Last year income

[vintagetraveler]

Last year I did not make enough to qualify for an IRA.  This year my business has quadrupled.  Is there anyway I can keep from paying too much in tax this year since last year was bad due to covid.  

[Anonymous]

For a self employed individual, there are 4 options for reducing taxes and maximizing savings.

• Traditional and Roth IRA - You can contribute $6,000 tax-deferred to a traditional IRA, plus $1,000 catch-up if age 50 or older. The same amount after-tax can be contributed to a Roth IRA. You can save in a traditional and Roth IRA in the same year, but the combined total cannot exceed the IRS maximum ($6,000/$7,000).
• SIMPLE IRA (Savings Investment Match Plan for Employees) - Low startup and maintenance costs. Funded by employer contributions and elective employee salary deferrals made on a pre-tax basis. Employer is required to make either dollar-for-dollar matching contributions of up to 3% of a worker’s pay or a non-elective contribution of 2% of compensation. Max contribution is $13,500 with a $3,000 catch-up if age 50 or older.
• SEP IRA (Simplified Employee Pension Plan) - Maximum contribution of $58,000 per year or 25% of employee pay, whichever is less. For self-employed individuals specifically, contributions are limited to 25% of your net earnings from self-employment up to the $58,000 limit.
• Individual or Solo 401(K) - Employee may make an elective deferral contribution of up to $19,500 ($26,000 for those 50 and older) up to 100% of your compensation. Additionally, the self-employed person can make non-elective contributions of 25% of net income up to a maximum of $58,000 or $64,500 (including employee deferral amount) if 50 or older.

Retirement Plans for Self-Employed People