Question 1

Do I have to fund a SEP-IRA for my employees too?

Accepted Answer

Yes, and this is the SEP-IRA's biggest catch. A SEP requires you to contribute the same percentage of pay for every eligible employee that you contribute for yourself. So if you put 20% of your own compensation into the plan, each eligible worker gets 20% of theirs. Eligibility generally covers anyone 21 or older who has worked for you in three of the last five years and earned above a small IRS threshold. You cannot contribute more for yourself and less for staff. If you have employees and want

Question 2

Can I still open a Solo 401(k) if I already contributed to a SEP-IRA this year?

Accepted Answer

It can get complicated. You can technically have both a SEP-IRA and a Solo 401(k), but the employer contributions to both count toward the same overall defined-contribution limit the IRS sets each year, so you can't double up. Many providers set up a SEP using the older Form 5305-SEP, which doesn't allow you to also maintain another qualified plan for the same year. If you want the higher savings power of a Solo 401(k), it's usually cleaner to switch fully rather than run both. Because the inter

Question 3

When is the deadline to set up and fund a Solo 401(k)?

Accepted Answer

The SECURE Act changed this. You can now open a Solo 401(k) as late as your business's tax-filing deadline, including extensions, and still make employer contributions for the prior year. However, employee salary-deferral elections generally must be documented by December 31 of the tax year for a sole proprietor, even if the cash goes in later. That timing quirk trips people up: if you wait until spring to open the plan, you may only be able to make the employer portion for the prior year, not t

Question 4

Is a SIMPLE IRA a good fit if I have a few employees?

Accepted Answer

A SIMPLE IRA is designed for small businesses with 100 or fewer employees and is cheaper and easier to run than a full 401(k). Employees can defer part of their pay up to the SIMPLE limit the IRS sets annually, and you as the employer must either match contributions dollar-for-dollar up to 3% of pay or make a flat 2% contribution for everyone. The trade-off is lower contribution limits than a 401(k) or SEP, and stiff early-withdrawal penalties in the first two years. It works well when you want

Question 5

Which retirement plan lets a self-employed person save the most money?

Accepted Answer

For very high earners, a Solo 401(k) usually beats a SEP-IRA because the employee deferral plus the 25%-of-comp employer contribution stack up faster. But if you earn a large, stable profit and want to shelter even more, a defined-benefit or cash-balance plan can allow six-figure annual contributions, since limits are based on funding a future pension rather than a flat cap. These plans require an actuary and mandatory annual funding, so they suit consistent high income. A common power move is p

Question 6

Can I make Roth contributions to a SEP-IRA now?

Accepted Answer

SECURE 2.0 opened the door to Roth SEP and Roth SIMPLE IRA contributions, meaning you can now designate employer contributions as after-tax Roth money in plans that offer it. That's a meaningful change, because SEP-IRAs were traditional-only for decades. The catch is that provider adoption has been slow and payroll and tax-reporting mechanics are still settling, so not every custodian supports it yet. Roth contributions are included in your taxable income the year you make them but grow tax-free

Question 7

How do I open a retirement account when my self-employment income is unpredictable?

Accepted Answer

Unpredictable income is exactly why a SEP-IRA or Solo 401(k) shines: contributions are discretionary, so you decide each year how much to add based on actual profit, with no mandatory funding. In a lean year you can contribute little or nothing; in a strong year you can max out. A practical approach is to open the account now, fund it with whatever you can monthly, then top it up with a lump sum before your tax deadline once you know your final numbers. Avoid a SIMPLE IRA or defined-benefit plan

Question 8

Where can I buy health insurance if I don't get it through an employer?

Accepted Answer

The main option for self-employed people is the ACA marketplace at healthcare.gov (or your state exchange), where plans can't deny you for pre-existing conditions and income-based premium tax credits can sharply cut the cost. You can also buy directly from an insurer, join a spouse's employer plan, or use COBRA temporarily after leaving a job. Some professionals qualify for group coverage through trade associations or a professional employer organization. Short-term plans are cheaper but skimpy

Question 9

How does my income affect the ACA subsidy I get as a freelancer?

