Taxes Strategies That Actually Work for AI & Machine Learning

Taxes Strategies That Actually Work for AI & Machine Learning

1. Consult with a specialist: Before embarking on a nomadic lifestyle or making significant changes to your location, engage an international tax advisor who understands the nuances of multi-jurisdictional taxation. This is especially true for those with US citizenship or green cards.

2. Understand treaty tie-breaker rules: Tax treaties often contain "tie-breaker rules" to determine a single tax residency when two countries claim you. These rules usually look at factors like your permanent home, center of vital interests, habitual abode, and nationality.

3. Track your physical presence diligently: Use apps or spreadsheets to record your time spent in each country. This data is invaluable for tax planning and compliance.

4. Be aware of "digital nomad visas": While attractive for ease of entry and stay, some digital nomad visas might inadvertently create tax residency where you didn't intend it. Research the tax implications of specific visas before applying, as outlined in our Guide to Digital Nomad Visas. Understanding your tax residency is foundational to building an effective tax strategy for your AI/ML work because it sets the stage for all other planning decisions, including income sourcing and the applicability of deductions. It's the first step towards ensuring you pay the right amount of tax in the right place, avoiding costly errors. --- ## Entity Selection: Optimizing Your Business Structure for AI/ML Work Choosing the right legal structure for your AI/ML practice isn't just about legitimacy; it's a critical tax planning decision that impacts liability, administrative burden, and how much you pay in taxes. The ideal structure depends on your solo status or team size, liability concerns, and where your clients are located. ### Common Business Structures for AI/ML Professionals 1. Sole Proprietorship/Freelancer (Self-Employed): Description: The simplest structure where you and your business are legally inseparable. Your income is reported directly on your personal tax return. Pros: Easy to set up, minimal administrative overhead, direct income recognition. Cons: Unlimited personal liability (your personal assets are at risk), may not appear as professional to larger clients. In some countries, self-employment taxes can be higher than corporate taxes. Best for: New AI/ML freelancers testing the waters with minimal risk, or those with very few clients and low potential for lawsuits or copyright infringement claims. This is often the starting point for many remote workers mentioned in our How to Become a Digital Nomad guide. 2. Limited Liability Company (LLC) / Limited Company (Ltd): Description: A hybrid structure offering personal liability protection similar to a corporation, but with pass-through taxation similar to a sole proprietorship (profits and losses are passed through to the owner's personal tax return). In many non-US countries, a Limited Company (Ltd) serves a similar purpose. Pros: Personal asset protection, tax flexibility (can elect to be taxed as a partnership, S-corp, or C-corp in the US), more professional image. Cons: More complex to set up and maintain than a sole proprietorship, some administrative costs and annual filings. Best for: AI/ML consultants, developers, or data scientists with growing businesses, those working on projects with higher potential liability (e.g., medical AI, self-driving cars), or those planning to scale. Often recommended for Remote Work Best Practices. 3. Corporation (S-Corp, C-Corp, or equivalent): Description: A separate legal entity from its owners. A C-Corp is subject to "double taxation" (corporate profits taxed, then dividends paid to shareholders taxed again). An S-Corp (US specific) allows profits and losses to be passed directly to the owner's personal income without being subject to corporate tax rates, avoiding double taxation. Pros: Strongest liability protection, potential for favorable self-employment tax treatment (S-Corp in the US), easier to raise capital, ideal for scaling. Cons: Most complex and expensive to set up and maintain, significant administrative and legal requirements. C-Corps have double taxation. Best for: AI/ML startups, businesses planning to seek venture capital or significant investment, those with multiple partners, or those with substantial income looking to minimize self-employment taxes (S-Corp). ### Tax Implications and Strategic Choices * Self-Employment Taxes: For sole proprietors and single-member LLCs (taxed as sole proprietors) in the US, you pay both the employer and employee portions of Social Security and Medicare taxes. Electing S-Corp status (if eligible) can allow you to pay yourself a "reasonable salary" and take the remaining profits as distributions, which are not subject to self-employment tax, potentially saving significant amounts. This strategy is less common in other countries with different social security systems.

