Oh how I love tax season!

[Amyolin]

I don't do my own taxes because I'm scared I'll screw them up.  I looked at turbo tax one year and got as far as putting in my information before I gave up.  I get a K1 and file single...it shouldn't be that tough and I'm ashamed of myself that I don't learn to do it myself...maybe next year.

But as I am starting to understand more I find myself confused on my tax returns this year.  Maybe one of you smarter folks can explain.

On my return it says my adjusted gross income is 311k.  My taxable income after all deductions is 259k.  I owe the Feds 101k (thankfully overpaid on my quarterlies).

In reading about tax brackets I saw that earning 190k-413k = 46k + 33% of the amount over 190k.

So simple math says I should owe 46k + .33 x 69k = 69k

Where's that extra 32k coming from?  As I read my return further I see I owe alternative minimum tax of 6k and Self employment tax of 24k so I guess I just answered my own question.

 

Any tricks to avoid all these taxes?

I have a 401k plan that allows Roth contributions so I max those out.  Should I stop doing that to lower my taxable income by 18K?  Would that even make a very big difference in what I owe?

 

Grrrrr....tax time.  How I wish I could be smart like WCI and get down into a lower tax bracket!

 

[Zaphod]

Amyolin wrote:

I don’t do my own taxes because I’m scared I’ll screw them up.  I looked at turbo tax one year and got as far as putting in my information before I gave up.  I get a K1 and file single…it shouldn’t be that tough and I’m ashamed of myself that I don’t learn to do it myself…maybe next year.

But as I am starting to understand more I find myself confused on my tax returns this year.  Maybe one of you smarter folks can explain.

On my return it says my adjusted gross income is 311k.  My taxable income after all deductions is 259k.  I owe the Feds 101k (thankfully overpaid on my quarterlies).

In reading about tax brackets I saw that earning 190k-413k = 46k + 33% of the amount over 190k.

So simple math says I should owe 46k + .33 x 69k = 69k

Where’s that extra 32k coming from?  As I read my return further I see I owe alternative minimum tax of 6k and Self employment tax of 24k so I guess I just answered my own question.

 

Any tricks to avoid all these taxes?

I have a 401k plan that allows Roth contributions so I max those out.  Should I stop doing that to lower my taxable income by 18K?  Would that even make a very big difference in what I owe?

 

Grrrrr….tax time.  How I wish I could be smart like WCI and get down into a lower tax bracket!

 

Click to expand...

What are your tax deferred retirement accounts? If youre self employed you should be in a i401k or SEP IRA and putting 53k in tax deferred. Then you can use an HSA for another 3k+. Are you contributing to something without getting the tax deferred in first? The 53k would come right off the top and be awesome for you.

That bill is nuts, its similar to mine. Being single is painful tax wise though the decreased expenses add back of course. Your taxes should be dead simple. You probably arent deducting enough. You know you can deduct every penny of healthcare costs, etc...lots of things to deduct if SE.

[Amyolin]

I'm a partner and have 401k with Roth component.  I max that at 53k but I'm assuming that the 18k that goes into the Roth doesn't help lower my taxes.   I have a defined benefits and put 30k in there.   I max my HSA, I do the back door Roth, and I simply don't have a lot of write offs each year.  Aside from moving out of California, not sure what else I can do to lower my taxes.

[jhwkr542]

To clarify, you're using the Roth 401k and not the traditional 401k for 18k? In a 33% tax bracket, that seems like a good place to start ($6k+state taxes).

[Zaphod]

Amyolin wrote:

I’m a partner and have 401k with Roth component.  I max that at 53k but I’m assuming that the 18k that goes into the Roth doesn’t help lower my taxes.   I have a defined benefits and put 30k in there.   I max my HSA, I do the back door Roth, and I simply don’t have a lot of write offs each year.  Aside from moving out of California, not sure what else I can do to lower my taxes.

Click to expand...

