I had never given taxes a second thought. April 15 had always heralded the arrival of a fat refund check and that was about it. But all of that changed once life as a freelance writer settled in. All of a sudden, my husband — who is also self-employed — and I were hit with a tax bill that equaled more money that I earned in an entire year. What went wrong? We didn’t understand our options, or how taxes affect self-employed individuals.

We learned one important lesson quickly: if you are self-employed — as a freelancer, independent contractor or Web entrepreneur —you need to know how the tax man relates to you and what you can legally do to reduce your tax burden. I’m certainly not talking about cheating the IRS here; I’m talking about paying what you legally and rightfully owe, and no more.

Here are a few tips we picked up after our tax time disaster:

Save receipts. Any money that you spend to directly foster or further your work is a tax deduction. If you are a writer and you take an editor to lunch to discuss a story — and pick up the tab — that is a deduction. If you purchase a new computer for your home office so you can do freelance writing or graphic design work, that is a tax deduction. If you make and sell stuffed animals, your fabric and thread are tax deductions. Your business cell phone — another deduction. Of course, your deductible expenses cannot total more money than you have made in that year.

And you can only reasonably deduct all of these expenses if you have a receipt. We handle this by paying for all business-related expenses on a separate credit card. At the end of the year, our credit card company sends us a statement detailing every purchase we’ve made. We know exactly what we spent on business and it’s very handy.

Car Cash. If you use your personal vehicle for travel to and from work or to visit clients, you can deduct part of your expenses for gasoline and repairs. Remember you can only deduct expenses incurred while using the vehicle for work. Don’t try to write off your girls’ road trip to Florida — unless you meet with a client while you were there.
If you are a big fan of record keeping, keep a notebook in your glove compartment so you can record the actual mileage put on your car during work outings. Those miles are tax deductible. If you are like me, we are pretty bad at remembering to write those miles down. Take heart. The IRS will give you a standard mileage deduction.

Retirement, baby. This is the part where we royally screwed up our taxes and jeopardized our future at the same time. We didn’t understand our retirement contribution options, which can substantially reduce the taxes we owe. I know, you are thinking: "Retirement? How can I sock money away for that when I am barely getting by?"
I don’t care how little you make, you need to walk down to your local bank or Vanguard or Charles Schwab office and open a retirement account. Look at it this way: If you don’t put money in that account, the IRS is just going to take it from you at the end of the year anyway. But if you put it into a retirement account it’s yours, and it will grow tax-free until you retire. Hell, the way Social Security is headed, that money may be the only money you have to retire, so no excuses!

There are several good options for self-employed folks, too. You can open a traditional IRA. You can put a maximum of $3,000 a year in it. Even if you can’t max it out, putting just $500 into it is much better than contributing nothing. Every little bit helps. You’ll owe less to the government, and you’re building a nest egg at the same time.

If you make a decent chunk of cash and 20 percent of your annual income minus expenses equals more than $3,000, a Self-Employed IRA is for you. Called a SEP-IRA, the plan is kick ass and is relatively easy to set up. It allows you to sock away a maximum of 20 percent of your income after expenses, for a total of no more than $40,000 a year. This is the route I took and I am grateful for it every day. It gave us the tools to really build our nest egg.

The Home Office. I want you to get out your measuring tape, get down on your hands and knees and figure out exactly how many square feet your home office is. You may not love the dust bunnies, but you certainly will like the dough this little exercise can save you.

Next, find out how many square feet your house or apartment is. Divide your office square footage by the total square footage and you now know what percentage of your home is used for work and what percentage of the total cost of your utilities and rent/ mortgage you can deduct from your taxes every year.

Don’t overlook the home office deduction. If your office takes up 10 percent of your house, you can deduct 10 percent of your rent/mortgage, electric and water bill, phone bill — unless you have a business-only line, which is 100 percent deductible— and any repair or maintenance costs associated with it. Too many people skip over this part of their taxes, but you are entitled to the deduction and you should take it.
However, the IRS can be a bunch of sticklers about this kind of thing, so the office needs to be literally work only. I’ve heard tales of folks who were audited and lost this deduction because there was a dog food bowl next to their desk. So, move out the personal stuff and get to work.

Deductions for Big Softies. Yes, I mean you. If you have a soft spot for strays and donate money to the Society for the Prevention of Cruelty to Animals, save your cancelled check or get a receipt. It’s a deduction. Maybe you donate a portion of the proceeds from your Internet store to charity; it’s a deduction. Being a big softie with a love for philanthropy is not only good for those in need, it can shave a few bucks off your tax bill.

Extreme tips. We went to extremes to reduce our tax bill and decided to buy ourselves a house. This may not be the right option for you, but it significantly reduced our tax bill. Mortgage interest is tax deductible, and you are building equity in your own future instead of throwing your money down the drain paying rent. It’s extreme, but it’s certainly an option and it, combined with these other tips, resulted in a tax bill that was 70 percent less than the of the one that sent us into shock.

One final note: navigating the tax code is very difficult and overwhelming, but you can take yourself to school on basics. The information is out there and it pays to do your homework. For instance, the IRS has an entire section related to tax planning and options for self-employed individuals. Take the time to read it and you won’t be sorry.

Pussycat disclaimer: This article is in no way intended to be comprehensive, or to take the place of professional tax planning. Talk to your accountant to determine which options are right for you. For more information, visit www.irs.gov.