• International Considerations: If you're an AI/ML professional living and working in different countries, forming an entity in a low-tax jurisdiction (e.g., Estonia's e-Residency program) or a non-resident company in certain regions might offer tax advantages. However, you must carefully consider Controlled Foreign Corporation (CFC) rules in your home country (especially for US citizens) to avoid being taxed on foreign corporate profits as if they were personal income. This can get very complex and requires expert guidance.
• Compliance Burden: The more complex the entity, the higher the compliance burden. Consider the cost of accountants, legal fees, and annual filings against the potential tax benefits. ### Actionable Advice for AI/ML Professionals 1. Assess Your Risk Profile: Are you working on high-impact projects where legal liability is a concern (e.g., AI for healthcare, autonomous vehicles)? If so, an LLC or corporation offers better protection than a sole proprietorship.

2. Estimate Your Income: If your AI/ML income is relatively low, a sole proprietorship might suffice. As income grows, the tax savings from an S-Corp or other corporate structures can become significant.

3. Consider Your Location Strategy: Are you a true digital nomad without a fixed base, or do you expect to settle in one foreign country for an extended period? Your intended long-term location influences the best entity choice. Many digital nomads start with an Estonian e-Residency to establish an EU-based company.

4. Consult a Local and International Tax Specialist: This cannot be stressed enough. A CPA or tax attorney specializing in cross-border taxation for digital businesses can help you choose the most advantageous structure based on your specific circumstances, citizenship, residency, and business goals. They can also advise on avoiding pitfalls like permanent establishment issues.

5. Review Regularly: As your AI/ML business evolves, so should your entity structure. Review your setup annually with your tax advisor to ensure it still aligns with your financial goals and tax obligations. Proper entity selection is a proactive strategy that can insulate your personal assets and significantly reduce your tax burden, allowing you to invest more back into your AI/ML tools, education, or even remote team building. --- ## Maximizing Deductions: AI/ML Specific Expenses One of the most effective ways to reduce your taxable income as an AI/ML professional is to maximize your legitimate business deductions. The nature of AI/ML work often involves specialized equipment, software, and continuous learning, all of which can be written off if properly documented. ### General Business Expenses Applicable to AI/ML Before diving into AI/ML specifics, remember the universal rule for deductions: an expense must be ordinary and necessary for your business. * Home Office Deduction: If you have a dedicated space in your home used exclusively and regularly for your AI/ML work, you can usually deduct a portion of your rent/mortgage, utilities, internet, and insurance. For remote professionals, this is a significant deduction, as detailed in our guide on Setting Up Your Remote Workspace.

