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I know a minor who has some decent self-employment income that has a heavy self-employment tax pending. No personal deductions are being made currently, as the minor doesn't even have a retirement or health insurance account (health insurance is paid by the parent).

Instead of paying all that tax, it's better to start figuring out those stuff today, if there's enough time until tax payment deadline.

What are some tax-deductible contributions that are somewhat easy to setup for a minor?

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Tax deferral programs like retirement savings (IRA, 401k) do not defer self-employment tax. They only allow deferring income tax.

While it's definitely something worth discussing and considering as early as possible, for the specific purpose stated in your question they would not be helpful.

This is similar to salaried employees, the contributions to 401k are deferred only for income tax purposes, not FICA taxes (the SE taxes is the self-employed version of the FICA taxes for salaried employees).

Eligibility for HSA requires HDHP coverage, and while exempt from FICA, HSA contributions are not included in the Schedule SE calculations.

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  • Ok, seems like we should get started on an IRA. Do you think it'd be better to get a SEP or Traditional? The freelancing is just a side gig which might stop at some time, so he won't always be a business owner. If we chose one but wanted to change, can we change the type of ira account?
    – No Name
    Mar 6 at 4:26
  • @NoName Depending on the amounts, I'd argue in favor of Solo 401k, but it may be too late for 2023 now. SEP is not an alternative to Traditional, SEP is "Simplified Employee Pension", Traditional or Roth means pre- or post-tax contributions. You'll want to investigate which way makes sense, but I'll guesstimate that it would be Roth (at least for self contributions).
    – littleadv
    Mar 6 at 5:12
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There are several things that are going to make this difficult.

  • HSA It is possible to put money into a HSA before the tax deadline to be treated as a 2023 contribution. That would mean that they would have had to establish the high deductible plan prior to the end of the year. The amount they could shelter would depend on the number of months of coverage. It appears the deadline for doing this has passed. It might not be beneficial anyway if the cost of coverage from their parents would have been zero. They would have been spending money on unneeded insurance.

  • They can contribute to a IRA. Because they are a minor I would get started on this before the tax deadline, to make sure there are no hiccups getting everything in place.

  • You will have to get tax advice regarding the benefits of setting up a solo 401(k). The age of the minor can make this difficult. It is more complex than putting money into an IRA.

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  • Assuming US: You can not contribute to an HSA unless you are signed up for a High Deductible Health Plan With HSA. You can not contribute to a 401k unless you are eligible for your employer's 401k. IRA, or one of the education savings programs, looks like your best bet.
    – keshlam
    Mar 5 at 15:42
  • One thing you forgot to mention - none of these reduce the self-employment taxes, they only allow deferring income taxes.
    – littleadv
    Mar 5 at 16:48

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