If you are self-employed in Texas, understanding self-employment (SE) tax is vital. Because you pay both the employee and employer portions, managing this tax burden can significantly affect your profit margin. That’s why every Texas entrepreneur should consider strategies to minimize SE tax legally. In this blog, we will share four practical, IRS-approved tips for reducing your tax exposure.

Tip 1: Take the SE tax deduction. You are allowed to deduct the employer‑equivalent portion of your SE tax on Form 1040, reducing your adjusted gross income and your income tax liability. While it does not reduce the tax you pay directly, it lowers taxable income. Be sure to report it correctly on Schedule 1 of your return.

Tip 2: Maximize legitimate business expenses. Net earnings from self-employment drive the tax calculation, so lowering that figure through ordinary and necessary deductions, such as home office costs, mileage or vehicle use, and health insurance premiums, can substantially reduce your SE tax base. Texas self-employed individuals can also deduct health insurance premiums paid for themselves and qualifying dependents.

Tip 3: Elect S‑Corporation status. By forming an LLC or corporation and making an S‑Corp election, you can pay yourself a “reasonable salary” subject to payroll taxes while leaving the remainder of the profit as distributions, which are not subject to SE tax. This structure can dramatically reduce your SE tax bill, but make sure your salary reflects IRS guidelines to stay compliant. Failing to pay a “reasonable salary” can trigger IRS audits or penalties.

Tip 4: Contribute to retirement plans like a SEP‑IRA or Solo 401(k). Contributions reduce your taxable income, and some retirement plans are self-employed specific. For example, you may contribute up to ~25% of net earnings to a SEP‑IRA or, if eligible, a Solo 401(k)—both lowering your adjusted gross income and reducing your SE tax base. Texas entrepreneurs benefit from this above-the-line deduction regardless of itemizing status.

Read More: Bookkeeping for Freelancers and Self-Employed Individuals

In Summary

Texas entrepreneurs can legally reduce their SE tax by using the SE tax deduction, maximizing business expense write-offs, electing S‑Corp status, and contributing to self-employed retirement plans under IRS rules. To ensure these strategies are implemented correctly, contact MARIELA RUIZ, CPA, PLLC in Mission, TX. Visit mruiz‑cpa.com for expert guidance and personalized tax planning.