Deductible Expenses Overview: Taxpayers can reduce their taxable income by claiming deductions for certain expenses. These deductions fall into two categories: above-the-line deductions (adjustments to income) and itemized deductions.

1. Above-the-Line Deductions:
    
   • Contributions to traditional IRAs Publication 590-A.
   • Student loan interest deduction Publication 970.
   • Self-employed health insurance premiums Publication 535.

1. Itemized Deductions:
    
   • Medical and dental expenses exceeding 7.5% of adjusted gross income IRC §213.
   • State and local taxes (SALT), capped at $10,000 IRC §164.
   • Mortgage interest on qualified residence loans Publication 936.
   • Charitable contributions to qualified organizations IRC §170.

1. Business Expenses:
    
   • Ordinary and necessary expenses for operating a business, such as rent, utilities, and supplies IRC §162.

For a comprehensive list of deductible expenses, refer to Publication 334.

Payment Methods Based on Business Structure: The method of paying yourself depends on your business structure:

1. Sole Proprietorship or Single-Member LLC:
    
   • Use an owner’s draw to withdraw profits. These are not considered wages and are not subject to payroll taxes. However, you must pay self-employment taxes on your net income Publication 334.

1. Partnership:
    
   • Partners receive guaranteed payments or distributions based on the partnership agreement. These are reported on Schedule K-1 and are subject to self-employment taxes Publication 541.

1. S Corporation:
    
   • Pay yourself a reasonable salary as an employee, subject to payroll taxes. Additional profits can be distributed as dividends, which are not subject to self-employment taxes S Corporation Employees.

1. C Corporation:
    
   • Pay yourself a salary as an employee. Dividends distributed to shareholders are subject to double taxation (corporate and individual levels) Publication 542.

For more details, see Paying Yourself.

Recordkeeping Requirements:

1. Income Records:
    
   • Keep records of all income sources, including W-2s, 1099s, and bank statements Topic No. 305.

1. Expense Records:
    
   • Retain receipts, invoices, and canceled checks for deductible expenses Publication 583.

1. Property Records:
    
   • Maintain records of property purchases, improvements, and sales until the period of limitations expires for the year in which you dispose of the property How Long to Keep Records.

1. Retention Periods:
    
   • 3 years: General rule for most records.
   • 6 years: If you underreport income by more than 25%.
   • Indefinitely: If you do not file a return or file a fraudulent return Topic No. 305.

Tax Minimization Strategies:

1. Maximize Retirement Contributions:
    
   • Contribute to tax-advantaged accounts like IRAs and 401(k)s Publication 590-A.

1. Utilize Tax Credits:
    
   • Claim credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit Publication 596.

1. Adjust Withholding or Estimated Payments:
    
   • Use Form W-4 to adjust withholding or make quarterly estimated tax payments to avoid underpayment penalties Publication 505.

1. Leverage Business Deductions:
    
   • Deduct business expenses, including home office and vehicle expenses Publication 587.

1. Tax-Loss Harvesting:
    
   • Offset capital gains with capital losses Publication 550.

For more strategies, refer to Tax Withholding and Estimated Tax.

Employee vs. Independent Contractor: The IRS uses three categories to determine worker classification:

1. Behavioral Control:
    
   • If the business controls how the worker performs tasks, they are likely an employee Topic No. 762.

1. Financial Control:
    
   • Independent contractors typically have unreimbursed expenses and the opportunity for profit or loss Publication 15-A.

1. Relationship of the Parties:
    
   • Written contracts, benefits, and the permanency of the relationship are considered Publication 1779.

For more details, see Independent Contractor Defined.

For further assistance, consult a tax professional or refer to the IRS resources linked above.