Frequently asked questions
2,096 answers to the financial planning questions we hear most often, in plain English. Filter by topic below, or use the search in the top menu to jump to one.
Showing 1–24 of 145 in Self-Employed & Small Business
What retirement accounts are available to self-employed individuals?
Self-employed individuals have several powerful options. (1) Solo 401(k): the most powerful — you contribute as both employee ($23,500 limit in 2025, plus $7,500 catch-up if 50+) and employer (up to 2…What is the self-employment tax and how do I minimize it?
Self-employment (SE) tax covers Social Security (12.4%) and Medicare (2.9%) on your net self-employment income — totaling 15.3% up to the Social Security wage base ($176,100 in 2025), then 2.9% above…How do I handle quarterly estimated tax payments?
If you expect to owe at least $1,000 in federal taxes for the year after subtracting withholding and credits, you generally must make quarterly estimated tax payments to avoid penalties. The due dates…What's the practical difference between a sole proprietor, an LLC, and an S-corp?
They're really two separate questions — legal structure and tax structure. A sole proprietorship is the default when you earn 1099 income with no paperwork; you and the business are legally the same,…At what income level does electing S-corp status actually start saving money?
An S-corp saves money by splitting your profit into a "reasonable salary" (subject to ~15.3% payroll tax) and remaining distributions (not subject to self-employment tax). But it adds real costs: payr…What does "reasonable salary" mean for an S-corp owner, and why does it matter?
When you run an S-corp, the IRS requires you to pay yourself a "reasonable salary" through payroll for the work you actually do before taking the rest as distributions. It matters because the salary p…How do I actually form an LLC, step by step?
Forming an LLC happens at the state level and is usually straightforward. First, pick a name that's available in your state and meets naming rules. Second, file Articles of Organization with your stat…Do I need an EIN, and how do I get one?
An EIN (Employer Identification Number) is a federal tax ID for your business, like a Social Security number for the entity. You need one if you have employees, run an S-corp or partnership, or want t…What is the QBI 20% deduction and can I claim it as a self-employed person?
The Qualified Business Income (QBI) deduction lets many self-employed people and pass-through owners deduct up to 20% of their qualified business profit, directly reducing taxable income. If you net $…How does the QBI deduction phase out for high earners?
Above the taxable-income thresholds (roughly $191,950 single / $383,900 married filing jointly, indexed each year), the QBI deduction gets complicated in two ways. First, if you run a "specified servi…How does the home office deduction work, and should I use the regular or simplified method?
If you use part of your home regularly and exclusively for business, you can deduct expenses tied to that space — and you don't have to be a homeowner. The simplified method gives you $5 per square fo…How do I deduct vehicle costs — standard mileage or actual expenses?
You can deduct business driving two ways, but only business miles count — never commuting. The standard mileage method multiplies business miles by the IRS rate (67 cents per mile for 2024, adjusted y…Can I deduct business meals, and how much?
Yes — business meals are generally 50% deductible when they have a clear business purpose, such as taking a client to lunch or eating while traveling for work. The food and drink can't be "lavish or e…Can I deduct the costs I spent before my business even opened?
Yes — startup and organizational costs are deductible, but with a special rule. You can deduct up to $5,000 of startup costs and up to $5,000 of organizational costs in your first year of business, wi…What are Section 179 and bonus depreciation, and how are they different?
Both let you write off business equipment faster than spreading it over years, but they work differently. Section 179 lets you immediately expense the full cost of qualifying equipment — computers, ma…Can I deduct my health insurance premiums if I'm self-employed?
Yes — the self-employed health insurance deduction lets you deduct premiums you pay for medical, dental, and qualifying long-term care coverage for yourself, your spouse, and dependents. It's especial…What business expenses can I actually deduct?
The standard is simple to state and broad in practice: an expense is deductible if it's "ordinary and necessary" for your trade — common in your field and helpful to the business. That covers a wide r…What are the most common write-off myths that get people in trouble?
A few myths recur. First, "I can write off my whole car" — only business-use miles or the business percentage of costs count, never commuting or personal trips. Second, "buying equipment in December s…What's the difference between paying myself an owner's draw and a salary?
It depends on your entity. As a sole proprietor or single-member LLC, you don't take a salary at all — you take an owner's draw, simply moving money from the business to yourself. The draw isn't a ded…What's the difference between a 1099-NEC and a 1099-K?
Both report income to you and the IRS, but from different sources. A 1099-NEC reports nonemployee compensation — money a client or company paid you directly for services, typically $600 or more from t…Do I need to collect sales tax on what I sell?
It depends on what you sell and where your customers are. Sales tax is a state and local matter, and rules vary widely. Generally, tangible goods are taxable and many professional services are not — b…
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