• Internet and Phone: Your monthly internet and phone bills, crucial for remote collaboration and accessing cloud-based AI services, are deductible.
• Professional Development: Conferences, online courses, certifications, and books related to AI, machine learning, data science, or software engineering are generally deductible.
• Insurance: Liability insurance, professional indemnity insurance, and potentially health insurance premiums (if self-employed) can often be deducted.
• Legal & Accounting Fees: Costs associated with setting up your business, contract review, and tax preparation are deductible.
• Travel Expenses: If you travel for business purposes, such as client meetings, industry conferences, or temporary work projects, these expenses (flights, accommodation, meals, ground transportation) are deductible. Be careful with mixed business/personal travel; only the business portion is deductible. ### AI/ML Specific Deductions This is where AI/ML professionals can truly shine in their tax planning. 1. High-Performance Computing (HPC) Hardware: GPUs/CPUs: Dedicated graphics cards (GPUs like NVIDIA's RTX series or A100s) and powerful CPUs are often essential for training complex models, deep learning, and data processing. These can be expensed (depreciated over several years) or, in some cases, fully deducted in the year of purchase (e.g., Section 179 in the US or similar immediate expensing rules in other countries). Workstations/Servers: High-spec computers, servers, or custom-built machines for intense computational tasks are prime candidates for deduction. Storage Solutions: Large SSDs, NAS (Network Attached Storage), or external hard drives for storing massive datasets are deductible. Example: An ML engineer invests $5,000 in a new workstation with multiple GPUs for deep learning projects. This cost can be deducted, significantly reducing their taxable income. 2. Software and Licenses: Development Tools: IDEs (e.g., PyCharm Professional), specialized compilers, debugging tools. AI/ML Frameworks & Libraries: While many are open-source, any paid premium versions, commercial licenses for specific libraries, or data visualization tools are deductible. Operating Systems & Productivity Software: Microsoft Windows Pro, macOS, Adobe Creative Suite (if used for visual aspects of AI interfaces or data presentation), office suites, project management software (e.g., Jira, Asana) subscribe to, if directly related to your work. Cloud Computing Services: Subscriptions to AWS, Google Cloud Platform, Azure for virtual machines, specialized AI services, data storage, or model deployment are highly deductible. Many AI/ML projects rely heavily on these services, making this a major expense category. Example: A data scientist pays $500/month for AWS services to host and train their models. Over a year, that's $6,000 in deductible expenses. 3. Data Acquisition and Labeling Services: If you purchase datasets for training your models or outsource data labeling to third-party services, these costs are legitimate business expenses. This is common for Data Science and Analytics roles. 4. Professional Memberships and Subscriptions: Memberships to professional organizations (e.g., IEEE, ACM) related to AI/ML, subscriptions to scientific journals, premium access to research databases (e.g., arXiv, Google Scholar subscriptions if applicable). 5. Educational Expenses for Skill Upgrades: While general education for a new career path might not be deductible, courses and certifications specifically to maintain or improve skills required for your current AI/ML work are deductible. Examples include a deep learning specialization on Coursera, an advanced Python for data science course, or a certification in a new ML framework. ### Record Keeping: The Golden Rule Deductions are only valid if you can prove them. * Keep all receipts: Digital copies are often preferred for easy storage and retrieval. Use expense tracking apps (e.g., Expensify, QuickBooks Self-Employed).
• Categorize expenses: Clearly label each expense with its business purpose.
• Maintain mileage logs: If you use your personal vehicle for business travel, track your mileage.
• Separate business and personal finances: Use a dedicated business bank account and credit card to simplify tracking. This is foundational for any remote freelancer, as discussed in our Freelance Success Guide. By diligently tracking and categorizing these AI/ML specific expenses, you can significantly reduce your taxable income, putting more money back into your pocket or allowing you to reinvest in better equipment and training. This proactive approach to expense management is a cornerstone of intelligent tax strategy. --- ## International Tax Treaties and Preventing Double Taxation Working across borders as an AI/ML professional inevitably brings the risk of double taxation – being taxed on the same income by two different countries. Thankfully, most developed nations have entered into bilateral tax treaties to prevent this. Understanding how these treaties work is crucial for any global remote worker. ### What are Tax Treaties? Tax treaties are agreements between two countries designed to:

1. Prevent Double Taxation: Ensure that income earned by a resident of one country from sources in the other country is not taxed twice.

2. Prevent Tax Evasion: Facilitate information exchange between tax authorities.

3. Encourage Cross-Border Trade and Investment: By providing certainty and reducing the tax burden on international transactions. ### Key Provisions for AI/ML Professionals For remote workers, especially in the service-oriented AI/ML field, several treaty provisions are particularly relevant: 1. Residency Tie-Breaker Rules: As mentioned earlier, if you are considered a tax resident by the domestic laws of both treaty countries, the treaty will outline a series of tests (permanent home, center of vital interests, habitual abode, nationality) to determine which country has the primary right to tax you as a resident. This is often the first and most important step.

2. Permanent Establishment (PE): This concept determines if a non-resident company or individual has a sufficient business presence in a country to be subject to its corporate or business income taxes. For AI/ML professionals offering services, a PE can be created if you have a "fixed place of business" (e.g., an office you regularly use in a foreign country) or if you provide services for a certain duration (e.g., more than 183 days in a 12-month period as a consultant). Merely working remotely from a hotel or temporary Airbnb generally doesn't create a PE, but if you lease an office in Berlin for a year to serve a local client, that might. * Impact: If you create a PE, the country where the PE exists can tax the profits "attributable" to that PE. This is why many digital nomads avoid setting up fixed offices in foreign countries unless their business plans explicitly require it.

3. Income from Independent Personal Services (Articles 14 & 7): Historically, many treaties had an "independent personal services" article (Article 14, now often merged into Article 7 "Business Profits") that stated income earned by individuals performing professional services (like an AI consultant) would only be taxable in their country of residence, unless they had a fixed base regularly available to them in the other country, or they stayed in the other country for more than a certain number of days (e.g., 183 days in a 12-month period). Modern Treaties: The OECD Model Tax Convention, which many treaties are based on, merged Article 14 into Article 7 (Business Profits). This means that for individuals providing services, the PE concept now governs. If you don't* have a PE, generally only your country of residence can tax your business profits.