Accepted Answer

ACA premium tax credits are tied to your estimated modified adjusted gross income for the year relative to the federal poverty level. Because your self-employment income is something you can influence, freelancers have real control here: contributing to a Solo 401(k) or SEP-IRA, or deducting the self-employed health insurance premium itself, lowers your MAGI and can increase your subsidy. Underestimating income means repaying part of the credit at tax time; overestimating means a smaller advance

Question 10

Can I deduct my health insurance premiums as a sole proprietor?

Accepted Answer

Yes. The self-employed health insurance deduction lets you deduct premiums for medical, dental, and qualifying long-term-care coverage for yourself, your spouse, and dependents. It's an above-the-line deduction, so you get it even if you don't itemize, and it directly lowers your adjusted gross income. The key limits: you can't take it for any month you were eligible for coverage through your own or a spouse's employer, and the deduction can't exceed your business's net profit. If you also claim

Question 11

Should I pick a high-deductible health plan with an HSA when I'm self-employed?

Accepted Answer

A high-deductible health plan paired with a Health Savings Account can be a strong choice for self-employed people who are relatively healthy, because the premiums are lower and the HSA gives you a triple tax advantage: deductible contributions, tax-free growth, and tax-free withdrawals for medical costs. You can even invest the balance and let it become a stealth retirement account. The downside is exposure to a large deductible if you have a bad health year, so pair it with a solid emergency f

Question 12

What health coverage options do I have between leaving a W-2 job and starting freelancing?

Accepted Answer

You have three main bridges. COBRA lets you keep your former employer's exact plan for up to 18 months, but you pay the full premium plus a small fee, which is often expensive. The ACA marketplace treats losing job coverage as a qualifying event, opening a 60-day special enrollment window where you may get income-based subsidies that make it cheaper than COBRA. A spouse's employer plan may also let you join within a set window after you lose coverage. Short-term plans exist but skip essential be

Question 13

Do I need separate bookkeeping software or is a spreadsheet enough for freelancing?

Accepted Answer

Early on, a clean spreadsheet tracking income, expenses by category, and mileage is genuinely enough, especially if you have few transactions and one income stream. As you grow, dedicated bookkeeping software pays off by auto-importing bank and card transactions, generating profit-and-loss reports, tracking invoices, and simplifying tax time. The real goal isn't the tool, it's consistency: recording every business transaction and keeping business money separate from personal. If you dread spread

Question 14

What is the difference between cash and accrual accounting for a small business?

Accepted Answer

Cash-basis accounting records income when money actually lands in your account and expenses when you pay them. Accrual accounting records income when you earn it (send the invoice) and expenses when you incur them, regardless of when cash moves. Most freelancers and small service businesses use cash basis because it's simpler and matches how their bank account behaves, and the IRS generally allows it below certain revenue thresholds it updates periodically. Accrual gives a truer picture of profi

Question 15

How do I make sure clients actually pay my invoices on time?

Accepted Answer

Set expectations before you start: put payment terms in writing, ideally net-15 rather than the traditional net-30, and require a deposit for larger projects. Invoice promptly the moment work is delivered, since delays signal that late payment is fine. Make paying easy by accepting cards or ACH directly on the invoice. Number every invoice, state a clear due date, and add a late fee clause you're willing to enforce. Automated reminders a few days before and after the due date recover most stragg

Question 16

What is a chart of accounts and do I need one as a freelancer?

Accepted Answer

A chart of accounts is simply the organized list of categories you sort every transaction into: income types, and expense buckets like software, advertising, travel, supplies, and contractor payments. Even a solo freelancer benefits from one, because those categories map directly to the lines on your Schedule C, making tax filing far faster and deductions harder to miss. You don't need anything elaborate; align your categories with the IRS Schedule C expense lines and you'll thank yourself in Ap

Question 17

How long should I keep my business receipts and financial records?

