How To Avoid Paying Taxes on Your 1099 Income: 6 Must-Know Strategies

Every taxpayer wants to know that one secret IRS loophole: the one that will magically bring their tax payments down to zero, clear their pores, and water their lawn. Unfortunately, that particular secret doesn’t exist.

You generally cannot avoid tax on taxable 1099 income, but you may be able to lower your bill through legitimate business deductions and other tax breaks.

If your net earnings from self-employment are $400 or more, you generally owe self-employment tax. You must also report taxable income even when a client or payment platform does not send you a 1099.

But there are six tricks that freelancers, 1099 independent contractors, and other self-employed people can use to significantly lower their tax bill — and it’s all completely legit. In fact, the IRS specifically builds provisions for these situations right into the tax code. Welcome to the world of tax avoidance, the completely legal art of reducing, minimizing, and avoiding taxes!

Most freelancers overpay their taxes. Let’s make sure you’re not one of them.

Do you always have to pay taxes on a 1099?

Yes, you almost always get taxed on your 1099 income. If you make more than $400 as a self-employed worker, you’ll have to file taxes. You can avoid paying quite a bit of tax on your freelance or small business earnings, but you can’t wriggle out of it all.

Why 1099 workers start paying taxes at $400

For most people, taxes only kick in if you earn more than the standard deduction. For the 2026 tax year, that’s $16,100 if you’re single, $32,200 if you’re married filing jointly, and $24,150 for heads of household.

So why only $400 for freelancers and contract workers? It’s because self-employment earnings get taxed differently than other kinds of income. (That’s true of all self-employment income, whether it’s a part-time side hustle or a full-time career.)

What taxes do independent contractors pay?

Independent contractors commonly owe federal income tax and self-employment tax. State and local income or business taxes may also apply.

Self-employment tax funds Social Security and Medicare. The combined rate is generally 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. That rate also generally applies to 92.35% of net earnings from self-employment, subject to the annual Social Security limit and additional Medicare tax rules at higher incomes.

When you work as a W-2 employee for a company, you automatically have 7.65% of your income withheld from your paycheck for taxes. This is known as the Federal Insurance Contributions Act, or FICA. At the same time, your employer is paying the IRS an additional 7.65%.

But when you work for yourself, there is no employer footing that half of the bill — you are your own employer. Which means you need to pay both halves, for a combined total of 15.3%. That is why taxes can feel more expensive when you move from a paycheck to independent work.

The good news is that the tax code gives business owners several legitimate ways to lower taxable income.

Which strategies lower which taxes?

Not every deduction affects your tax bill in the same way. Some reduce both income tax and self-employment tax. Others reduce only income tax. Let's take a look.

Tax avoidance strategy #1: Write off all your business expenses

Okay, so we spill the beans on this “secret” all the time — but that’s because most people still don’t write off all the business expenses they qualify for! Even though it’s the best way to lower their self-employment tax.

Business expenses are usually the most direct way for a freelancer to lower both income tax and self-employment tax. They reduce the net profit reported on your Schedule C. Plus, you can claim these write-offs on top of the standard deduction, so don’t skip it.

A deductible expense generally must be ordinary and necessary for your business. In plain language, it should be common and accepted in your field as well as helpful and appropriate for your work.

Keeper pro tip: Personal expenses are not deductible. If something is used for both work and personal reasons, you can generally deduct only the business portion. Some expenses, including meals, vehicles, travel, and home offices, have additional rules and recordkeeping requirements.

If you’re not sure which expenses you can write off, try Keeper! We're an all-in-one app for your expense tracking and taxes. Keeper scans your bank and credit cards for qualifying tax deductions automatically, categorizes them, and files your taxes.

Example: how business expenses reduce self-employment tax

As an example, let’s say Rasheeda is a painter who’s started selling pet portraits on Etsy. After two years she’s taking in $40,000 a year in self-employment income. Not too shabby.

If Rasheeda were to list her taxable income as the entire $40,000, she’d have to apply that 15.3% self-employment tax rate to all of it — instantly handing over $6,120 of her hard-earned cash.

Now, let’s say instead she downloads Keeper. She already knows that she should be writing off the cost of paint, brushes, and canvases — though sometimes she buys new colors on a whim and doesn’t remember to save her receipt.