4. Exchange of Information: Treaties allow tax authorities to share taxpayer information, making it harder to hide income or assets. This reinforces the need for transparent and compliant tax planning, as discussed in our Digital Nomad Tax Compliance guide. ### Methods of Double Taxation Relief Even if two countries claim a right to tax your income, treaties provide mechanisms to avoid actual double taxation: * Exemption Method: The country of residence exempts foreign-source income from taxation or exempts income that is subject to tax in the other country.

• Credit Method: The country of residence taxes the foreign-source income but allows a credit for taxes already paid to the other country. This is the most common method, especially for US citizens using the Foreign Tax Credit. ### Actionable Advice for AI/ML Nomads 1. Identify Relevant Treaties: Determine if a tax treaty exists between your country of tax residency and the country(ies) where your clients are located and/or where you are physically present for substantial periods.

2. Understand Treaty Application: Don't assume a treaty automatically applies or will save you. You usually need to formally claim treaty benefits on your tax return in the foreign country. This often involves specific forms (e.g., Form 8833 for US taxpayers).

3. Be Wary of "Treaty Shopping": Using a foreign entity or structure solely to take advantage of favorable treaty provisions, without establishing economic substance, can be challenged by tax authorities.

4. Confirm Your PE Status: Carefully evaluate your activities and physical presence in any foreign country. If you establish a significant presence, you might inadvertently create a PE, triggering local tax obligations. This is crucial for avoiding common digital nomad tax mistakes.

5. Seek Professional Guidance: Interpreting tax treaties is complex and highly fact-specific. An international tax advisor can help you understand the specific treaty articles that apply to your situation, ensure you correctly claim treaty benefits, and navigate potential pitfalls. They can advise on the best entity structure and operational approach to minimize PE risks. By proactively understanding and applying the provisions of international tax treaties, AI/ML professionals can significantly reduce their global tax burden and focus more on their work without worrying about unexpected tax demands. --- ## Income Sourcing Rules for Global AI/ML Projects For AI/ML professionals working remotely for international clients, understanding income sourcing rules is as fundamental as tax residency. These rules determine which country has the right to tax specific income, regardless of your overall tax residency. Different countries have different rules, leading to potential complexity or even double taxation if not managed correctly. ### What are Income Sourcing Rules? In simple terms, income sourcing rules are used to determine where income is earned for tax purposes. For services income, this typically comes down to: * Where the services are performed: The physical location where you, as an AI/ML professional, are performing the work.

• Where the payer is located: The location of the client or company paying you.
• The nature of the service: Sometimes, the type of service can influence its source. ### US Income Sourcing Rules (A Common Example) For US citizens and residents, understanding US sourcing rules is paramount, as they are taxed on worldwide income. Personal Services Income: Generally, income from personal services (e.g., your AI model development, data analysis, or consulting) is sourced to the location where the services are physically performed. Example: If a US citizen ML engineer lives in Costa Rica and performs all their work for a US client from their home office there, that income is generally considered foreign-sourced for US tax purposes. This is important for claiming the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).
• Royalties: If your AI/ML work involves creating intellectual property (e.g., a patent for a new algorithm, copyrighted software code) and you receive royalties, the source of royalty income is generally where the property is used.
• Sale of Property: If you develop and sell AI software or algorithms, the source generally depends on whether it's tangible (where sale occurs) or intangible (residence of seller or where property is used). ### Challenges for AI/ML Professionals 1. Multiple Work Locations: A digital nomad AI architect might work for a US client while spending 3 months in Mexico City, 3 months in Paris, and 6 months in their home country. This requires careful tracking of time spent in each location to correctly source the income.

2. Cloud-Based Work: When developing an AI model entirely in the cloud, accessed from various locations, the "physical performance" can become ambiguous, though generally, it's tied back to the individual's location.

3. Jurisdictional Differences: Other countries may have different sourcing rules. For instance, some countries might source service income to the payer's location, even if the work is done elsewhere. This can lead to conflicts that tax treaties are designed to resolve. ### Strategies for Managing Income Sourcing 1. Detailed Time Tracking: This is non-negotiable. Software that tracks your location (with your consent, of course) or meticulous manual logging of where you perform work on a daily or weekly basis is essential. This forms the basis for arguing the foreign source of your income.

