For some, self-employment is the American dream. An opportunity to be your own boss, maintain a flexible work schedule, and, oh yes, establish a lifelong relationship with your accountant and other financial professionals.

While there’s plenty of upside to working for yourself, you’ll ultimately have more responsibilities. Whether it’s paying additional taxes or taking charge of saving for your retirement, here are some tax planning tips for every entrepreneur.

Understand self-employment tax and how it’s calculated.

As a starting point, make sure that you understand and comply with federal, state, and local tax requirements. The federal government uses self-employment tax to fund your Social Security and Medicare benefits. That means, as long as you have a minimal amount of self-employment income, you’ll need to pay self-employment taxes (SE taxes).

Suppose you file a Schedule C as a sole proprietor. In that case, independent contractor, or statutory employee, the net profit listed on your Schedule C as self-employment income and will ultimately be filed with your Federal Form 1040.

Make your estimated tax payments on time to avoid penalties.

Employees generally have an income tax, Social Security tax, and Medicare tax withheld from their paychecks. But if you’re self-employed, it’s your job to make sure taxes are withheld from your income. You’ll need to make quarterly estimated tax payments to cover your federal income tax and self-employment tax liability. Depending on where you live and work, you may also have to make state estimated tax payments. What happens if you don’t make estimated tax payments? Well… you may be subject to penalties, interest, and a big tax bill at the end of the year, so be careful! Keep in mind that if you have employees, you’re going to have additional tax and reporting responsibilities for them too.

Many small business owners hire family members. Having family members work for your business could potentially create tax savings, depending on the situation. Businesses can take a deduction for reasonable compensation paid to employees, which in turn reduces the amount of taxable business income that flows through to the owner. Beware, the IRS can question compensation paid to a family member if the amount doesn’t seem reasonable, considering the services actually performed.

As is the case with wages paid to all employees, wages paid to family members are subject to withholding of federal income and employment taxes, and other taxes in some states. Business owners are responsible for paying FICA (Social Security and Medicare) taxes on wages paid to all employees. The good news is, payment of these taxes will be a deductible business expense for tax purposes.

Save for your retirement; no one else will do it for you.

An intelligent way to do this is by establishing an employer-sponsored retirement plan. These retirement plans can provide several personal and business benefits. For example, your business may be allowed an immediate federal income tax deduction for funding the plan, and you can generally defer personal income by contributing pretax dollars into a retirement account. Below is a list of retirement plan types that are best suited for small businesses:

• Simplified Employee Pension (SEP) IRA

• Savings Incentive Match Plan for Employees (SIMPLE) IRA

• SIMPLE 401(k)

• Individual or Solo 401(k)

The type of retirement plan that your business should establish depends on your specific circumstances. Because each plan is different, you’ll want to explore all of your options and consider the complexity of each plan as it relates to your business. If you have employees, you’ll also have to provide these benefits to them as well. For more information about your retirement plan options, speak with a qualified retirement plan adviser.

Remember to take full advantage of all business deductions.

Because deductions lower your taxable income, you should make sure that your business is taking advantage of any and all business deductions to which it’s entitled. You may be able to deduct a variety of business expenses, including rent or home office expenses, and the costs of office equipment, furniture, supplies, and utilities. To be deductible, business expenses must be both “ordinary,” which means common and accepted in your trade or business, and “necessary,” meaning appropriate and helpful for your business. If your expenses are incurred partly for business purposes and partly for personal purposes, you can deduct only the business-related portion.

The takeaway

All in all, there are many advantages to owning a business, but it comes with having more responsibilities and more work to do. Fortunately, you can delegate all sorts of tasks internally and externally. When you have specific tax questions, it’s best to seek the advice of a qualified accountant and your financial advisor. You’ll pay a lot less for their trusted advice than you would to the IRS or other agencies in the event you make a mistake.