For 2021, a self-employed individual can make a deductible contribution of as much as $58,000 ($64,500 if at least age 50) to an individual 401(k). Schwab and Fidelity are among the solo 401(k) providers that don’t charge plan set-up or maintenance fees. But neither currently allows plan loans or offers a Roth option like other, pricier providers do.

Because federal taxes get so much attention, state and local obligations sometimes get neglected, especially when the accountant handles only the client’s federal return, observes Sweet, the Eide Bailly tax attorney. He’s seen people “just forget about the state side.” Advisors can help clients be mindful of their filing responsibilities.

Finally, business owners are notorious for inappropriately treating workers as independent contractors, rather than as employees, in order to sidestep state and federal payroll taxes.

“When you classify someone as an independent contractor or consultant for tax purposes, you’re saying you don’t control them, they set their own schedule, and they have the right to work for other businesses,” explains Traphagen, the New Jersey practitioner. From what he’s seen, most work arrangements aren’t like that. How do the authorities find out?

“You have a disgruntled worker,” Traphagen says. “You terminate the relationship and the worker goes to collect unemployment from the state and says, ‘I was actually an employee.’ Then the audit will start. So I see state audits first, and then states notify the IRS.”

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