2. Contractual Clarity: When working with international clients, ensure your contracts clearly specify the "place of performance." While tax authorities aren't bound by contracts, it provides strong supporting evidence of your intent and operational model.

3. Foreign Earned Income Exclusion (FEIE) - US Citizens: If you qualify (physical presence test or bona fide residence test), the FEIE allows US citizens to exclude a significant portion of their foreign-sourced earned income from US taxation. For 2024, this amount is $126,500. This is a powerful tool for AI/ML professionals working abroad. However, you cannot claim the FEIE and deduct expenses attributable to that excluded income. Our US Digital Nomad Taxes guide offers more details.

4. Foreign Tax Credit (FTC) - US Citizens: If you pay income taxes to a foreign country on income that is also taxed by the US, the FTC allows you to credit those foreign taxes against your US tax liability dollar-for-dollar, preventing double taxation. This is often used when income exceeds the FEIE limit, or when taxes are paid in high-tax jurisdictions.

5. Consider a Foreign Legal Entity: If you expect to live and work abroad for many years, setting up a foreign company (e.g., an LLC in a favorable jurisdiction) might simplify sourcing and potentially reduce your overall tax burden, though this comes with its own complexities (CFC rules, transfer pricing, local compliance).

6. Seek Specialized Advice: Given the complexities of individual tax residency, corporate structures, and differing sourcing rules, consulting an international tax expert is always recommended. They can help you structure your contracts, track your income, and make the most advantageous elections on your tax returns. Mastering income sourcing rules is a crucial aspect of tax efficiency for the global AI/ML freelancer. It ensures that you're reporting your income correctly and strategically applying available exclusions and credits, allowing you to retain more of your hard-earned dollars from your projects. --- ## Crypto and Digital Assets for AI/ML Professionals: Tax Considerations Many AI/ML professionals are early adopters of technology, and this often extends to cryptocurrencies and other digital assets. Whether you're paid in crypto for your AI development work, investing in NFTs, or using decentralized finance (DeFi) protocols, understanding the tax implications is critical. Tax authorities worldwide are increasingly scrutinizing these assets. ### General Tax Principles for Crypto The core principle across most jurisdictions (e.g., US, Canada, UK, EU) is that cryptocurrency is generally treated as property for tax purposes, not currency. This has several important implications: 1. Taxable Events: Selling Crypto for Fiat Currency: This is a taxable event. The difference between the purchase price (cost basis) and the sale price is a capital gain or loss. Exchanging One Crypto for Another: This is also a taxable event. The fair market value of the crypto you receive at the time of exchange determines your capital gain or loss. Using Crypto to Buy Goods/Services: This is a taxable event. The difference between the cost basis of the crypto spent and the fair market value of the goods/services purchased determines your capital gain or loss. Receiving Crypto as Income: If you're paid in Bitcoin, Ethereum, or other cryptocurrencies for your AI services, the fair market value of the crypto on the day you receive it is considered ordinary income and is taxable.

2. Holding Period: Short-Term Capital Gains: If you hold the crypto for one year or less, gains are typically taxed at your ordinary income tax rates. Long-Term Capital Gains: If you hold the crypto for more than one year, gains are usually taxed at more favorable long-term capital gains rates. ### AI/ML Specific Crypto Scenarios 1. Paid for AI Services in Crypto: Income Recognition: When your client pays you in crypto for your ML model development or data annotation services, the fair market value of that crypto (in your local fiat currency) on the date you receive it must be reported as taxable income. Cost Basis: That fair market value then becomes your cost basis for future capital gains calculations. Example: An AI developer receives 0.1 BTC (valued at $3,000) for a project. They report $3,000 as ordinary income. If they later sell that 0.1 BTC for $3,500, they have a $500 capital gain ($3,500 - $3,000). 2. Investing in AI-Related Tokens/DAOs: Many AI projects are launching their own decentralized autonomous organizations (DAOs) and utility tokens (e.g., for accessing computational power, data, or models). Investing in these or receiving them as rewards (e.g., for contributing to open-source AI projects) has tax implications. Receiving Tokens: If you receive new tokens as part of an airdrop, bounty, or reward for contributing to an AI project, the fair market value of these tokens at the time of receipt is generally treated as ordinary income. Liquidity Pool & Staking Rewards (DeFi for AI): If you provide liquidity to decentralized exchanges for AI-related tokens or stake your crypto in protocols that support AI infrastructure, any rewards (e.g., interest, new tokens) are typically taxed as ordinary income when received. 3. Mining or Validating AI-Supported Blockchains: If you your powerful AI/ML hardware (GPUs) to mine cryptocurrencies or validate transactions on a proof-of-stake network that contributes to AI-related computation, the crypto you receive is generally considered ordinary income at its fair market value on the day you receive it. ### Actionable Advice for AI/ML Professionals Using Crypto 1. Track Every Transaction: This is absolutely critical. You need to record the date, type of transaction (buy, sell, trade, receive as income), quantity of crypto, and the fair market value in fiat currency at the time of the transaction for every single crypto event. Tools: Use crypto tax software (e.g., CoinTracker, Koinly, TaxBit) that integrates with exchanges and wallets. This is indispensable for generating necessary tax forms and reports.