Dont put anything into the roth until the 53k is maxed out, that 18k is as @jhwkr542 said 6k. I dont see how you pay so much in taxes, are the single rates really that bad? Fwiw, Im in Cali as well, made a bit more, and had less tax deferred space than you but paid the same. Also, the math doesnt work very well, you're saying you have 30k in dbp, 3k in HSA and 35k in 401k should be 68k off the top in addition to whatever else you can manage...maybe your group pays the 35k as a benefit? All in all thats not bad, but definitely put the 18k into regular portion first. If you want to save more then do the roth thing, I believe, not an expert in that move.

The only other thing is to get married, but that tends to only amplify expenses. Other than that, some times you dont have too much in write offs and not a lot you can do. You may be able to put a larger amount into the dbp up front, that would help. Then you can later close and roll it to a 401k.

[The White Coat Investor]

Is it payroll taxes? State taxes?

[Amyolin]

I owe 101k to Feds and 19k to the state!

 

I don't think I have payroll taxes but that self employment tax is a big one (24k) and AMT is 6k.

Looking closer at my return (which has yet to be submitted) I'm seeing more curious things.  There is a 5500 taxable pension and I'm really hoping this isn't the 5500 from the back door Roth recharacterized into the non-deductible TIRA.  That non-deductible TIRA should not be taxable, right?  I filled out the 8606 as if all I did were contribute to a ND TIRA so I'm not sure why this is showing up.

 

Argh...need to call my preparer tomorrow and need to start doing these on my own!

[Zaphod]

Amyolin wrote:

I owe 101k to Feds and 19k to the state!

 

I don’t think I have payroll taxes but that self employment tax is a big one (24k) and AMT is 6k.

Looking closer at my return (which has yet to be submitted) I’m seeing more curious things.  There is a 5500 taxable pension and I’m really hoping this isn’t the 5500 from the back door Roth recharacterized into the non-deductible TIRA.  That non-deductible TIRA should not be taxable, right?  I filled out the 8606 as if all I did were contribute to a ND TIRA so I’m not sure why this is showing up.

 

Argh…need to call my preparer tomorrow and need to start doing these on my own!

Click to expand...

Yikes! Thats crazy. SE taxes are your payroll taxes, thats the self part, fun! Something is off with your return, maybe your preparer isnt versed in the backdoor among other things. Time to start your own taxes, just get turbo tax and get entering, sometimes the defined benefits plan and such can get tricky but you'll figure it out, hurry up!

[ENT Doc]

"Tricks":

1. Move to a different state

2. Any more expenses that can be applied to your SE income?

3. Doing a tax deferred contribution as opposed to a Roth

4. Possible cash balance plan?

and most importantly....

5. Don't vote for dingbats who have a track record of raising taxes

[jfoxcpacfp]

Amyolin wrote:

There is a 5500 taxable pension and I’m really hoping this isn’t the 5500 from the back door Roth recharacterized into the non-deductible TIRA.  That non-deductible TIRA should not be taxable, right?  I filled out the 8606 as if all I did were contribute to a ND TIRA so I’m not sure why this is showing up.

Click to expand...

You're doing something wrong. Go back over the 8606.

Home office?

Mileage?

[Zaphod]

Couldnt she still open up a sep this year and contribute the 18k, then roll it over to work one later if it allows it?

[jfoxcpacfp]

Zaphod wrote:

Couldnt she still open up a sep this year and contribute the 18k, then roll it over to work one later if it allows it?

Click to expand...

Depends on her % ownership in the partnership. But she c/n contribute a 2nd $18k, only 20% of net profits.

[HikingDO]

ENT Doc wrote:

“Tricks”:

1. Move to a different state

2. Any more expenses that can be applied to your SE income?

3. Doing a tax deferred contribution as opposed to a Roth

4. Possible cash balance plan?

and most importantly….

5. Don’t vote for dingbats who have a track record of raising taxes

Click to expand...

I like #5 the best....