Hi!

As a business owner or freelancer, you have far more easy options to reduce taxable income than those on W2. Let’s all take advantage of this!

One of the main areas where this is possible is through deferring tax on your compensation. What is that? It is a fancy way of saying “retirement plans.”

Here’s a breakdown of your best options for 2025:

1️⃣ Solo 401(k) – Maximize Contributions & Tax Deductions
✔ Best for: freelancers, contractors, and solo business owners with no employees
✔ 2025 Tax Deduction Limit: $70,000 total. This means you put the following amounts away and simultaneously reduce your taxable income:

Employee contributions up to $23,500 ($31,000 if 50+ with catch-up contributions)
Employer contributions up to 25% of net self-employment income
✔ Key Benefit: Allows you to contribute as both the employer & employee, helping you reach the max faster than most other plans.
✔ This means you can contribute the $23,500 even if that is all your s-corp earned – and write off the whole amount!

2️⃣ SEP IRA – Simple & High Contribution Limits
✔ Best for: Self-employed individuals or small business owners with no or few employees
✔ 2025 Contribution Limit: 25% of net self-employment income, up to $70,000
✔ Key Benefit: Easy to set up & fund—you can contribute at tax time to lower last year’s taxable income by up to 70k – wow. No required annual contributions. These are also extremely easy to set up. I created mine with a 20 min call to my broker and one wire.

3️⃣ SIMPLE IRA – Great for Businesses with Employees
✔ Best for: Businesses with employees looking for an affordable plan
✔ 2025 Contribution Limit: $16,500 ($20,000 if 50+ with catch-up contributions).

✔ Key Benefit: SIMPLE IRAs allow business owners to make deductible contributions for themselves while offering a cost-effective way to provide retirement benefits if they choose.

4️⃣ Defined Benefit Plan – The Ultimate Tax Shelter for High-Income Earners
✔ Best for: High-earning solopreneurs or business owners who want to turbocharge retirement savings
✔ 2025 Contribution Limit: Based on actuarial calculations, but can exceed $300,000+ per year
✔ Key Benefit: Massive pre-tax contributions – ideal for those needing aggressive tax deferral. Can be combined with a Solo 401(k) for even higher deductions.

5️⃣ Roth Solo 401(k) – Tax-Free Withdrawals in Retirement
✔ Best for: Business owners who expect to be in a higher tax bracket later
✔ 2025 Contribution Limit: $23,500 ($31,000 if 50+) in Roth contributions, plus employer contributions on the pre-tax side
✔ Key Benefit: No tax deduction today, but 100% tax-free growth & withdrawals in retirement. This is huge because even if your portfolio is up 10,000%, you still do not pay tax at withdrawal.

6️⃣ Traditional & Roth IRAs – Simple but Limited
✔ Best for: Anyone looking to save outside of an employer-sponsored plan – this is perfect for a spouse that is not self-employed, for example
✔ 2025 Contribution Limit: $7,000 ($8,000 if 50+)
✔ Key Benefit:

Traditional IRA: Tax deduction today, but withdrawals are taxed in retirement.
Roth IRA: No tax deduction today, but all growth & withdrawals are tax-free.

💡 Pro Tip: Many Business Owners Layer Multiple Plans
Solo 401(k) + Defined Benefit Plan = Stack deductions for ultra-high contributions. This can add up to over $350,000 in tax deductions
Roth IRA + SEP IRA = Tax-free & tax-deferred growth combo. Up to 70k SEP deduction plus tax free growth with the Roth
SIMPLE IRA is great for small teams, while Solo 401(k) is unbeatable for solo entrepreneurs.
Need help?

We can help put together a strategy for you. Much of this you can self-implement, but if you do not have time, we have full service options.

Since some of these strategies require significant onboarding time on our end, we must get started during this part of the season. Please submit the form below this week if you need help or have questions.

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George Dimov CPA

www.dimovtax.com

(833) 829-1120 toll free