With the growth of the gig economy, more independent contractors are forming single-member limited liability companies (LLCs) for tax simplicity, liability protection, and the added professionalism an LLC can convey. An LLC shields owners from personal liability for business debts and obligations. For federal tax purposes, however, a single-member LLC is treated as a disregarded entity, meaning it doesn’t pay taxes itself. Instead, the owner reports the business’s income and expenses on their personal tax return.
Even though income “passes through” to the owner, it’s essential to keep business and personal finances separate. Dedicated business bank accounts, credit cards, and recordkeeping help preserve liability protection and provide the clean documentation the IRS expects—making deductible expenses far easier to track.
So, what can a business owner deduct? If you have a space in your home used exclusively and regularly for business—whether as an office, a place to store inventory, or an area to meet with clients—you may qualify for the home office deduction. The key requirement is exclusive use. A dual-purpose space, such as a kitchen or a shared playroom, does not qualify.
If your home office qualifies, you may deduct a portion of household expenses based on the percentage of your home used for business, typically measured by square footage. In addition to prorated expenses, 100% of direct costs, such as painting or repairs specific to the office, are deductible. The IRS also offers a simplified method: $5 per square foot of space used for business, up to 300 square feet. However, when using this method, additional office-related expenses—utilities, insurance, maintenance, etc.—cannot be deducted separately.
If you use your personal vehicle for business, those expenses may also be deductible. Accurate, well-documented mileage and expense records are essential to distinguish business use from personal use.
Saving for retirement is also entirely on your shoulders when you’re self-employed, but the upside is the ability to contribute a meaningful portion of your income to tax-advantaged accounts. Two popular options are the SEP IRA and the Solo 401(k), both of which offer high contribution limits for self-employed individuals.
A Solo 401(k) is a one-participant plan that allows you to contribute in two ways. As the employee, you may defer up to 100% of your compensation, up to $23,500 in 2025 ($31,000 for those 50 and older). As the employer, you may contribute up to 25% of compensation, with total contributions capped at $70,000—or $77,500 with catch-up contributions. For ages 60–63, an enhanced catch-up contribution of $11,250 applies, raising the total to $81,250. To claim 2025 salary deferrals, the plan must be established and deferral elections made by December 31, though employer contributions may generally be made up to the April 15, 2026, tax-filing deadline (October 15 with an extension).
A SEP IRA allows a self-employed individual to contribute up to 20% of net self-employment earnings, also capped at $70,000 for 2025. SEPs can be established and funded up to the tax-filing deadline, but contributions are employer-only.
Other potential deductions include 100% bonus depreciation for qualifying equipment purchases; health insurance premiums for self-employed individuals and their families; and marketing expenses such as website costs, digital ads, and promotional materials.
If you own a small business or single-member LLC, year-end planning offers numerous opportunities to strengthen your financial outlook.
If you have questions about how to take full advantage of the benefits of self-employment, the experts at Henssler Financial are happy to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the November 22, 2025 “Henssler Money Talks” episode.
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