6 Smart Tax Planning Strategies You Can Use Year-Round

1. Do an income tax projection for the year 

It’s easy to wait until April and then panic. But projecting your income and income tax burden for the year ahead of time means you can prepare early. And in the world of taxes, great preparation often means a lower tax bill. 

Unlike W-2 employees, freelancers don’t have income taxes automatically withheld. If you’re a freelancer, you’re responsible for anticipating your tax burden and putting money aside to make quarterly estimated tax payments. 

This can be especially challenging because of the fluctuating income streams that often come with freelance work. But planning ahead gives you a financial cushion, prevents you from scrambling during tax season, and all but guarantees that you won’t miss deadlines.

Beyond avoiding an April panic, projecting your estimated income and taxes ahead of time can also help you make the best decisions in the present. This can help you decide everything from what sort of work to take on, how much work to take on, what kinds of business investments to consider, how to price your services, and more. 

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2. Understand tax credits and deductions 

The next step when it comes to smart tax planning is to understand the differences between tax credits and deductions, and be on the lookout for opportunities to use both to your advantage.

Tax deductions are expenses that you can subtract from your taxable income to lower the overall amount on which you can be taxed. This reduces the amount you will eventually owe, but does so indirectly. Meanwhile, tax credits reduce the amount you’re paying in taxes directly by a fixed amount.

It’s helpful to have a general sense of the most common tax credits and deductions so that you don’t miss out on a chance to lower your tax bill. A few of the most popular tax credits include:

• Adoption credit: For the costs of adopting a child
• Charitable contributions: For giving money or goods to charity
• Child Tax Credit: For being a parent or caregiver with an eligible dependent 
• Earned Income Tax Credit: For having income below certain adjusted gross amounts

Here are some major deductions to know:

• Business expenses: Costs that you incur to operate your business. These should be “ordinary and necessary” for your industry
• Medical expenses: Uncovered medical costs above a particular threshold
• Mortgage interest: The interest amount of mortgage payments on a primary residence

This is far from a comprehensive list. To be sure you don’t miss out, give Keeper a try. When you sign up for the app, you can  use our AI-powered deduction tracking software to find business write-off opportunities among your purchases.

3. Make the most of tax-advantaged accounts 

Beyond tax deductions, there is another major strategy for lowering your tax liability, and you may already be doing it: contributing to tax-advantaged accounts like retirement plans. 

When you contribute to these accounts, you can defer and in some cases entirely eliminate your tax liability. Here are the accounts to consider: 

• Retirement accounts and plans: these include a 401(k) plan, 403(b) plan, or traditional IRA. 
• HSAs: Health Savings Accounts are accounts you can use to cover the costs of medical expenses. Contributions are tax-deductible and withdrawals are also tax free when they’re used to pay for approved medical expenses.
• FSAs and DCFSAs: Flexible Spending Accounts and Dependent Care FSAs allow you to save for healthcare and dependent care costs respectively without incurring taxes on money you’re putting aside. 
• 529 plans: While you will pay federal income taxes on contributions you pay into these education saving accounts, you can make free withdrawals for qualifying educational expenses. 

Putting money aside for retirement or in other tax-advantaged accounts is one of the simplest and more powerful year-round tax strategies in the book. 

4. Keep track of your deductible business expenses 

Every taxpayer can benefit from keeping a close eye on their expenses and looking out for opportunities for deductions, but this is especially critical for independent contractors. 

While anyone can deduct personal itemized expenses, only self-employed workers can deduct business expenses. This is true for any self-employed person, regardless of whether or not you are a sole proprietor or have an LLC. 

By familiarizing yourself with potential business expenses early in the year, you can plan ahead for how to spend and get the best bang for your buck when it comes to lowering your tax burden. Here are some of the most common deductible business expenses: 

• Computer 
• Phone and phone bill
• Fees paid to platforms like Upwork and PayPal
• Home office deduction: this includes rent, utilities, even home insurance, and car related expenses
• Food expenses when you’re meeting with clients 
• Business travel expenses

To figure out exactly how much you’ll save for a write-off ahead of time, take the amount of the given expense and multiply by your projected tax rate. Bingo! 

People frequently assume that you can only write off business expenses if you choose itemized deductions over the standard deduction, but this isn’t the case. You can deduct business expenses even if you take the standard deduction. More on that below.

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5. Decide between the standard deduction and itemized deductions in advance

Although you can itemize business expenses even if you choose to take the standard deduction, deciding whether you’ll take the standard deduction can be helpful for other planning and potential tax savings.

The standard deduction and itemized deductions are your two main options for reducing your taxable income. 

• The standard deduction is a particular dollar amount set by the IRS each year that you can subtract from your taxable income.
• Itemized deductions are individual expenses that the IRS allows you to add up and then subtract from your taxable income. These can include expenses like unreimbursed medical costs and property taxes.

The current dollar amount for the standard deduction depends on your filing status. It's:

• $14,600 for single filers in 2024 
• $29,200 if you're married filing jointly
• $21,900 if you're a head of household. 

With sums like these, it can be tempting to choose the standard deduction, but it’s worth pausing to consider itemizing. 

For example, many people who choose to itemize deductions are able to benefit from charitable giving. If you’re thinking this might be to your advantage this year, consider the strategy of bunching your charitable giving into one year so that you swap a few years of small donations with a single larger donation in one tax year.

6. Keep clear and complete records

This may seem obvious since good record keeping is essential for all taxpayers, but it’s especially true for freelancers. Freelance taxes, with their flurry of 1099s, can get complicated, and thorough recordkeeping can help you stay on top of things and avoid tricky surprises — especially if you’re audited by the IRS. 

In general, plan to keep all tax relevant records for at least three years. In certain cases, you may need to maintain records for as many as seven years, or in rare cases, indefinitely. Make sure to read up on how long to keep records based on your specific circumstances. 

Getting ahead of the tax game

Figuring out how to plan for taxes as a freelancer doesn’t have to be overwhelming. Our best advice is simple: Start early. Year-round tax planning strategies can benefit all taxpayers, but especially freelancers and solopreneurs. Thinking ahead about taxes may not be sexy, but seeing a lower tax bill may just be worth the effort.