Being Smart About Taxes to Maximize Your Profit
If you're smart, your effective tax rate as an independent consultant will be lower than when you were an employee. You should be able to pay proportionally less tax than before, while also saving more for retirement. This is based on the premise that as an independent consultant, you are operating your own business. We recommend that you be familiar with the foundational concepts related to Being a Business before you dive into the more complicated subject of taxes. That said, there is info in this section for everyone.
Yes, taxes are more complicated when you're self-employed, but PICA is here to help. This section of PICA's resources is focused on how to keep more of what you earn by paying less tax and saving more for retirement. Foundational concepts are listed first, followed by resources by lifecycle stage, from just starting out to when your business becomes more complicated.
PICA members have access to members-only content in this section, as well as web workshops, virtual roundtables, and PICA Office Hours. Non-members and members alike can access free content below.
Foundational Concepts for Every Independent Professional
How you are paid is vitally important! As a self-employed professional, you want to be paid on a 1099 tax basis. Be sure you are familiar with these foundational concepts.
| Lifecycle Stage | Title | Description | |
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Tax Status: 1099 vs. W-2 | How you are paid by clients impacts how you pay your taxes, along with how much tax you owe. This article explains why being paid on a 1099 tax basis is a huge plus. |
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Temporary Employee vs. Independent Contractor | For the Internal Revenue Service, there are only two types of workers: employee (either temporary or full-time) and independent contractor. This gets confusing because the term "contractor" often means working through an agency and/or doing lower level work. Make sure you know the meaning of the various terms. |
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Self Employed? Lower Your Tax Bill! | This article answers the question, "As a business owner, what can I do to lower my tax bill?" |
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Five Steps to Becoming a Millionaire as a Consultant | PICA's Chief Advocate reflects on her years as an independent consultant and boiled it down to five keys to success. |
How you are paid by clients impacts how you pay your taxes, along with how much tax you owe. This article explains why being paid on a 1099 tax basis is a huge plus.
For the Internal Revenue Service, there are only two types of workers: employee (either temporary or full-time) and independent contractor. This gets confusing because the term "contractor" often means working through an agency and/or doing lower level work. Make sure you know the meaning of the various terms.
This article answers the question, "As a business owner, what can I do to lower my tax bill?"
Recently I logged into my retirement accounts and was surprised (and pleased!) to see that I had crossed the million-dollar mark. I don’t consider myself rich. In fact, money is usually tight at the end of the month. Yet my bank account says I’m a millionaire.
Resources on Profit and Taxes
| Lifecycle Stage | Title | Description | |
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What is Self-Employment Tax? | Understand this tax, how it's calculated, and how to potentially offset it. |
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Creating a Foundation for Consulting Success | PICA's Chief Advocate examines the interrelated topics of what to keep track of to pay less tax and how to set up your business for success. | |
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Understanding Taxes When Self-Employed | This article explains the types of taxes that you are likely to pay and the nuances to being self-employed from a tax perspective. |
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Be Prepared for Quarterly Taxes | Understand when and how to make estimated tax payments, and get some practical tips. |
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Invoicing Your Clients | The more streamlined your billing process, the sooner you're likely to get paid. Find tips, templates, and other considerations here. | |
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Common Tax Deductions for Independent Consultants | The more deductions you have, the less tax you have to pay. This is a list of the most common deductions as well as practical tips for tracking them. |
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Use a Health Savings Account (HSA) to Save Money | An HSA is not the same as an FSA (Flexible Spending Account). Understand the differences and why an HSA is an excellent option for saving money for both the short term and long term. |
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The SEP-IRA and Solo 401(k): Your Secret Sauce for Building Wealth | As self-employed professionals, we have better retirement plan options than when we were employees. Understand why these options are better, and learn the trade-offs between the two most common options. |
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Business Structure: sole-proprietor, LLC, corporation or other? | Understand the benefits and tradeoffs of the three most common business structures for consultants in terms of liability, taxes, ease of use, and client perception. |
Understand this tax, how it's calculated, and how to potentially offset it.
PICA's Chief Advocate examines the interrelated topics of what to keep track of to pay less tax and how to set up your business for success.
This article explains the types of taxes that you are likely to pay and the nuances to being self-employed from a tax perspective.
Understand when and how to make estimated tax payments, and get some practical tips.
The more streamlined your billing process, the sooner you're likely to get paid. Find tips, templates, and other considerations here.
The more deductions you have, the less tax you have to pay. This is a list of the most common deductions as well as practical tips for tracking them.
An HSA is not the same as an FSA (Flexible Spending Account). Understand the differences and why an HSA is an excellent option for saving money for both the short term and long term.
As self-employed professionals, we have better retirement plan options than when we were employees. Understand why these options are better, and learn the trade-offs between the two most common options.
Understand the benefits and tradeoffs of the three most common business structures for consultants in terms of liability, taxes, ease of use, and client perception.
Related Tools, Services, and Events
| Lifecycle Stage | Tool/Service/Event | Description | |
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Web Workshop: Legal Aspects of Solo Consulting Offered several times a year: see our calendar |
In this session led by PICA's General Counsel, you'll learn what it takes to maintain your independent status, whether or not to hire subcontractors or employees, as well as the basics of contracting as a small business. Bring your questions! |
Web Workshop: Understanding 1099 vs W-2
Offered several times a year; see our Calendar
A tax professional explains why and how this foundational concept is so vital.
Web Workshop: Legal Aspects of Solo Consulting
Offered several times a year; see our Calendar
In this session led by PICA's General Counsel, you'll learn what it takes to maintain your independent status, whether or not to hire subcontractors or employees, as well as the basics of contracting as a small business. Bring your questions!