2. Separate Business and Personal Crypto: Similar to fiat currency, keep your business-related crypto transactions separate from personal investments where possible.

3. Understand "Cost Basis" Methods: Different methods (e.g., FIFO - First-In, First-Out; LIFO - Last-In, First-Out; Specific Identification) for calculating cost basis can impact your capital gains/losses. Understand which methods are permitted in your jurisdiction and choose the most advantageous one.

4. Be Aware of Local Regulations: While many principles are similar, specifics can vary. Some countries have specific rules for stablecoins, NFTs, or DeFi lending. Research the crypto tax laws of your tax residency country. For instance, in Portugal, long-term crypto gains were historically often untaxed, though that is changing.

5. Consult a Crypto Tax Specialist: This is a rapidly evolving area of tax law. A tax advisor specializing in crypto can help you navigate the complexities, ensure compliance, and optimize your tax position, especially if you have significant crypto transactions or multiple types of digital assets. They can help avoid tax errors with foreign income.

6. Consider Offshore Structures (with caution): For very high net worth individuals with significant crypto holdings and who are truly nomadic, certain offshore structures might offer tax advantages, but these are extremely complex and come with high legal and compliance costs. This is not for casual crypto users. Ignoring crypto taxes is not an option. Tax authorities are building sophisticated tracking capabilities. Proactive tracking and reporting will save you significant headaches and potential penalties down the line, allowing you to confidently engage with the digital asset. --- ## Retirement Planning and Investing as a Digital Nomad AI/ML Pro Retirement might feel distant when you're coding AI models from a beach, but planning for your financial future is crucial, especially as a self-employed digital nomad in AI/ML. The traditional employer-sponsored retirement plans aren't available, requiring you to take a proactive approach to saving and investing. ### Challenges for Nomadic AI/ML Professionals 1. Lack of Employer-Sponsored Plans: No 401(k) or defined benefit pensions.

2. Jurisdictional Complexity: Where do you invest? What are the tax implications of investing across borders?

3. Inconsistent Income: Freelance and contract AI/ML work can lead to fluctuating income, making consistent contributions challenging.

4. Citizenship vs. Residency: US citizens, for example, must contend with their home country's regulations regardless of where they live. ### Retirement Avenues for US Citizen AI/ML Nomads For US citizens, even living abroad, these options are often available and encouraged: 1. Self-Employed 401(k) (Solo 401(k)): Description: A powerful retirement plan for independent contractors and small business owners with no full-time employees other than their spouse. You act as both the employee and the employer. Contributions: You can contribute both as an employee (up to $23,000 for 2024, or $30,500 if over 50) and as an employer (up to 25% of your net self-employment earnings). Total contributions, including catch-up, for 2024 can be up to $69,000. Tax Benefits: Contributions are tax-deductible, reducing your current taxable income. Earnings grow tax-deferred. Example: An ML consultant earning $150,000 annually could contribute a significant portion, drastically lowering their taxable income while building a substantial retirement fund. Best for: Highly recommended for self-employed AI/ML professionals with substantial income, as it allows for much larger contributions than an IRA. You'll need an EIN for this, readily available for US citizens even overseas. 2. SEP IRA (Simplified Employee Pension IRA): Description: Another option for self-employed individuals and small business owners. Contributions: You can generally contribute up to 25% of your net self-employment earnings (after subtracting one-half of your self-employment tax and SEP contributions), capped at $69,000 for 2024. Pros: Easy to set up and administer. * Cons: Only employer contributions