Complying with IRS tax requirements is essential, but finding ways to save money at the same time can be challenging. Still, it’s possible to legally reduce your tax burden through deductions, credits, and smart investment strategies—especially for self-employed individuals and small business owners.
Tax Deductions for Self-Employed Workers
If you’re self-employed, whether part-time or full-time, you have access to various tax-saving opportunities. One of the most common deductions is for business-related vehicle mileage. For example, ride-share drivers can deduct mileage used for business purposes. Additionally, any necessary expenses incurred to run your business—like equipment, supplies, or advertising—may also qualify as deductions, potentially reducing your taxable income.
A lesser-known option is renting out a room in your home for business meetings. This can be a legitimate deduction if you don’t already claim a home office. The key requirement is that the rental fees align with fair market rental rates, and they must be directly tied to your business activities.
Understanding Retirement Savings Credits
The IRS also offers valuable credits to encourage saving for retirement, but certain criteria apply. According to the IRS, contributions to a retirement plan must be new—rollovers from other accounts, like moving a 401(k) into an IRA, do not qualify.
To be eligible for the Saver’s Credit:
- You must be 18 or older.
- You cannot be a full-time student.
- You must not be claimed as a dependent on someone else’s tax return.
- Contributions must be made to a qualified retirement plan or IRA.
- Your income must fall below certain thresholds.
For example, in 2025, a single filer with an adjusted gross income (AGI) of $19,000 who contributes $1,000 to a retirement account could receive a $500 credit. The Saver’s Credit offers different percentages of the maximum $2,000 (or $4,000 for joint filers), based on income:
- Other filers: 50% credit if AGI is $35,625 or below.
- Married filing jointly: 50% credit if AGI is $47,500 or below.
- Head of household: 50% credit if AGI is $35,625 or below.
Claiming the Credit
The Saver’s Credit is a non-refundable tax credit of up to $1,000 for single filers and $2,000 for joint filers. It can be claimed using IRS Form 8880 and applies to contributions made to plans like traditional IRAs, Roth IRAs, 401(k)s, 457(b) plans, and more. Employer-sponsored retirement plans also qualify.
One special case is the Achieving a Better Life Experience (ABLE) account, which is eligible only if the taxpayer is the designated beneficiary.
A Valuable Incentive to Save
The Saver’s Credit is designed to motivate low- and moderate-income individuals to save for retirement, offering a dollar-for-dollar reduction in tax bills. Although it’s non-refundable—meaning it can’t generate a refund beyond your tax liability—it remains a powerful tool for achieving long-term financial security.
By taking advantage of available deductions and credits, small business owners and workers alike can lighten their tax burden and strengthen their financial future at the same time.