self-employed health insurance deduction (§162(l)) covers the premiums; the HSA covers everything else. Full article: Health Savings Accounts.

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8. Colorado’s PTE Election

Colorado calls it: the SALT Parity Act election

Dose: an S corporation or partnership pays the owners’ Colorado tax (4.40%) at the entity level, deducts it federally outside the $40,400 SALT cap, and the owners take a refundable credit. Federal saving: the owner’s rate times the Colorado tax, for owners over the cap or on the standard deduction.

A sole proprietor can’t elect; it is one more reason for the S election at higher incomes. The election is annual, requires estimated payments by the entity, and does nothing for owners who itemize under the cap. Full article: The Colorado PTE Election.

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9. Move Income and Expenses Across December 31

The IRS calls it: the cash method, §461 and Reg. §1.263(a)-1(f)

Dose: a cash-basis business deducts what it pays by December 31 and reports what it receives; invoice in January, pay in December, and the profit moves a year. Prepay up to 12 months of rent, insurance or supplies under the 12-month rule; expense anything under $2,500 per item under the de minimis safe harbor; buy the equipment in a high year, not a low one.

The therapy works in both directions: in a low-income year (a loss, a sabbatical, a retirement), accelerate income and defer deductions to fill the low brackets, and consider a Roth conversion. Credit card charges count as paid when charged, not when the card is paid. Full article: Saving on Taxes & Tax Planning.

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10. The Accountable Plan and the Mileage Log

The IRS calls it: Reg. §1.62-2 and §274(d)

Dose: a written accountable plan lets an S corporation reimburse the owner for the home office, mileage, phone and travel tax-free, with a deduction to the corporation; a contemporaneous mileage log is the difference between a deduction and nothing on examination.

Neither saves tax by itself. Both are what allows the other nine to survive. The S corporation owner without an accountable plan loses the home office and the mileage entirely (employees can’t deduct them); the sole proprietor without a log loses the vehicle. Two pages of paperwork, set up once. Full article: Accountable plans for S corporation owners.

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Questions we get

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Side effects

• Retirement contributions and the S election both reduce QBI; the net benefit is smaller than the headline and should be computed, not assumed
• Expensing a vehicle in a loss year adds to an NOL limited to 80% later; depreciation over five years lands in profitable years
• The S corporation salary that saves payroll tax also caps the retirement plan contribution and the Social Security record
• A home office inside the home is covered by the sale exclusion except for depreciation; a detached office is not
• Family wages and reimbursements that aren’t documented are the first things disallowed on examination, and the penalty attaches to the owner

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Figures reflect the 2026 tax year as currently published and are rounded for readability. Items marked (verify) are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Last updated October 15, 2026.