7 Ways to Save Even More Income Taxes

1. The IRA funding trick

You have until April 15 to make an IRA contribution for the prior tax year. If cash is tight and you don't have the funds sitting around to make a deductible contribution by that date, there's a legitimate workaround, as long as you already have an existing IRA.

Withdraw an amount up to the year's contribution limit ($7,000 for 2024 and 2025) from your IRA, then immediately deposit that same amount back in. Done before April 15, this counts as your deductible contribution for the year. You then have 60 days to "make up" the original withdrawal by depositing a matching rollback into the same account, which avoids taxes and penalties on the distribution. Note that some contributions may not be fully deductible depending on your situation, though nondeductible contributions can still have value.

This is effectively a short term loan from your own IRA, and you can only do it once in a 12 month period. Miss the 60 day window to replace the funds, and you may owe income tax on the distribution plus a 10 percent early withdrawal penalty if you're under 59 and a half.

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2. Determine the best retirement plan for you

As a self employed small business owner, you have several retirement plan options, and figuring out which one actually fits your situation can be genuinely confusing. The right answer usually depends on whether you have employees and how much you want to be able to save each year. Broadly, the choices break down into four categories: traditional and Roth IRAs, a SEP or SIMPLE plan, a self employed 401(k), or a qualified defined benefit plan.

Contact your accountant to determine your eligibility for each option and which one actually fits your tax situation and savings goals.

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3. Let your landlord pay for improvements

Instead of paying out of pocket for leasehold improvements at your place of business, you can ask your landlord to cover them, in exchange for paying somewhat more rent over the term of the lease. Structured this way, both you and your landlord can come out ahead on taxes.

Ordinarily, qualified improvement costs get deducted over a 39 year period, similar to depreciating real estate. But under current law, up to roughly $1.25 million (indexed for inflation, $1.22 million for 2024 and $1.25 million for 2025) in qualified leasehold, restaurant, and retail improvements can be expensed under Section 179, subject to certain rules. The improvements have to be interior; exterior work like roofing or facade improvements doesn't qualify. Separately, post 2017 qualified improvement property generally depreciates over 15 years instead of 39, and often qualifies for bonus depreciation as well.

The mechanics favor you early in the lease: your landlord fronts the cash for the improvements, and you cover that cost gradually through higher rent over time, which means you avoid a large up front hit while still getting the benefit of the improved space. Your landlord, in turn, gets depreciation deductions on the improvements and retains an upgraded property to offer future tenants after your lease ends.

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4. Deduct home entertainment expenses

If you host a company picnic or holiday party at your home, the cost of the meal itself is fully deductible, 100 percent, since it falls outside the entertainment category that tax reform eliminated. Entertainment expenses more broadly stopped being deductible starting in 2018; before that, roughly 50 percent of business related entertainment costs were generally deductible, with some exceptions.

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5. Deduct holiday gifts without receipts

Business gifts, whether given during the holidays or at any other point in the year, are a deductible expense that's easy to overlook. This applies whether you're an employee, self employed, or a shareholder employee in your own corporation. The catch is a low ceiling: the deduction is capped at $25 in value per recipient for gifts purchased with cash.

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6. Deduct your home computer

Tax reform passed in 2017 repealed certain itemized employee business expense deductions, including those tied to home office use, for tax years 2018 through 2025. Before that change, employees could sometimes deduct a computer used for work, provided it met specific tests around convenience and condition of employment.

If you're self employed, this limitation doesn't apply to you the same way. You can use Section 179 expensing to write off new equipment, including computers, in the year you purchase it, as long as it's used for business more than 50 percent of the time, subject to the usual rules, whether or not you separately claim the home office deduction.

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7. Have your company buy you dinner

This one is mostly historical under current law: for tax years before 2018, if you worked overtime as a partner or shareholder employee in a C or S corporation, your company could occasionally cover your dinner, deductible at 50 percent under Section 132 of the tax code, without you owing personal income tax on the value of the meal. Tax reform made this expense nondeductible after 2025, so it's worth confirming with your accountant whether it still applies to your specific situation before relying on it.

When it does apply, the amount your employer provides for the meal has to be reasonable. If the IRS decides the amount wasn't reasonable, the entire amount becomes taxable personal income and stops being deductible.

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