That’s okay! In addition to noticing her purchase at Julio’s Art Mart and adding it to her deductions, Keeper also found:

• 📸 The new camera and lighting rig she bought to take pictures of her work

• 🌐 Her website hosting bill

• 🖱️ Her yearly subscription for Photoshop

• 📚 The art books she uses to study up for her work

• ☕ The times she met up for coffee with her other artist friends to brainstorm how to grow their businesses

• 💵 The money she paid her sister for packing and shipping her latest batch of portraits

• 📮 The packing and shipping supplies they used

• 🌲 The cost of her annual artist retreat

• ✈️ The business trip she made getting to and from the retreat site

• 🎨 A portion of her rent as a home office deduction, to cover the square footage she uses as a studio

You get the idea.

Now, instead of paying taxes on her full $40,000 earnings, she can write $10,000 off as business expenses and pay taxes on only $30,000, reducing her tax bill by $1,530.

All businesses, big and small, get to take advantage of these savings. But did you know there are unique deductions available only to freelancers and other self-employed small business owners?

Tax avoidance strategy #2: Deduct your self-employment tax from your income tax

If this one is making you go, “Wait, that can’t be real” — let us assure you, it very much is.

Remember the justification the IRS uses to make you pay extra in FICA taxes: you needed to cover both the employer and the employee portion? Well, here’s where you get to use that same logic against them.

Because you are both your own employer as well as the employee, you can write off the employer’s half of your FICA taxes when you file.

We know, it sounds sneaky. But far from being tax evasion, this calculation is actually built right into your Schedule SE! In other words, if you forget about it, the IRS is likely going to send you a letter correcting the mistake and refunding the difference.

Tax avoidance strategy #3: Cut 20% of your taxable income with the QBI deduction

Because this one has so many rules and exceptions to wrap your head around, most 1099 workers and other freelancers don’t realize that they’re missing out on a huge savings opportunity.

Introduced in 2018, the qualified business income deduction allows freelancers, independent contractors, and most small business owners to take up to 20% off your taxable income, no questions asked.

The QBI deduction can apply to income from sole proprietorships, partnerships, and S-Corporations. It does not reduce self-employment tax, and it is not always equal to 20% of your Schedule C profit.

Your deduction can be limited by:

• Your total taxable income

• The type of business you operate

• W-2 wages paid by the business

• Certain qualified property owned by the business

• The overall limit based on taxable income minus net capital gain

For 2026, the wage, property, and specified-service-business limitations begin to phase in when taxable income exceeds $201,750 for most filers or $403,500 for married couples filing jointly. The phase-in ranges end at $276,750 and $553,500, respectively. Married taxpayers filing separately have slightly different thresholds.

Because deductions for self-employment tax, health insurance, and retirement contributions can affect QBI, the final calculation may be more complicated than multiplying profit by 20%. Read Keeper's complete guide to the QBI deduction or book a call with a tax professional at Keeper to see if the limitations may apply to you.

Tax avoidance strategy #4: Deduct your self-employed health insurance premiums

Again, when you’re a full-time W-2 employee, the company that employs you pays a portion of your health insurance plan. But that costs them money, so your employer gets to write off that expense.

Since you're technically a small business owner, if you pay for your own health coverage, you may be able to deduct eligible medical, dental, vision, and qualified long-term care insurance premiums for yourself, your spouse, and your dependents. Coverage for a child who was under age 27 at the end of the year may also qualify even if the child is not your dependent.

Be aware that self-employed health insurance deductions work a little differently than most business expenses. To start, you do not list it on your Schedule C with the rest of your write-offs. That’s because it lowers your income tax, not your self-employment tax.

Several important limitations apply:

• The deduction is generally limited by the earned income from the business connected to the insurance plan.

• You generally cannot claim it for a month when you or your spouse were eligible for a subsidized employer health plan.

• Marketplace coverage and the premium tax credit can make the calculation more complicated.

• Partners and more-than-2% S corporation shareholders must follow special payment and reporting rules.

Most 1099 workers have to foot a much larger bill to get good health insurance than people with 9-to-5 jobs. Being able to take such a hefty amount off your taxes — regardless of which tax — might help you sleep better!

Tax avoidance strategy #5: Put money in your retirement accounts

In addition to insurance expenses, you can also deduct contributions to your retirement account.

Self-employed individuals have the option to create a variety of retirement plans, including:

• SEP IRAs

• SIMPLE IRAs

• Solo 401(k)s

Contributions to your retirement account allows you to defer taxes on the money you put in, until you cash out your plan!

How much you can defer will vary from plan to plan and year to year. The IRS updates their guidelines annually.

Deadlines and calculations vary by plan. If you also participate in a 401(k) through a W-2 job, your employee deferral limit generally applies across those plans. Compare your options in Keeper's solo 401(k) versus SEP IRA guide.

