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3 Tax Breaks I’ve Managed to Snag So Far This Year

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I've been self-employed for several years now, and I can admit that it's sort of a mixed bag. On the one hand, it's great to be able to set my own schedule and take on extra work when I have specific bills I need to pay or savings goals I want to meet.

On the other hand, it's not always so fun to have a variable income. And because I'm self-employed, I'm on the hook for more Social Security taxes than people who work for an employer, since they split that burden evenly.

As such, I try to take advantage of every opportunity to lower my tax bill — legally, of course. Here are three ways I've already managed to save money on my 2023 taxes.

1. I've contributed to my 401(k)

If you're not self-employed and don't have access to an employer-sponsored 401(k), then you generally need to stick to an individual retirement account (IRA) for retirement savings purposes. But because I'm self-employed, I get to contribute to a solo 401(k), which is a 401(k) that I manage myself.

Like a traditional 401(k) offered by an employer, the money I put into my 401(k) goes in tax-free. So if I put in $20,000, that's $20,000 of income I won't pay taxes on.

What's more, one great thing about solo 401(k)s is that they come with higher contribution limits than 401(k)s offered by employers. This year, you can put up to $66,000 into a solo 401(k), as opposed to $22,500 with a regular, employer-sponsored 401(k) if you're under 50.

In reality, not all self-employed people can contribute $66,000 — partly because they can't afford to, and also, because your total allowable contribution is calculated as a percentage of your self-employment income. But it's still nice to have the option.

2. I've signed up to max out an HSA

My family gets health insurance through my husband's job. This year, we're on a high-deductible health insurance plan. The bad part there is that we have to meet a $3,000 deductible before our insurer will start to pick up the tab for healthcare services. The good part is that our high deductible renders us eligible to fund a health savings account, or HSA.

This year, HSA contributions max out at $7,750 for families and $3,850 for individuals. Because we've signed up to max out, we get to shield $7,750 of household income from the IRS.

In addition to that upfront tax break, our HSA also allows us to invest our money tax-free to grow our balance. We can then take withdrawals tax-free to cover medical bills now or in the future.

Because I'm self-employed, I get to deduct expenses I incur in the course of earning money. So things like my internet and phone bill are fair game because they allow me to do my job. I can also deduct the cost of certain subscriptions since they provide me with the data needed to research stories.

But to be clear, I make a point to keep very precise records of my business-related spending. That way, I know exactly how much of a deduction I can take the following year when I file my tax return.

Sometimes, for example, I'll buy office supplies like paper, notebooks, and pens because I do a lot of note-taking by hand. But I'll sometimes buy similar supplies for my kids to use for schoolwork. So I need to keep very good records so I know which expenses I'm supposed to be claiming for work purposes and which ones I'm not.

Get the tax breaks you deserve

Filing taxes is an unavoidable part of life, but that doesn't mean you can't do your part to lower yours. Even if you're not self-employed, you may be eligible to claim a tax break by contributing money to a retirement plan. If you don't have a 401(k) through your job, you can open an IRA independently at pretty much any financial institution.

The same holds true for an HSA. Your plan might qualify if it has a minimum deductible of $1,500 for self-only coverage or $3,000 for family coverage. If you're eligible to fund an HSA, you don't have to do so through an employer. You can open an HSA on your own to snag the tax breaks involved.

Now, if you work for an employer, you can't claim deductions like cellphone service. But if you hold down a side hustle on top of your main job, you can deduct expenses incurred in the course of doing that gig. So if you're a tutor and you spend money driving to different students' homes, you can deduct that cost.

It's important to be honest about your tax situation and pay the IRS what you owe. But there's absolutely nothing wrong with pursuing as many tax breaks as you're legally allowed to snag.

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