When I started my C2C journey, there were limited accountants available to assist me because it was tax season. I learned a lot by reading and YouTubing to understand potential c2c tax savings.

Note: I verified with an accountant once one became available.

My purpose is to share important considerations I learned that helped to save me thousands of dollars in tax savings.

Whether you are just getting started with C2C or have been doing contracting for years below are 4 items that can save you thousands in tax savings:

Healthcare options for IT Contractors:

When starting your own company, it’s important to consider healthcare options for yourself.

Healthcare is a great option for increasing your c2c tax savings options as it allows you to ensure your health is protected and also grants you a deduction. I know many people think health insurance is expensive but at certain contract rates, the premiums become more negligible.

Here are some crucial considerations:

a. Research and Compare:

Explore different healthcare plans available in your region. Consider factors like coverage, network providers, premiums, deductibles, and out-of-pocket expenses. Compare multiple options to find the most suitable plan for your needs and budget.

b. Individual vs. Group Plans:

Determine whether you want to offer individual plans to each member of your team or establish a group plan. Individual insurance can easily be found on the public market or using resources such as the Fre

elance Union which makes it easy to compare health care options.

Group plans can often provide better coverage and rates due to collective bargaining power if you have more than 1 employee as many insurance companies have a requirement of a minimum 2 employees.

c. Compliance with Laws:

Familiarize yourself with healthcare laws and regulations in your country or state. Understand any obligations you have as an employer regarding healthcare coverage and ensure you comply with the requirements.

d. Health Savings Accounts (HSAs):

Consider offering HSAs, which are tax-advantaged savings accounts that can be used to pay for qualified medical expenses.

For 2022, if you have an HDHP, you can contribute up to $3,650 for self-only coverage and up to $7,300 for family coverage into an HSA. HSA funds roll over from year to year if you don’t spend them. An HSA may earn interest or other earnings, which are not taxable. (Source: HealthCare.Gov)

e. Healthcare Alternatives (Mira)

To reduce the burden of basic healthcare services, several companies offer fixed prices via partners for certain healthcare services. For example, Mira offers a monthly membership of $45 and a fixed cost for various healthcare services as described below. This is a great cost-saving vessel if combined with an HSA and health insurance account.

This can save IT contractors significant amounts of money without having to work towards their deductible.

Money Management for handling invoicing and c2c tax savings:

Effective money management is crucial for any business, and handling invoicing properly is an essential aspect. Here are some considerations when managing invoicing:

a. Clear and Accurate Invoices:

Create clear and accurate invoices that include all necessary details such as your company name, contact information, itemized charges, payment terms, and due dates. Ensure invoices are error-free and easy to understand to avoid any payment delays or confusion.

b. Consistent Invoicing Schedule:

Establish a consistent invoicing schedule to maintain a steady cash flow. Communicate payment terms and ensure your customers are aware of when they should expect to receive invoices.

c. Automated Invoicing Systems:

Consider utilizing automated invoicing systems or accounting software to streamline the invoicing process. These tools can help generate and send invoices automatically, track payments, and send reminders for overdue payments.

d. Payment Options:

Offer multiple payment options to your customers, such as credit cards, bank transfers, or online payment platforms. This flexibility can improve convenience and prompt payment.

Reminders for estimated tax payments:

As a business owner, you are responsible for making estimated tax payments to the tax authorities. Here are some reminders to consider:

a. Understand Tax Obligations:

Familiarize yourself with the tax obligations for your specific business structure and jurisdiction. Consult with a tax professional or accountant to ensure you fully understand your estimated tax payment requirements.

b. Estimated Tax Deadlines:

Be aware of the deadlines for estimated tax payments. In many countries, estimated taxes are paid quarterly, so mark these dates on your calendar and set up reminders to avoid missing them.

c. Monitor Income and Expenses:

Keep track of your business’s income and expenses throughout the year to estimate your tax liability accurately. Maintaining organized financial records will help you make more precise estimated tax payments.

d. Calculate Estimated Tax Payments:

Use the appropriate tax forms or online tools to calculate the estimated tax payments you need to make. Consider your expected income, deductions, and any tax credits that may apply.

e. Cash Flow Considerations:

Plan your cash flow accordingly to ensure you have sufficient funds available to cover your estimated tax payments. Estimating and setting aside a portion of your income regularly can help prevent financial strain when tax payment deadlines approach.

Retirement options:

When starting your own company, it’s crucial to plan for your retirement. Small business owners can significantly increase their c2c tax savings by contributing to their retirement accounts as it is a benefit to you and is a business deduction. Here are some considerations for retirement options:

a. Individual Retirement Accounts (IRAs):

Explore traditional or Roth IRAs, which are personal retirement accounts that offer tax advantages. IRAs allow you to contribute a certain amount each year and grow your retirement savings over time.

b. Simplified Employee Pension (SEP) IRA:

If you have employees, consider setting up a SEP IRA. It allows you to contribute a percentage of each eligible employee’s salary into their retirement account while also contributing to your retirement savings.

c. 401(k) Plans:

Investigate the possibility of establishing a 401(k) plan for your business. These plans enable you and your employees to contribute a portion of your income on a pre-tax basis, and some employers offer matching contributions.

d. Self-Employed 401(k) or Solo 401(k):

If you are the sole employee of your company, a self-employed 401(k) or solo 401(k) may be an option. This plan allows you to make contributions as both an employee and employer, potentially maximizing your retirement savings. (Source: IRS.GOV)

Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $66,000 for 2023 ($61,000 for 2022; $58,000 for 2021; $57,000 for 2020).

• Employer nonelective contributions up to:
  • 25% of compensation as defined by the plan see discussion below (Source: IRS.GOV)

Example: Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2020. He deferred $19,500 in regular elective deferrals plus $6,500 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2020 were $38,500. This is the maximum that can be contributed to the plan for Ben for 2019.

A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year.

e. Consult a Financial Advisor:

Seek guidance from a financial advisor who specializes in retirement planning but more importantly, works with business owners.

A great financial advisor will be able to find c2c tax savings opportunities that you may not have been aware of just such as reimbursing certain business-eligible expenses.

They can help you evaluate your retirement goals, assess the best retirement options for your situation, and create a comprehensive retirement strategy.

Remember that retirement planning is a long-term commitment, so start early and regularly review and adjust your retirement contributions based on your business’s financial performance and personal goals.

If you’re thinking about getting started in your C2C journey, take a look at our step-by-step guide for getting your business set up.