“When you get into higher levels of income for older employees, a defined-benefit plan may allow you to contribute even greater amounts, up to $245,000 for 2022,” Ekoniak said. “There are more reporting requirements and maintenance costs for a defined benefit plan, so it makes the most sense for those with higher income levels. One can also combine a defined benefit plan and a solo 401(k).”
These business operators do need to track and document deductible tax expenses precisely. “When one is working from home, work and personal lives tend to blend,” Ekoniak said. “It’s important to be very diligent in tracking exactly what’s used for the business.”
Sole proprietors are also personally liable for business debts—with even their personal assets on the line to satisfy claims against the business, unlike with a single-member limited liability company.
LLC entities have limited liability (like corporations), but they may be taxed as sole proprietorships if owned by one individual, according to the IRS, which adds that the number of sole proprietorship returns that indicated status as an LLC has jumped more than 16-fold in the past two decades.
“Make sure you’re protected from an insurance and liability standpoint,” Ekoniak said.