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Message
End of the year tax situation
Posted on 12/4/24 at 7:50 am
Posted on 12/4/24 at 7:50 am
Made about 75k gross and 35k profit on my side hustle this year. My wife is self employed and made about 40k net this year.
My wife drives a 2012 Escalade that we still have about 1.5 years to pay on with a 6% int rate. Should I sell it and buy a vehicle for the “company” to offset taxes? I’ve heard about putting a tiny deposit down and stretching the note.
Maybe contribute 7k each to Roth IRA?
Just pay the tax bill and keep rolling?
Give me your best tax options for this situation. I’d love to keep as much cash as possible due to rental properties and looking to add more business ideas in 2025
My wife drives a 2012 Escalade that we still have about 1.5 years to pay on with a 6% int rate. Should I sell it and buy a vehicle for the “company” to offset taxes? I’ve heard about putting a tiny deposit down and stretching the note.
Maybe contribute 7k each to Roth IRA?
Just pay the tax bill and keep rolling?
Give me your best tax options for this situation. I’d love to keep as much cash as possible due to rental properties and looking to add more business ideas in 2025
9
Posted on 12/4/24 at 8:02 am to BayouBengal23
Following. Would love to know boards opinion on this as I have a similar situation - I am W2, so no worries there, but my wife is 1099 and will make 65-70k this year. We have not been paying her portion of the tax bill quarterly so wondering if there are any write off situations we could explore. We file joint/married and 1 dependent, but I withhold single and 0 so I may have some surplus to cover a portion of her tax burden. So far she is only thinking to write off mileage and some business events like conferences etc. She is in the medical provider industry.
Posted on 12/4/24 at 8:09 am to BayouBengal23
quote:as a general rule anything you can do to increase company expenses to offset company revenue should be done before the end of the company tax year. If the company can legitimately purchase a vehicle for company use then you should definitely explore that. That goes for any dollars you would otherwise spend that you can expense to the company. The other thing you can do is accelerate next year’s expenses…if you have known company expenses for next tax year, prepay them in this tax year
Should I sell it and buy a vehicle for the “company” to offset taxes?
at 75K revenue honestly you should not be showing any taxable income. Have a tax expert advise you.
is the company taxed as C corp?
Posted on 12/4/24 at 8:41 am to BayouBengal23
A Roth isn't tax deductible. Why not put the moeny in a traditional IRA which you can use as a deduction? Then later in life you can do a Roth conversion.
Posted on 12/4/24 at 8:44 am to cgrand
If he hasn't paid taxes on his side job or on his wife's self-employed income this year he's going to have a pretty good sized tax burden.
Forget where it's from but this is an excellent tool to use to forecast your tax burden on 4/15/25.
AARP 1040 Tax Calculator
Forget where it's from but this is an excellent tool to use to forecast your tax burden on 4/15/25.
AARP 1040 Tax Calculator
Posted on 12/4/24 at 9:18 am to BayouBengal23
Maybe a SEP for the self.employed income to reduce current year tax burden?
Roths wont reduce tax this year, they are after tax but grow tax free.
Roths wont reduce tax this year, they are after tax but grow tax free.
Posted on 12/4/24 at 9:43 am to VABuckeye
quote:
If he hasn't paid taxes on his side job or on his wife's self-employed income this year he's going to have a pretty good sized tax burden.
Posted on 12/4/24 at 12:07 pm to BayouBengal23
quote:
I’ve heard about putting a tiny deposit down and stretching the note.
A lot to unpack with your post but my philosophy is don’t spend $ (new vehicle) to save a % of that, unless you need that asset anyway.
Was current vehicle depreciated? If so, you’ll potentially have a gain and tax if you trade it or sell it.
Posted on 12/4/24 at 12:08 pm to cgrand
A leased vehicle exclusively for company use might be worth a look.
Vehicles can be a source for auditing along with home offices. The vehicle and the office must be almost exclusively used for business.
Keep records.
Business expenses are not as simple as some people think. You just can’t say “I’m buying this car for my business” and deduct freely. If you pay cash, you might have to use a schedule to depreciate and all that entails. Lease might be fully deductible for the lease payment in a given tax year.
I’m not an accountant or lawyer.
Check with one.
Vehicles can be a source for auditing along with home offices. The vehicle and the office must be almost exclusively used for business.
Keep records.
Business expenses are not as simple as some people think. You just can’t say “I’m buying this car for my business” and deduct freely. If you pay cash, you might have to use a schedule to depreciate and all that entails. Lease might be fully deductible for the lease payment in a given tax year.
I’m not an accountant or lawyer.
Check with one.
Posted on 12/4/24 at 12:15 pm to oysterpapi
quote:
We file joint/married and 1 dependent, but I withhold single and 0 so I may have some surplus to cover a portion of her tax burden
The withholding tables suck.