Accepted Answer

The IRS generally recommends keeping records that support income and deductions for at least three years from when you filed, which matches the standard audit window. Keep them six years if you might have underreported income by more than 25%, and seven years for records tied to bad-debt or worthless-securities claims. Employment tax records should be kept at least four years. Records tied to property, like equipment you depreciate or a home office, should be kept until several years after you d

Question 18

What do I do if a client never sends me a 1099 for work I did?

Accepted Answer

Report the income anyway. You owe tax on all your self-employment earnings whether or not a client issues a 1099-NEC, and the form is just a copy of what they told the IRS. Clients must send 1099-NEC forms only when they pay you a certain threshold the IRS sets (currently $600) for services, and payments made through cards or platforms are reported on 1099-K instead. Keep your own records of every payment so your reported income is complete and accurate; the IRS matches forms against your return

Question 19

How is gig income from apps like Uber or DoorDash taxed?

Accepted Answer

Gig platform earnings are self-employment income, so you owe both regular income tax and self-employment tax (Social Security and Medicare) on the net profit, and no taxes are withheld for you. You report it on Schedule C and can deduct business expenses, which for drivers often means the standard mileage rate covers a large share of income. Keep a mileage log, since it's usually your biggest write-off. Platforms send a 1099-NEC or 1099-K depending on payment type and amount, but you must report

Question 20

Can I deduct mileage for my gig or delivery work?

Accepted Answer

Yes, and it's usually the single largest deduction for drivers and couriers. You can use the IRS standard mileage rate, which the agency updates each year to cover gas, wear, insurance, and depreciation in one per-mile figure, or you can deduct your actual vehicle expenses by the business-use percentage. Most gig workers find the standard rate simpler and often larger. The key requirement is a contemporaneous mileage log showing date, miles, and business purpose; apps that track trips automatica

Question 21

Do I owe self-employment tax on a small side hustle?

Accepted Answer

If your net self-employment earnings reach $400 or more in a year, you owe self-employment tax on them, even from a tiny side hustle, and you must file a Schedule C and Schedule SE. Self-employment tax covers Social Security and Medicare at a combined rate the IRS sets, currently 15.3% on most net earnings, and it applies on top of any income tax. You can deduct half of it as an adjustment to income. Below $400 of net profit, you skip the SE tax but may still owe income tax on the earnings. Beca

Question 22

How do I track expenses across multiple gig platforms?

Accepted Answer

Consolidation is the secret. Route all your gig income into one business checking account and put all business spending on one business card, so a single monthly reconciliation captures everything regardless of how many apps you work. Use one mileage-tracking app rather than relying on each platform's partial trip data, since gaps between rides and multi-app driving won't be recorded otherwise. Categorize expenses the same way every month, matching the Schedule C lines, and keep digital copies o

Question 23

Who qualifies for the 20% QBI deduction and how much can it save me?

Accepted Answer

The Qualified Business Income deduction lets many self-employed people and pass-through owners deduct up to 20% of their qualified business income, directly cutting taxable income. Below the taxable-income thresholds the IRS updates each year, almost any profitable sole proprietor, partnership, or S-corp owner qualifies. Above those thresholds, limits based on W-2 wages paid and business property kick in, and specified service businesses like consulting, law, and health can be phased out entirel

Question 24

Why can't I claim the QBI deduction as a high-income consultant?

Accepted Answer

Consulting is treated as a specified service trade or business (SSTB) under the QBI rules, alongside fields like law, accounting, health, and financial services. For SSTBs, the deduction phases out completely once your taxable income rises above the upper threshold the IRS sets each year, and it's reduced in the phase-in range just below it. Below the lower threshold, though, SSTB owners get the full 20% just like anyone else. So the deduction isn't gone for all consultants, only for higher earn

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