Lowering Your Tax Bill: What Every Solopreneur Should Know

Let’s be real: You know you need to pay taxes on your self-employment income. But you don’t want to pay more than you have to. As long as you pay enough to maintain your tax compliance, you’d rather keep the rest of your money where it belongs: with you.

Yet it’s easy to overpay on your taxes as a solo business—especially if you don’t keep track of your business expense deductions.

Business expenses can feel like a gray area for freelancers and solopreneurs. It’s tough to know what counts as a legitimate write-off versus what’s bending the rules.

That’s where this guide comes in. We’re covering what you need to know about business expense deductions—including why write-offs matter, what expenses you can legitimately take, and steps you can take to go beyond deductions and save even more money on your taxes.

What’s the Big Deal With Business Expense Deductions?

First, let’s cover the gist of business expenses. Running your solo business costs money—you need to pay for everything from your office supplies to your software subscriptions and everything in between.

The good news is that you can deduct (also known as “write off”) legitimate business expenses on your taxes. This lowers your taxable income which, in turn, reduces the amount of taxes you pay.

So, let’s say you run your business as a sole proprietor or an LLC. You generated $175,000 in revenue but you had $25,000 in reasonable business expenses for the year. That means you’ll pay taxes on $150,000 (your revenue minus your expenses) instead of the full $175,000.

Put simply, more business expenses mean lower taxable income which means a lower tax bill for you.

What Expenses Can Solo Business Owners Deduct?

Needless to say, business expense deductions are good news when you’re self-employed. But, before you get excited and start writing off everything from your Netflix subscription to your dog food, remember this: You can only deduct legitimate business expenses.

The term “legitimate” can feel a little murky, so we recommend asking yourself this when you’re thinking about writing off an expense: Does this expense help generate business revenue?

If you can confidently answer “yes,” it’s a deductible expense. If not? Then don’t take that purchase as a write-off.

That’s the golden rule you’ll want to keep in mind. But, let’s get a little more specific and cover some of the main expense categories that you can deduct when you’re self-employed:

• Business meals: If you take a client out for lunch or dinner for a business reason, the cost of that meal is 50% deductible.
• Client gifts: You can deduct up to $25 per client annually for any gifts you purchase.
• Travel expenses: When you travel for client meetings, conferences, or other business purposes, all of your travel expenses (like flights, hotels, or rental cars) are fully deductible.
• Office supplies and tools: From your pens to your software subscriptions, you can deduct any supplies you purchase and use to deliver your work.
• Mileage and parking: Whether you’re driving to a coffee meeting with a client or an industry meetup, your mileage to and from that event and your parking fees or tolls are deductible.
• Professional fees: You run a solo business—but you don’t do it all alone. If you pay for guidance from a lawyer, accountant, web developer, or any other professional that helps your business, you can deduct the cost of their services.
• Marketing and advertising: All of the costs of promoting your business (like website hosting, online ads, and business cards) are deductible.
• Membership dues: If you belong to relevant professional associations, you can deduct your membership dues.

For all of your business expenses (especially those over $75), it’s a good idea to keep the receipt or proof of purchase that clearly states the payee, the amount you paid, and the date of payment. You might not ever need that detailed documentation—but it certainly doesn’t hurt to have it.

Don’t want to keep track of all of these expenses yourself? Lettuce will set you up with a business bank account and automatically track and categorize all of your business expenses for you.

Are Business Expense Deductions the Only Way to Save Money on Your Taxes?

Your business expenses are a good way to lower your taxable income and your tax bill—but they definitely aren’t the only way to do so.

Expense deductions are one of those “every little bit helps” sort of things. Thoughtful expense and tax planning can chip away at your tax bill, but you’re going to need a lot of expenses to make a meaningful difference in your tax obligations—especially if you’re earning more than $70,000 per year.

Electing to run your business as an S Corp can help you unlock even more tax savings beyond just your deductions. What’s an S Corp? Well, it allows you to split your business income into two different buckets:

• Your reasonable salary: You get to set a salary for yourself (e.g. $70,000 per year). You’ll only pay self-employment taxes on this portion.
• Your business profits: You can still access and use this money in the form of distributions. However, this amount is not subject to self-employment taxes, which can mean major tax savings for you.

Let’s say you had $175,000 in total revenue for the year, with $13,000 in business expenses. When you’re an LLC or sole proprietor, you pay self-employment tax on a taxable income of $162,000 (your revenue minus your expenses). That means you’d pay $24,758 in taxes.

Now let’s compare that to earning $175,000 in total revenue as an S Corp. You take a $70,000 salary and only pay self-employment tax on that amount. The rest ($105,000) can be taken in owner’s distributions but isn’t subject to self-employment tax. You’d pay $10,710 in taxes, saving you more than $14,000 in taxes for the year.

Wondering how much you could save by switching to an S Corp? Use our tax calculator to calculate potential savings for your specific business.

How Do You Become an S Corp?

When the potential tax savings are so big, why aren’t more freelancers, consultants, and solopreneurs running their businesses as S Corps?

Most of it likely comes down to an intimidation factor. From the initial setup paperwork to payroll taxes, S Corps can feel more complex to establish and manage. And, while it’s more than worth the effort, many solo businesses shy away from making the switch because it feels easier to not rock the boat.

Here’s the good news: You can reap the tax benefits of an S Corp without piling a bunch of administrative tasks and headaches on your plate. Lettuce can do all of the work for you with:

• Free automated LLC formation and S Corp election: Lettuce will get your business setup (including all of the paperwork) for you.
• Payroll management: Get the peace of mind that your salary and profits are compliant and well-managed—without any intervention from you.
• Tax compliance and filings: Automated tax payments and reminders ensure you stay ahead of deadlines and avoid any penalties.

Plus, Lettuce will automatically track and categorize all of your business expenses so you can reap the tax-saving benefits of an S Corp and thorough expense deductions. That means more of your money where you want it: in your bank account.

Lower Your Tax Bill (Without Increasing Your Stress)

You don’t want to pay more taxes than you have to—and deducting your legitimate business expenses is one effective way to lower your tax bill.

But especially if you’re a high-earner, you don’t want to rely on deductions alone. Fortunately, there are other effective tax-saving strategies (like becoming an S Corp) that can help you achieve what every self-employed person wants: saving even more money at tax time.

Ready to stop overpaying on your taxes? Get started with Lettuce today.