A First For Fuskie

Financial Planning Tax Strategies
1

A funny thing happened as I was completing my 2021 tax preparation. TurboTax informed me that, for the first time in my adult life, my AGI was too high to qualify for an tax-deductible IRA contribution.

In part, this was largely because I actually worked a full year for the first time in the last 4 years, and in part because my CMF work for TMF increased in the last year, and there is no withholding there.

I was still able to itemize deductions, given my self-employment tax (as a freelancer for TMF), a small SEP IRA contribution (from my income as a freelancer for TMF), and generous (for me) charitable giving. but I also had about $1000 less in withholding (no Census work last year, which also meant no deductions for the business use of the FuskieMobile™).

Also, even through I am paying full price for my healthcare premiums through my full time employer and high deductible, I do not believe those premiums are tax deductible because they were paid with pre-tax dollars, and the prescriptions and doctors visits were paid out of an HSA account (whose contributions as well as Roth 401k contributions were already deducted in my W2).

What this means is that for the first time in a very long time, I owe federal taxes. Not just a little, but a sizeable chunk. Nothing I cannot handle, but still, a bit of a sticker shock. On the other hand, I get a refund on my state tax, which will offset about 8% of the federal tax due.

It also means I won’t be able to save my refund to pay for my property taxes next fall.

My question to you is, given that I worked full time from home (W2, no home office deduction), and given that I worked freelance for TMF (took a small home office deduction for the space where the computer I use for work is located, but not the whole office space because I use it for personal work as well), what might I be missing that could lower my federal obligation?

I plan on going through it one more time tomorrow, and am pretty sure I didn’t overlook anything, but I’m open to ideas.

Fuskie
Who also has to file a Form 990-N this weekend (and a California equivalent) for a professional association that he became the board chair of this year…

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Congratulations, Fuskie. Making too much money is usually called a high class problem.

Good luck finding a way not to pay. Too late now, but things like charitable donations can be used to reduce taxable earnings. Also prepaying expenses. There are probably more.

3

Yeah, I already maxed out what I can afford with charitable donations.

Fuskie
Who sees this more as a due diligence effort to leave no stone unturned and is resigned to having to give Uncle Sam his hard-earned money…

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Also, even through I am paying full price for my healthcare premiums through my full time employer and high deductible, I do not believe those premiums are tax deductible because they were paid with pre-tax dollars, and the prescriptions and doctors visits were paid out of an HSA account

Correct - medical insurance premiums paid through your employer are already pre-tax, and anything that is reimbursed through an HSA, an FSA is also already pre-tax. You only get 1 tax benefit per expense, so none of these expenses that were already given tax benefit are deductible. (That also means that any expenses reimbursed by the insurance company are not eligible for HSA or FSA reimbursement.)

Roth 401k contributions were already deducted in my W2

Ummm…Roth 401(k) contributions are after-tax, and therefore, should NOT be deducted on your W-2. The contributions will be noted in box 12 with code “AA”, and the contribution amount should be included in boxes 1, 3 and 5 on your W-2. If you had deductible 401(k) contributions, the code in Box 12 would be “D” (rather than “AA”) and the income would be included in boxes 3 and 5, but not in box 1.

My question to you is, given that I worked full time from home (W2, no home office deduction), and given that I worked freelance for TMF (took a small home office deduction for the space where the computer I use for work is located, but not the whole office space because I use it for personal work as well), what might I be missing that could lower my federal obligation?

I guess I would actually question that you took a home office deduction at all, unless it’s just for the 4 - 6 sq ft where your only for TMF work computer sits. Per the IRS https://www.irs.gov/credits-deductions/individuals/home-offi… you need to use the area “exclusively” for it to be deductible:

If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area.

After Dec 31 of the year the return is for, you are pretty much limited to making HSA and IRA contributions. Since you already said you can’t make deductible IRA contributions, you are limited to HSA contributions. IIRC, you have single coverage for your health plan. So, if you didn’t max out your HSA for 2021 at $3600 for single coverage (plus $1000 if 55 or older by the end of 2021), you could get some deductions for that. (If you had family coverage, you could contribute $7200 plus $1000 if 55 or older.)

AJ

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I don’t think you can deduct healthcare costs that are less than 7% of AGI. In any event, you good fortune on the income department did wipe out that potential deduction.

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Yeah, I know the Roth 401k contributions are not deductible. Had I realized I would owe this year, I still don’t think I would have changed that. I’d rather have the tax-free income in retirement, and frankly, I’m rebuilding a depleted Roth resources from my FUL™ days.

Fuskie
Who notes the good news is he just received a surprise 6mo contract extension, so hopefully that will last…

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