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How a One-Person Business Can Save Six Figures in Taxes

A one-person business earning over $500K in a high-tax state could face a substantial tax bill—around $250K—between federal, state, and self-employment taxes. However, with the right strategies, it’s possible to save six figures in taxes. Here's how:

Elect to File as an S-Corp

Filing as an S-Corp allows business owners to divide their income into a reasonable W-2 salary and profit distributions. Self-employment taxes (social security and Medicare) apply only to the W-2 salary, leading to substantial tax savings.

Work with a CPA to Determine the Optimal W-2 Salary

It’s crucial to set a fair salary. A too-low W-2 salary may reduce eligibility for the Qualified Business Income (QBI) deduction and limit retirement contributions. A CPA can calculate the right salary to maximize benefits.

Hire a Spouse and Set Up a Solo 401(k)

Hiring a spouse and paying them a salary can provide a tax deduction of up to $138K by establishing a Solo 401(k) through platforms like Carry. For even larger deductions, setting up a defined benefit plan can allow for contributions up to $300K.

Pay State Taxes Through the Business Entity

Paying state taxes through the business entity allows the entire amount to be deductible, unlike paying on a personal return, where deductions are capped at $10K combined.

Track All Big Deductible Expenses

Paying state taxes through the business entity allows the entire amount to be deductible, unlike paying on a personal return, where deductions are capped at $10K combined.

By implementing these strategies, solo business owners in high-tax states can effectively reduce their tax burden and maximize savings.

What’s Happening at Carry?

Here’s what you can expect in the coming weeks

See the full list of events here. ⏰

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If you want more resourceson building wealth as a solopreneur/entrepreneur, check these out:

• The Solo 401k handbook

• The Roth IRA handbook

• The Self-Directed IRA handbook

• The Guide to Paying Less in Taxes

• What is a Solo 401k?

• How to Open a Solo 401k