You probably need to have withheld at least 24% of hers at minimum. She owes 15% on social security tax and will pay your marginal rate on state and federal income taxes.
So the FICA alone is 10,000. The state depends where you live.
The fed income tax will be at your marginal rate and will likely be 24% if you have a decent income.
So that’s another 17,000 or so.
Bend over. You owe a bunch.
I withhold an extra 1000 per month for fed taxes at my W2. My side business gets about 70,000, but I’m maxed on FICA so just paying the marginal stare and fed income.
Setting up a solo 401k may be a good idea assuming she has no employees
This post was edited on 12/4/24 at 12:16 pm
Posted on 12/4/24 at 12:25 pm to makersmark1
The combined traditional IRA deduction for them is $14000. I'd rather have that in an account and growing than pay it out on 4/15/25.
His wife can also deduct 1/2 of her self-employment tax and 100% of her health insurance premium if she's the one paying for her health care.
There are deductions to ease the pain possible but as you said, it's a hefty tax bill to try to offset.
Of course, the OP has told us nothing about taxes paid on his side gig or by her business throughout the year.
His wife can also deduct 1/2 of her self-employment tax and 100% of her health insurance premium if she's the one paying for her health care.
There are deductions to ease the pain possible but as you said, it's a hefty tax bill to try to offset.
Of course, the OP has told us nothing about taxes paid on his side gig or by her business throughout the year.
Posted on 12/4/24 at 12:27 pm to VABuckeye
quote:
There are deductions to ease the pain possible but as you said, it's a hefty tax bill to try to offset.
The solo 401k would let her contribute as employer and employee.
I had one years ago when I was not W2 at all.
Seemed like I got a pretty hefty amount as employer after my maximum employee contribution.
Posted on 12/4/24 at 12:52 pm to BayouBengal23
quote:
My wife drives a 2012 Escalade that we still have about 1.5 years to pay on with a 6% int rate. Should I sell it and buy a vehicle for the “company” to offset taxes? I’ve heard about putting a tiny deposit down and stretching the note.
You don't make enough money for car payments on cars that old. And no, spending 90k on a new ride to saves 30 cents on the dollar isn't a good idea "just because."
quote:
Maybe contribute 7k each to Roth IRA?
This doesn't save a dime of taxes today. It's tax free when you pull it out in retirement.
quote:
Give me your best tax options for this situation. I’d love to keep as much cash as possible due to rental properties and looking to add more business ideas in 2025
How many rentals do you own?
Posted on 12/4/24 at 1:18 pm to BayouBengal23
Look up the Augusta Rule. Up to a $21k expense for your business and tax-free income for your personal income. Some accountants don't like it. Other love it. It's your decision to weigh the risks. Anecdotally, a colleague got audited last year and his Augusta Rule stuff came up in it. He provided the lease and receipts and the IRS said "cool, on to the next item."
Posted on 12/4/24 at 1:40 pm to makersmark1
Okay "sort of" hijacking the thread here but I think OP has received a lot fo good feedback so far. Now that I am thinking about it, wife was on W2 for half of the year and on 1099 for only the last 6 months of the year in which she will make approximately 30-35k. So this helps my tax burden... Not as bad as I was originally thinking, but what are ways to off set the tax burden in this situation?
Posted on 12/4/24 at 1:48 pm to oysterpapi
Your quarterly payments help a lot. Does she have a SEP? That's right off the top. Can she fund a tranditional IRA? Full credit for that potentially but your combined income comes into play. Remember, that she can write off 1/2 of her self-employment tax.
The calculator I linked is great to play around with to get the best result for your situation.
ETA: I suck at typing and had to correct mistakes.
The calculator I linked is great to play around with to get the best result for your situation.
ETA: I suck at typing and had to correct mistakes.
This post was edited on 12/4/24 at 1:50 pm
Posted on 12/4/24 at 1:58 pm to VABuckeye
No she works for a physician group in town so she is technically not a business owner - no LLC etc. We are probably going to have her swap back to W2 after this mess is resolved
Posted on 12/4/24 at 2:30 pm to oysterpapi
If she's 1099 now then she is self-employed.
Posted on 12/4/24 at 3:29 pm to cgrand
quote:
as a general rule anything you can do to increase company expenses to offset company revenue should be done before the end of the company tax year.
Terrible rule. Too many people get caught up on the tax number.
For every dollar you spend, you save at most 37 cents. So if you’re spending just to keep taxes down, you’re losing 63 cents.
Now if you already need to purchase something, yeah go ahead and spend it this year to get the deduction.
Posted on 12/4/24 at 3:33 pm to Weagle25
I think that's what he meant i.e. prepaying future expenses with cash now in order to increase expenses for this year and lower net income. It's just timing, but it makes a ton of sense to me.
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