Tax avoidance strategy #6: Get paid through an S-Corp (if your income is high enough)

Think that corporate perks are only available to multi-billion-dollar media conglomerates? Think again!

Let’s check back in with Rasheeda. After a couple more years of hustling, her pet portraits have continued to grow, and now she’s earning an average of $90,000, net.

At that income level, being smart about her tax deductions still leaves her with bigger income tax payments than she’d like. So what does a business-savvy woman do? She creates an S-Corp!

After filing the appropriate paperwork, Purrfect Pet Portraits is now a separate business entity. The business is still earning $90,000, but now Rasheeda sets her personal salary at $75,000, leaving Purrfect Pet Portraits with a net profit of $15,000.

How S-Corps can help you save on your taxes

Here’s where the benefits come in: Purrfect Pet Portraits is now paying FICA taxes based on Rasheeda’s personal salary of $75,000 rather than the entire business’s income of $90,000. Meaning, she’s not paying FICA taxes on the remaining $15,000 of business profit.

Why you can’t set your S-Corp salary too low

Before you get too excited, let’s make one thing clear: You can’t set your personal salary at $1 to avoid paying FICA taxes on the rest of your business income.

Sadly, the IRS saw through that potential loophole immediately. They keep a pretty close eye on S-Corporations and require that all salaries be “reasonable compensation” for the work done.

It’s up to each business to determine what counts as “reasonable,” depending on the nature of your work. But a few factors will include:

• How important the person is to business operations

• How much time is being spent at their job

• ‍How much education and experience they bring to the table

In Rasheeda’s case, she’s the only employee. And without her artistic talents, Purrfect Pet Portraits would have to close up shop. It only makes sense for most of the business profits to go into her pockets.

When not to get an S-Corp

If you’re earning less than around $80,000 from your work, a formal business structure like an S-Corp might be more trouble than it’s worth.

If you don’t want to pay the fees

Here are two big ways in which an S-Corporation will cost you:

• Legal fees to draw up formation documents and to register with all the state and federal agencies

• Accounting fees to file your business tax returns and to maintain your books and records

From setup fees to payroll taxes, S-Corporations are a big responsibility. For freelancers like Rasheeda — who make a comfortable, full-time income off their jobs — it may well be a solid investment, saving more than it costs. But not everyone is in the same position.

If you don’t want to deal with the hassle

Arguably the best thing about being a sole proprietor is that it keeps things simple. You can include your business taxes with your personal 1040 return. You can include your business taxes with your personal 1040 return.

As soon as you incorporate, though, you’ll need to complicate things. That means having to:

• File a separate tax return for your business

• Maintain financial records that include a balance sheet

How to claim tax savings on your 1099 income

If you want to save money with these tax strategies, you’ll need to fill out some forms. (No one’s idea of a good time, but it beats paying taxes!)

For a sole proprietor, the relevant forms commonly include:

• Schedule C: Reports business income and deductible business expenses.

• Schedule SE: Calculates self-employment tax and its deductible portion.

• Schedule 1: Reports adjustments including the deductible portion of self-employment tax, eligible self-employed health insurance, and certain retirement contributions.

• Form 7206: Calculates the self-employed health insurance deduction in applicable cases.

• Form 8995 or 8995-A: Calculates the qualified business income deduction.

• Form 8829: May be required for a home office deduction using the actual-expense method. It is generally not required when using the simplified method.

Don’t want to deal with all that paperwork on your own? File through Keeper. We’ll help you claim all your savings and take care of every form for you, so you can get on with your life.

If you’d rather file your own business taxes, though, read on to make sure you don’t miss out on any savings.

Claim your business write-offs with Schedule C

Here’s where you’ll:

• ✓ Report your earnings from self-employment

• ✓ Write off your business expenses to determine your business’s total taxable income

You can learn more about how to fill it out in our complete guide to Schedule C.

If you’re claiming a home office, you might also have to fill out Form 8829.

Deduct half of your self-employment tax on Schedule SE

This form goes hand-in-hand with your Schedule C. Schedule SE is where you’ll:

• ✓ Calculate your self-employment tax, based on your taxable income

• ✓ Use your self-employment taxes to save on income taxes

Get your QBI deduction on Form 8995

If you have higher taxable income — more than $170,050 for single people and more than $340,100 for married couples — you’ll use a different version of the form called Form 8995-A.

Claim your other income tax savings on Form 1040

On your Form 1040, you’ll claim tax savings on your:

• ✓ Health insurance

• ✓ Retirement contributions

There’s no “one weird trick” to dealing with the IRS. But there are definitely plenty of legal methods for avoiding extra taxes on your 1099 income.